After two rotten years, the CEEMEA primary market was extremely active in 2024. If that was a case of the market getting off its knees, the return of issuers looking to sell hybrid bonds this week suggests not only that life is fully back to life.
Abu Dhabi-based Aldar Properties found big demand as it issued a hybrid bond on Wednesday, while Africa Finance Corporation is looking to price its own next week. No CEEMEA-based borrowers had issued hybrid bonds in either 2023 or 2024.
Hybrids are subordinated instruments that combine elements of debt and equity, making them a riskier prospect for investors than regular bonds.
They are very rare beasts in CEEMEA, with the last one having been priced in mid-2022 by another property firm in the Gulf, Majid Al Futtaim.
Aldar is only the third company from that part of the world to sell one and there has never been one from Africa. Emerging markets investors have had few chances to buy them and few opportunities to study and understand the structures.
In EM, there have been $5.6bn of corporate hybrids since the start of 2022, according to Dealogic — less than half the $12.9bn priced in 2021 alone.
Therefore, for two to come in the first week of the year is significant.
Firstly, they are largely a bull market product, and high interest rates since 2022 had snuffed out most of the hybrid issuance in EM. That investors are willing to put chunky orders for riskier bonds is an encouraging sign.
Moreover, companies tend to do them for a specific reason, and they are not cheap to issue. These deals point to a market that is, again, there for the entities it is supposed to serve.
This means there is unlikely to be a sudden rush of deals, and one swallow does not make a summer. But CEEMEA bond market participants should still be encouraged by what it says about the state of their market.
Today may not feel like the glory days of near zero interest rates, when any deal put on the screen would find an uninterrupted path to success. But the emergence of hybrids when base rates are still elevated is, if anything, more impressive.
It sets a promising tone for CEEMEA bonds in 2025.