Emerging Markets: outflows slow; Lithuania prices 10-year notes; Eesti Energia postpones

By Rebecca Melvin

Concord, N.H., May 27 – The pace of redemptions in emerging markets bond funds slowed this past week with the latest outflows less than half that of the prior week, according to the EPFR Global Navigator.

Some investor appetite in the asset class returned along with others like U.S equity funds, which snapped their longest streak of outflows since the third quarter of 2019. But emerging markets equity funds recorded a third straight outflow for the last full week of May.

Heading into a long holiday weekend in the United States, new issuance in the emerging markets primary market remained scant.

Lithuania priced €650 million 2 1/8% notes due June 1, 2032 at 98.698 on Wednesday. The U.S. bond market was looking at a recommended early close on Friday, with U.S. financial markets to remain closed on Monday in observance of Memorial Day.

The Lithuania deal was smaller than the sovereign’s last offering of €750 million 30-year notes priced July 2021. Orderbooks for the new 10-year benchmark closed in excess of €820 million, including €50 million of joint lead manager interest, and the bond priced to yield 2.272% or mid-swaps plus 60 basis points.

Meanwhile, Eesti Energia AS, a utility based in Tallinn, Estonia, terminated its tender offer for €500 million 2.384% notes due 2023 (ISIN: XS1292352843), according to a notice this week.

The proposed purchase of the notes, which was announced May 16, was subject to the company pricing a new issue of notes, and the company has postponed that offering.

Elsewhere, Export-Import Bank of Korea (Kexim) priced €550 million green floating-rate notes due May 24, 2024 and €950 million 1.375% notes due Nov. 24, 2025, according to listing notices.

The notes are being listed on the Singapore Exchange effective on Wednesday. And Kodit Global 2022-1 Co. Ltd., a special purpose company owned by Korea Credit Guarantee Fund, or Kodit, priced $300 million 3.619% senior unsecured social bonds due 2025 (rating: Aa2), according to a listing notice and market sources.

Proceeds will be used to finance projects and assets consistent with Kodit's sustainability financing framework.

The bonds were issued on Friday and will be listed on the Singapore Exchange starting Monday.

Indonesia was talking two tranches of dollar-denominated Islamic bonds, or sukuk (expected rating: Baa2//BBB), according to a pre-stabilization notice.

The notes will be issued via Perusahaan Penerbit SBSN Indonesia III.

The five-year notes were being talked in the area of 4¾%, and the 10-year notes were being talked in the area of 5.1%.

CIMB, Deutsche Bank, Dubai Islamic Bank, HSBC and Standard Chartered Bank are managers of the Rule 144A and Regulation S notes.

Outflows slow

Emerging market bond funds saw another $2.6 billion flow out with local currency emerging market funds surrendering $3 for every $1 redeemed from their hard currency counterparts, but that was improvement compared to the previous week. At the country level, outflows from China bond funds exceeded $1 billion for the fifth straight week, and Russia bond funds recorded their first inflow since the third week of March.

The change in tone was linked to changing opinion regarding the trajectory of U.S. interest rate hikes. Fears of a 75-bps hike was replaced with cautious optimism that the slowing U.S. economic picture will stay the Fed’s hand in terms of rate hikes in the second half of the year, according to the EFPR update.

Meanwhile a new Moody’s report noted the Russia-Ukraine war heightens risks for emerging markets, with any escalation likely to put nearly 30% of emerging markets companies at higher risk of credit quality erosion compared to their developed world counterparts.

About 3% of developed market companies will face significant credit stress under our baseline scenario, rising to 8% for emerging market nonfinancial companies. And another 23% of emerging market companies are at risk in a downside scenario, with their main exposure through the effects of commodity price shocks and financial and economic disruption. Meanwhile, about 7% of emerging market companies will benefit from high commodity prices, according to the credit outlook report published by Moody’s Investors Service on Thursday.

“Exposure to the Russia-Ukraine conflict is relatively low in our baseline scenario but companies in emerging Asia have higher exposure. Chinese property developers drive this exposure. Their imminent refinancing risk was already present before the start of the conflict but financial market volatility has further disrupted access to funding for many speculative-grade companies,” Moody’s reported.

This past week, a subsidiary of Zhongrong International Holdings Ltd. sold $190 million 6.8% guaranteed notes due May 26, 2023, even as the company’s credit outlook dimmed. S&P revised its outlook on the holding company to negative from stable but affirmed the company’s BB- rating, according to a rating agency press release. S&P cited heightened investment risk, persistently weak liquidity and slow development of the asset management business amid rising interest rates.

The notes were issued on Friday and are expected to be listed on the Singapore Exchange on Monday.

The investment firm is based in Hong Kong.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.