Daily Management Review

AS EMs eye Debt Markets, Saudi Arabia Gears up for International Bond Debut


09/22/2016




AS EMs eye Debt Markets, Saudi Arabia Gears up for International Bond Debut
As policymakers aim to boost public finances in the face of low commodity prices, a flurry of frontier market countries are looking to tap the international bond markets.
 
In what Capital Economics says could be a record-breaking deal, for the first time Saudi Arabia is expected to issue debt on the international market next month.
 
"Argentina got the ball rolling earlier this year when it sold $16.5 billion of dollar bonds, the largest amount ever issued by an emerging market sovereign. This may soon be usurped by Saudi Arabia," economists Liza Ermolenko and Jason Tuvey said in a report on Wednesday.
 
While Nigeria plans to raise $1 billion from a bond issue slated for this year, this month a $750 million international bond with a yield of 9.25 percent was launched by Ghana.
 
And it is no coincidence that both the African countries are producers of crude oil just like Like Saudi Arabia.
 
"Selling bonds on the international market will help many of these countries cope with the fallout from lower commodity prices," Ermolenko and Tuvey said.
 
"Crucially, as well as financing budget deficits, the dollar revenues can be used to plug current account shortfalls, which would help to shore up currencies and stem the bleed of foreign exchange reserves. In the case of Saudi Arabia, the bond sale, alongside ongoing fiscal austerity, adds to the reasons to think that the Kingdom can adjust to low oil prices without abandoning the dollar peg," they added.
 
According to media reports, even the small state of Papua New Guinea attempted to drum up investor interest in an international bond this year even as the smallish country is now another oil-producing country and enjoyed its first full year of gas production as early as in 2015. However, political instability and corruption allegations have stymied  the previous attempts by the country.
 
Analysts are of the view that Nigeria’s prospects appear to be more promising. Prospective investors had shown interest in the bond "even without (the government) asking" the country’s Finance Minister Kemi Adeosun told CNBC Africa last week.
 
The Nigerian government is trying to reduce borrowing via Treasury bills and increase it via bonds and international markets as it is predicted that the economy is set to contract in 2016 for the first time in 21 years.
 
And investor demand seems to be in place for the right deal. According to media reports, Russia's Finance Ministry reopened the books for its international bond launched in May on Thursday. Amid high investor demand and a need to close its budget deficit, it plans to top up the $1.75 billion issue with a further $1.25 billion.
 
(Source:www.cnbc.com) 






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