From Romania to Lebanon, Frontier Markets Enjoy One International Bond Success After Another 2

Emerging and frontier markets finding success

Emerging and frontier markets have seen quite a bit of success in the past year, particularly when tapping international bond markets.

Saudi Arabia again found considerable success recently when it raised $9 billion in its maiden international sukuk bond issuance. Sukuks are bonds which provide returns in accordance with Islamic law.

The Kingdom had intended to raise $8 billion spread equally across two tranches: a five year note and a ten year bond. However, with an order book over $33 billion, Saudi Arabia decided to increase the size of the issuance by $1 billion, making it the largest issue of emerging market bonds in YTD 2017, outdoing the $8 billion issue by Kuwait.

Yield on the five-year note was set at 2.93% while that on the ten-year bond was 3.65% – both lower than expected.

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It was only in 2016 that Saudi Arabia approached international fixed income investors for the first time in history. The $17.5 billion issuance, which created history as the single-largest offer by an emerging market, was lapped up by investors.

This strong appetite has remained even though the sovereign rating of Saudi Arabia was downgraded earlier this year.

Other success stories

Saudi Arabia is not the only one finding favor with international investors who have bought a first quarter record of $179 billion in emerging market debt. Africa’s largest economy, Nigeria, has already issued bonds twice this year and has found strong appetite both times.

Lebanon approached international debt markets in March and got a 6.85% yield on a ten-year $1.25 billion bond when, according to Reuters, these bonds were being marketed at a higher yield of 6.95%. Its 15-year bonds were sold at 7% after initially being marked for 7.125% while the 20-year bonds were sold at 7.25%, 10 basis points lower than thought.

Romania is also just coming off of a successful bond sale which included a re-launch of a bond issued in 2015. The new 1 billion euro ($1.07 billion) 10-year bond saw a coupon of 2.375% and a yield of 2.411% – a historical low for this maturity. A bond issued for the same tenor in October 2015 had witnessed a yield of 2.845%.

In the next article, let’s look at one of the key reasons for the success of these fixed income issuances.

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