Size matters in the CEEMEA primary bond market, which seems to have shrugged off March’s banking crisis. But betting that this lasts all year is a mug's game and issuers like Poland, which have gone for record breaking size on their syndications, should be applauded for doing so.
Poland’s $5bn dual trancher on Tuesday was its biggest ever on international markets. Turkey has also broken an individual record this year, and Saudi Arabia in January took $10bn in a single outing.
Getting as much done as possible early this year is a smart strategy, because it relieves pressure to fund later on. There was a sense earlier in 2023 that it would be wise to borrow early in what could prove a tumultuous year — and that was before Silicon Valley Bank or Credit Suisse showed any serious signs of going under.
Borrowers that took advantage of markets when they could can now spend more time preparing for the future, as Poland is with a planned return to the yen market. It does not envisage any more dollar or euro issuance this year.
Whether or not there will be any further bank runs, the US and other major economies may well fall into recession and the monetary policy path for the world's leading central banks is still unclear as inflation is proving tough to crack.
While expectations that interest rates will peak at a lower level than first thought might seem a boon for EM borrowers, this has come about for all the wrong reasons — lack of confidence in banks and all the market instability that comes with it.
Issuers with big funding needs do not want to find themselves needing billions if the primary market shuts down again.
Turkey is one such issuer that needs to hit the market — it requires $10bn from the debt markets this year — and has plenty of its own problems to contend with beyond the global economy's travails. It is expected to try a deal before its May elections, which could result in more of president Recep Tayyip Erdogan's approach to economic policy, which investors believe is unsustainable, or a fresh government with a lot to deal with in its in-tray.
Poland is locked in a dispute with the EU over the primacy of the rule of law, which means the EU is withholding tens of billions of euros of funding. While investors expect Poland to get that funding, it is not a given.
And for Saudi Arabia, oil prices have fallen close to its break-even level. It is still in a position of great financial strength but that may not last, particularly if recession hits and brings oil prices even lower. Getting $10bn done in January may end up looking a very smart move.
Hazards crop up for issuers of all types, not just in the emerging markets. Just ask the UK’s Debt Management Office, which had to deal with the capital markets fallout from the disastrous autumn mini-budget last year.
By getting a big chunk of funding done early in the year, the CEEMEA sovereigns that took size have been smart to alleviate funding tasks that could easily have become burdens.