September 26, 2019 / 5:45 PM / 17 days ago

Tidal wave of emerging market debt setting new records

LONDON (Reuters) - What a difference a few weeks make. Developing countries were all but shut out of borrowing markets last month as global recession fears started to bite, but fast forward and September is challenging issuance records.

September tends to be a busy time of year anyway as borrowers look to lock in any funding they still need for the year, but this time a real tidal wave seems to have been unleashed.

On the sovereign side alone, Abu Dhabi has sold a $10 billion bond, Armenia a $500 million one, South Africa $5 billion, Ecuador $2 billion, Bahrain $2 billion, Uruguay $750 million, Kazakhstan 1.15 billion euros. Even troubled Lebanon says it has $2 billion in the works.

Record low borrowing costs help of course following Fed, ECB and Chinese rate cuts, as does a relative lull in the U.S.-China trade war.

But at more than $21 billion in total, it is more than double the $9 billion that EM governments sold during the last six Septembers on average, JP Morgan data shows.

For an interactive version of the below chart, click here

“It has been an exceptionally heavy week for issuance,” UBP EM macro and FX strategist Koon Chow said. “I think people are having a bit of trouble digesting it all.”

If that’s hard to swallow, ‘hard currency’ EM corporate debt issuance, including by state-owned firms, hit a new September record of $60 billion on Thursday.

The previous record was $53.9 billion in 2017, the JP Morgan data shows, while the average for recent years has been $36.4 billion.

Pictet Asset Management’s Guido Chamorro also points out that there is a separate record within that new record.

Mexico’s state oil firm Pemex finalised a massive $7.5 billion debt swap on Thursday. It was tagged onto a $7.5 billion sale of new bonds earlier in the week too and, bundled together, set a new $15 billion record for a “quasi-sovereign”.

It also landed it high up on the list of all time EM super issuances.

The record remains the $16.5 billion Argentina got when it returned to capital markets in 2016, while May’s $12 billion debut bond from Saudi Arabia’s state oil giant Saudi Aramco has been this year’s biggest single hit.

It is perhaps a reminder of the risks though that worries erupted last month that the likelihood of a new Peronist government in Argentina this year may lead to another major default there.

Pemex finances are also extremely stretched. It is already saddled with more than $104 billion of debt and Moody’s is considering stripping of its investment grade rating which would leave it as ‘junk’.

“It just shows that the market is still desperate and will do anything for a bit of yield even if they don’t like the story,” Pictet’s Chamorro said.

GRAPHIC: Sovereign issuance for top 25 emerging economies - here

Reporting by Marc Jones; Editing by Andrew Heavens

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