The EEA primary market suffered another huge blow in 2009. The once prolific CIS banking pipeline dried up, while most blue chip corporates with access to the market found it cheaper to secure funding elsewhere. Although the sovereign market has reopened, non core countries have to pay up for the privilege. It all meant banks were competing for a radically reduced pool of deals, as John Weavers reports.
Eastern European and African Eurobond issuance dried up dramatically in the first half of 2009. A mere ten deals printed in the region, raising a little over US$9bn. Only three of those deals came from outside the sovereign space.
It is a quite dramatic decline since the same period in 2008, when 30 transactions worth more than US$20bn came to market. But that was a period dominated by hefty bank and corporate supply out of Russia. That supply has now almost completely disappeared. The Russian state has not shirked from using its vast financial firepower to assist troubled quasi sovereigns and favoured private credits. The availability of cheap funding from the central bank and state development bank VEB has enabled many blue chip names to bypass the international markets altogether.
Two of the region's biggest sweet spots of recent years – Kazakhstan and Ukraine – have been comprehensively derailed by a severe banking crisis and economic meltdown respectively, further undermining the available business for the banks.
So a combination of collapsing secondary market prices and diminished investor appetite has left syndication desks scrapping for what little business is still available, plus any liability management work going around.
It is difficult to make heroic statements about bookrunner performances on the back of ten transactions. But several of the ‘usual suspects’ have maintained high positions in the EEA league table. Citigroup, Credit Suisse and JP Morgan hold three of the top four places – though Credit Suisse's number one position is a little misleading, being a product of a sole deal for Gazprom.
But Barclays Capital, HSBC and BNP Paribas picked up market share in H1 this year, often on the back of a very small number of deals. BNP Paribas, for example, completed only three – the largest number of any bank in the region – one of which was also Gazprom, specifically its Swiss franc debut on April 2 for SFr400m (US$456m).
Barclays Capital and Citigroup were joint bookrunners on the only other bond for the period outside the sovereign space: Russian Agricultural Bank’s Eurobond on June 4, the first such deal from a Russian bank in amost a year. The US$1bn five-year 144a/Reg offering was well received.
In the sovereign space Citigroup and HSBC picked up one of their two deals each from Turkey on January 9, in a deal worth US$1bn. On April 30 Bank of America Merrill Lynch and JP Morgan picked up 100% and 50% of their business respectively on its second and final deal of the period, raising US$1.5bn. With those two deals the sovereign made large inroads to its reduced annual international bond issuance target of US$3.7bn.
Barclays Capital, JP Morgan and Absa Bank snapped up South Africa’s US$1.5bn 10-year Global on May 19, concluding a two-year absence. Scarcity and diversity value helped secure an impressive book of US$7bn.
Other deals were sporadic, and often unspectacular. BNP Paribas, Deutsche Bank and UniCredit took advantage of the Republic of Croatia’s first visit to the Eurobond market since 2004, launching a €750m 6.5% long five-year, priced at mid swaps plus 360bp – a deal that slumped in the secondary market.
Citigroup, Credit Suisse and RBS handled the delayed €500m 9.375% five-year issue from the Republic of Lithuania. HSBC sole led FYR Macedonia’s €175m long three-year Reg S offering three weeks later, which, alongside Turkey, concluded the London-based bank’s business for the quarter.
So the fortunes of banks were made or broken by their ability to snap up whatever deals were on offer, no matter how small. HSBC’s two deals saw it into sixth spot in the league table. RBS, on the other hand, failed to register in the EEA space.
The biggest casualty, however, appears to be UBS. It has not arranged any deals, even in Swiss francs. Its commitment to EM is clearly in serious doubt, after it lost syndication managers Jonathan Brown and Simonas Eimaitis in recent months.
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