sovereign debt

The rush by African sovereigns to issue in the Eurobond market is creating problems. When interest rates in the US eventually rise, the burden of servicing new Eurobond interest payments will also rise. Any new issuance will also likely be priced higher. Adding to the burden of higher debt servicing costs, the low oil and commodity price environment is reducing export revenues – the very revenues that sovereigns need to service debt.

Some sovereigns (and possibly some corporates) could struggle to meet private creditor debt service payments, which would increase roll-over risk, ushering in a new era of debt relief. Read more

By Timothy Ash of Standard Bank

Emerging Europe has led the way so far in 2014 in new eurobond issues, with successful issues now from Poland (€2bn 10Y), Latvia (€1bn 7Y) and then Romania ($1bn each in 10Y and 30Y). All three deals were priced to sell and have performed well since issuance, with Poland 10Y rallying 75 basis points, Latvia the star rallying by 175bp, and Romania trading relatively well so far today (15bp tighter).

Each of these credits has good individual selling points. Read more

Africa is at the forefront of bringing financial services to the “unbanked” and new opportunities to seasoned investors. In Monday’s FT special report on Africa Banking and Finance, our correspondents examine the continent’s enormous potential and challenges, writes Justin Cash.

Africa editor Javier Blas looks at the growth of sharia-compliant investments across the continent, whilst Anousha Sakoui assesses bright new prospects for M&A activityRead more

A bit of good news for Egypt: rating agency Standard and Poor’s upgraded the country’s credit rating on Friday on foreign long-term borrowings to ‘B-’ from ‘CCC+’.

In other words, Egypt is considered as now having the capacity to meet its financial oblogations, as opposed to being “vulnerable”. Up is the way to go. Read more

African growth is soaring away, as anyone who has looked at the IMF figures can tell you. Meanwhile, governments are able to tap the international debt markets, as investors are still willing to snap up bonds from established and first-time issuers.

So credit ratings should be on the up too, shouldn’t they? If debt is backed by growth, doesn’t credit risk decrease? Not so fast, says Standard and Poor’s. Read more

Time will tell whether Franklin Templeton’s bold $5bn bet on Ukrainian sovereign debt will pay off as handsomely as the US money manager’s play on Ireland in prior years.

We may not have to wait long to find out, judging by the rate at which Ukraine’s central bank reserves and economy at large are deteriorating. Read more

Credit rating agency Standard & Poor’s downgraded Ukraine’s long term foreign debt to ‘B-’ from ‘B’ on Friday, citing the government’s “lack of strategy” to secure foreign currency funding.

S&P’s outlook on the country remains negative, meaning that Ukraine could slip into the ‘C’ range. Read more

What do you do when you get downgraded by a major credit rating agency, citing deteriorating government finances and macroeconomic policies that “could deter investment”?

Issue more debt! Or at least that’s the possible plan from Zambia, once a credit darling issuing a eurobond at 5.75 per cent (cheaper than Spain, as everyone noted at the time), but now rated just ‘B’ by Fitch after a downgrade on Monday. That’s the same level as on-the-brink Ukraine, and just one notch above Greece, Egypt and Argentina. Read more

Florian von Hartig of Standard Bank

With nearly two months of the issuance calendar remaining until year end, African sovereign issuers have raised nearly double the amount of funding ($6.35bn) in the eurobond market compared to 2012.

While still representing a sliver of the total EM sovereign issuance in cross-border capital markets, African sovereigns – both seasoned and first-time issuers – are offering international fixed income investors a compelling investment case when confronted with insipid recovery and low rates offered from developed markets, lingering peripheral eurozone debt woes, and overall weariness towards undifferentiated traditional EM sovereign plays. Read more

It was not a downgrade but Moody’s decision to cut its outlook on Brazil’s sovereign rating was something of a blow for Latin America’s largest economy.

Given the problems that India has been having with its plunging rupee and widening fiscal deficit, is there any reason to think that India could be next in the firing line? Beyondbrics spoke to Atsi Sheth, a senior credit officer at Moody’s, to hear her views on Asia’s third largest economy. Read more

Few expected September to be a record month for sovereign debt auctions. Ever since the US Federal Reserve first hinted in May at a possible “tapering” of its massive bond buying programme, emerging market countries have found borrowing much tougher and more expensive. Borrowing costs soared and issuance shrunk accordingly.

But then Fed decided to keep the printing presses whirring and EM yields settled down a bit. Not surprisingly countries took the opportunity to issue debt. The result? September ended up being the best month for EM sovereign debt issuance this year. Read more

Russia is worried about the level of foreigners owning its debt, it seems. According to Bloomberg, the head of the central bank’s financial stability department, Vladimir Chistyukhin, told reporters “We don’t consider the situation to be critical at this point… At the same time, we do see potential risks.”

Foreign investors at the start of July owned 30 per cent of outstanding debt – around 930bn rubles. That’s up from 7 per cent a year ago, and 21 per cent at the start of February. Which prompts the questions – should the bank worry? And what has sparked the increase?

To which the answers are: “No”, and “the central bank”. Read more

Whether the global capital flows of the last few years are ended or just temporarily disrupted, here’s a reminder of what investors should be looking out for when it comes to emerging market companies’ debt.

According to Moody’s, it is sovereign risk, the strength of local financial markets and corporate governance. Read more

The Philippines has some news to cheer: Standard & Poor’s, the rating agency, has bumped up its credit rating one notch to ‘BBB-’.

Which means it has become the second agency after Fitch to put the country’s long term foreign debt at investment grade. One is good news; how significant is two? Read more

We need more than that

Belarus is in a tight spot. The country has reached a peak in foreign government debt repayments and it needs $3.1bn to repay its earlier loans and sovereign eurobonds. This is a substantial amount of cash, taking into account that as of April 1, the country’s international reserve assets stood at just $8.1bn.

So what are the options? Read more

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That’s how Ian Bremmer of Eurasia Group (and an FT columnist) reacted to news that Fitch Ratings lowered China from AA- to A+ on Tuesday. There were plenty of other worried and puzzled reactions. But how great a worry is it really? Read more

The final judgement in the legal battle between hedge funds and Argentina is on the horizon – a case that is pivotal to the sovereign debt market. Robin Wigglesworth, capital markets correspondent, discusses with Michael Stothard whether the outcome could trigger another Argentine default.

In October last year, beyondbrics wrote of a sub-Saharan debt rush – partly based on Zambia’s successful issue, and on investors’ hunt for yield and diversification.

But now there is now talk of “original sin” – excessive borrowing in non-domestic currency; yields have increased and spreads have widened. What’s going on? Chart of the week takes a look. Read more

A stable democracy, rule of law, rapid economic growth and almost all the other tick-boxes, plus new oil discoveries, have won Ghana a lot of fans lately.

So it’s worth paying attention to anything which goes against the sunny narrative (leaving aside its continued under-performance in the Africa Cup of Nations, which can now almost be taken as given). This comes in the form of two recent reports from rating agencies Fitch and Moody’s.
 Read more

Kazakhstan will issue 150bn Tenge ($996m) of eurobonds this year in its first venture onto international capital markets in over a decade.

The oil-rich central Asian country said it would take advantage of historically low foreign borrowing costs to help plug a budget deficit and set a benchmark for Kazakh corporates hoping to raise funds in 2013. Read more