Emerging market bond issuers are sometimes thought of as the neanderthals of credit. Me borrower, you investor. Me run away with money. That stigma persists even for issuers such as Romania, an EU member state that issues bonds frequently and mostly with good success over the last few years.
The lazy stereotyping belies the truth, which is that many in the EM universe of borrowers are thoughtful about when they issue, careful in terms of pricing and increasingly transparent. The asset class is growing in sophistication, even if not in terms of volumes this year.
Take the Romania bond last week. The country, rated Baa3/BBB-/BBB-, sold a dual tranche $1.75bn note, made up of a $1bn 5.25% November 2027 tranche and $750m 6% May 2034s.
It paid a generous 40bp-50bp new issue concession, but the notes still struggled in secondary trading.
Rival syndicate bankers and investors were quick to complain. They said it was Romania’s third international bond of the year and that it was “doing too much”. Or that Romania had paid up, but in doing so had shut the door for other EM issuers rather than opened it.
But Romania has $10bn of funding it needs from the bond market this year. Windows to raise money have been small, yet by some miracle it has managed to get three bonds done by moving as quickly as it could.
It has already secured $6.75bn of the money it needs. Should Romania have waited for a perfect market that may or may not come this year? That thinking runs entirely against what is expected of a sophisticated, sovereign borrower.
And yes, it did pay investors handsomely last week. But the traditional accusation thrown at EM borrowers in the past was that they gripped their purse strings too tightly, not too loosely.
Romania was pragmatic. That may or may not have encouraged other EM borrowers but that is not Romania's concern. Other borrowers should be grateful to have a pricing benchmark rather than deluding themselves that the market is more in their favour than it really is.
Then came the disappointment of the bonds trading down. It was a shame but that is the nature of markets. A $3bn order book and generous premium was preparation enough for the aftermarket. No deal can be guaranteed to rise immediately in the secondary market and plenty have not done so this year.
It is natural in a tough year to want to find something tangible to blame for a moribund primary market. But the idea that one, or a handful, of issuers can ruin the primary market when there is such a maelstrom of geopolitical and macroeconomic factors adversely affecting the market is outmoded thinking.
Rather, what the Romania deal shows us is the increasing ability and sophistication of EM borrowers in dealing with their funding needs. It is not the only example either.
This year for example, EM corporate borrowers are trying to get their first quarter financial results published for the first time to keep the pre-summer 144A issuance window open. That is a more determined approach than we’re used to from those borrowers, and also increases transparency for investors.
Sophisticated borrowers can get caught up in a storm just as well as unsophisticated ones. EM issuers will suffer greater buffeting than those in many other asset classes but that does not mean they are not developing.