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Capital Markets Weekly: Poland becomes first emerging market issuer of negative-yielding term debt

07 February 2020 Brian Lawson

On 4 February the Financial Times reported that emerging market issuance during January had reached USD118 billion, a record.

  • In 2019, the comparable total was USD70 billion.
  • Euro-denominated sales grew from USD7 billion equivalent in 2019 to USD19 in 2019.

On 3 February, Poland sold EUR1.5 billion of five-year 0% debt priced at -0.102%

  • The bonds were sold at 100.512%, priced at just 19 basis points over mid-swaps.
  • Demand reached EUR6.5 billion.
  • Given the relatively short maturity, bank buyers were most prominent, with 42% of demand, followed by asset managers with 37% and central banks with 17%. Hedge funds took 1%.
  • Domestic demand was quite sizeable, representing 22% of allocations.
  • German/Austrian investors took 20%, followed by the UK and Ireland with 15%, France (9%) and Benelux (8%). Middle Eastern investors took 11%.
  • The issue also was the first negative-yield sale by a non-Eurozone sovereign borrower.

On the same day, Ghana raised USD3 billion from a three-tranche operation:

  • It raised USD750 million of debt with a 40-year average life (41-year final term), priced at 8.9%.
  • Pricing was tightened from initial guidance of 9.125-9.375%
  • It also sold USD1 billion with an average life of 14 years at 8%, versus guidance of 8-8.5%.
  • A shorter-dated USD1.25 billion tranche with a six-year average life was priced at 6.375%, versus 6.5-7%.
  • Demand for the package reached over USD14 billion.

Province of Buenos Aires finally has decided to pay the full USD250 principal payment due on 26 January on its USD750 million 10.875% 2021 issue, after seeking to defer this to May:

  • Previously it had offered improved terms to its bondholders, proposing to pay 30% of the due sum, with the remainder to be deferred. The proposal expired on 4 February having required 75% approval.
  • Before the expiry, the Province claimed the support of its largest bondholder group but noted that some funds had "complicated positions" despite the Province's "intention to undertake good-faith negotiations over the full-scale restructuring of the debt".
  • Its bondholder steering group announced that its "significant holders … decided to participate in the Amended Consent Solicitation".

Alongside this, the Republic offered a debt swap, offering to exchange a USD1.6 billion dual-currency bond due on 13 February for new instruments due in 2021, but this attracted support from only 10% of its holders.

According to José Olivares, Head of Financial Markets at the Ministry of Economy and Finance, Peru is unlikely to enter the recent rush of sovereign issuance.

  • He noted the country has been "very active in recent years" and that "now we are looking at liability management exercises".
  • This process was being hindered by current price levels with outstanding debt "very expensive in dollars and Euros".
  • However, Peru "may do something in Euros" within this process.

Aeroméxico has sold USD400 million of five-year debt at 7%, versus price talk of low to mid-7% area. Proceeds will repay short-term borrowings and help modernization of its short-haul fleet.

According to Interfax news agency, Vodafone Ukraine, the country's second-largest mobile telecommunications operator, gained USD3 billion in demand for a USD500 million five-year deal priced at 6.2%. Proceeds will repay an existing bank loan.


A BBVA Research note highlights growth in Spanish usage of green Bond structures while forecasting that global issuance in 2020 will reach USD320 billion, while interest group Climate Bonds Initiative suggests this total is likely to reach USD350 billion or even USD400 billion.

  • The latest Spanish Green Bond issuer was Bankinter, with EUR750 million of seven-year debt at 0.625%.
  • Demand reached EUR3 billion.
  • Within 2020, electricity grid Red Eléctrica, rail network operator Adif and Telefónica, with the first Green hybrid, all have issued Green debt.
  • BBVA's study forecasts that European bank issuance will play a substantially expanded role in 2020.
  • It forecasts the development of sustainable Spanish mortgage bonds (cédulas hipotecarias) while noting that the Kingdom of Spain plans a debut Green bond this year with regular sales thereafter.

Climate Bonds Initiative (CB) notes the likelihood of new sovereign issuers:

  • It flags that Ahmen Kouchouk, Egypt's Deputy Minister for Fiscal Policies, had announced in Daily News Egypt on 20 January that Egypt has formed committees to study potential Green projects for the government.
  • He also noted that the cabinet had approved USD500 million of Green Bond issuance within fiscal 2019-20, implying potential issuance before end-June.
  • CB also mentions that Mexican Finance Minister Arturo Herrera has indicated potential green issuance in 2020 in a recent interview with Latin Finance.
  • On 29 January, Herrera stated that such a sale was "pretty much on our list" despite Mexico having largely covered its 2020 funding needs with dollar and Euro sales during January.
  • His comments also hint at possible use of the broader ESG bond structure, noting that investors "particularly …want to see in which sense it is going to be used", and whether this is "with…respect to the environment or…to social impact and social inclusion".
  • Chile became the first sovereign issuer from the Latin American region to sell Green debt in 2019, following this up with a further sale early this year.

Other debt

A Reuters report notes that European sovereign issuers sold EUR45 billion of debt in January, versus EUR48 billion in January 2018, but with record demand:

  • Total demand exceeded EUR270 billion, implying an unprecedented six-times subscription for each issue on average.
  • Market sources suggest part of this may reflect investor inflation of orders given the strong market environment, as investors push to achieve their desired allocations.
  • Another factor is reduced net supply: according to JP Morgan research cited by Reuters, Eurozone gross issuance is slated in 2020 at EUR764 billion, but with EUR574 billion of redemptions, net issuance is projected at EUR190 billion, the lowest level since 2008.

Our take

The issues by both Ghana and Poland are risk positive for the two countries.

  • While Poland's sale is relatively short dated, it is clearly an achievement for an Emerging Market borrower, howbeit one with sound investment grade ratings, to obtain term debt at negative cost.
  • Ghana has been subject to IMF supervision recently, with the latest Article IV consultation, in December 2019, stating that "the outlook for Ghana looks favourable".
  • The report suggested that Ghana achieved 7% GDP growth in 2019, and will average around 5% in coming years, helped by potential natural resource development.
  • The report "welcomed progress in debt management" deeming "rigorous implementation" of the 2020 Budget law as key to further progress.
  • Despite fiscal efforts, however, it notes that the total public sector deficit is likely to have reached 7% of GDP in 2019, including energy and financial sector costs: the headline deficit outcome is projected to have been 4.7%.
  • On this basis, the government debt stock would have reached 63% of GDP.
  • Given the still-precarious nature of Ghana's debt position, its ability to raise two tranches of long-term debt with heavy oversubscription is thus a clearly positive development.
  • We continue to welcome Ghana's use of amortizing repayment of principal, which spreads capital repayment and thus reduces refinancing risk.

At the last minute, the Province of Buenos Aires backed down from triggering full-scale formal default of its debt.

  • This is welcome, given the regional governor's Kicillof's past reputation as a Kirchnerist radical, and suggests that the national government is keen to avoid souring negotiations with creditors at this early stage.
  • The Province's inability to gain a qualifying majority for amended terms, even though these were accepted by its main bondholder group which held around half the issue affected, and the subsequent rejection of exchange proposals relating to a dual-currency sovereign domestic instrument, both indicate that creditor negotiations are likely to prove tough.

Posted 07 February 2020 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, IHS Markit


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