There’s a 10-week window that emerging-market borrowers don’t want to miss.
Between September and the U.S. elections in early November, bond issuers from Saudi Arabia to Russia, Brazil to Papua New Guinea, are poised to hit the market with tens of billions of dollars in new deals, setting the stage for one of the busiest periods since 2013 after a bumper April.
Borrowers may rush into the market for a final opportunity to raise money at historically low costs before the Federal Reserve increases interest rates and Americans vote in a divisive presidential campaign, potentially stoking volatility and undermining investor confidence. But the greater lure is the abundance of cash: money managers are reallocating funds to emerging markets at a record pace, creating the first net surplus in four years.
“September is expected to be busy, so is October,” said Elena Garcia Hernandez, a London-based associate director at HSBC Holdings Plc, the second-biggest arranger of deals this year and an underwriter for Saudi Arabia’s October sale. “Cash balances are robust versus historical holdings. For issuers, we currently do not see any impediments.”
Emerging-market sovereign dollar bonds handed investors 15 percent this year, and local-currency notes gave 6.3 percent, as major central banks extended dovish policies. Both groups are heading for a third monthly gain in August. Those returns are irresistible to investors fleeing $9 trillion of negative-yielding debt globally.
Emerging-market debt funds received a record $18.7 billion in July and mopped up $4.2 billion in the first half of August, according to EPFR Global. JPMorgan Chase & Co. expects the inflows to reach $40 billion in 2016. That would be a turnaround after three years of net outflows, when a combined $74 billion left emerging markets.
The renewed vigor with which investors are chasing higher yields is a lucky twist for issuers that have debt maturing next year. Emerging-market borrowers face $223 billion of redemptions in 2017, and many may opt to bring their pre-finance plans forward to prepare.
In May, investors bid almost $20 billion in Qatar’s $9 billion Eurobond sale, and the following month they demanded three times the offer at a 1.5 billion euro ($1.7 billion) sale by Indonesia.
“Conditions look very attractive for new deals,” said Sergey Dergachev, who helps oversee $13 billion at Union Investment Privotfonds GmbH in Frankfurt.
Saudi Arabia plans to sell at least $10 billion to help plug a budget deficit, while Kuwait is seeking as much as $9.9 billion and Bahrain hired banks for a third sale of Eurobonds this year. Brazil is considering a retap of 2026 or 2047 bonds and Papua New Guinea picked bankers including Bank of China to meet investors in London, Boston and New York.