EM debt sale plans revived as Fed holds

Governments in some of the world’s poorest countries are revisiting plans to sell billions of dollars of debt as the US Federal Reserve’s decision to hold interest rates at a record low gives emerging market borrowers a temporary reprieve.

Pakistan hopes to raise $1bn today in a sale of 10-year debt, the country’s first issuance of international debt this year. The yield on an existing 10-year bond maturing in 2024 is 7.3 per cent suggesting Lahore’s borrowing rate may be around 7 or 8 per cent. Albania, Iraq, Ghana and Ethiopia have all hired international banks to arrange meetings with prospective debt investors this month.

So-called “frontier” economies have been forced to check plans for market financing this year as falling commodity prices, China’s slowdown and the prospect of higher US interest rates sparked intense volatility in emerging markets.

Countries such as Ivory Coast and Egypt have raised $13.1bn through sales of international sovereign bonds this year, down from the record-breaking $21.6bn issuance over the same period last year, according to data from Thomson Reuters.

As waning investor demand pushed the cost of borrowing on markets sharply higher some countries were left unable to complete planned sales of debt.
Kurdistan’s hopes to make its debut on international capital markets this summer were scuppered by widespread emerging market volatility as well as deteriorating relations with Iraq.
Credit analysts say a similar fate is unlikely for the clutch of countries planning autumn sales of debt following the US Federal Reserve’s decision to leave interest rates on hold.
This week, Albania announced it had hired Deutsche Bank and JPMorgan to arrange meetings with investors in late September as the country continues a programme of economic reform following the agreement of a €300m International Monetary Fund programme in 2013.

Ghana plans to tap international debt markets with a $1.5bn bond sale following its $1bn agreement with the IMF to shore up its economy, while Iraq is planning its first dollar bond sale since 2006.