With the markets in a tailspin in early March because of Covid-19, one notable debt segment that saw a rapid recovery was the CEEMEA (Central and Eastern Europe, Middle East and Africa) capital markets. A report from BNP Paribas CIB has explored the reasons for this.
With central banks stepping in to provide liquidity and macroeconomic stability, issuers in the region - particularly sovereigns, which are seeking to plug a gaping fiscal gap - have seen significant investor inflows in search of higher yielding assets.
The result? A record year to date for debt capital markets volumes in CEEMEA. Central and Eastern European issuance alone has already surpassed the supply for each of the past five years.
The region's success further underscores the major role that banks play in facilitating liquidity in the markets during periods of market distress. They provide market advisory to issuers to tap pockets of liquidity across the yield curve - and ultimately give investors and issuers alike the confidence to buy and sell new issues.
Spotlight on the market: highlights from H1 2020
The Republic of Slovenia reopened the CEEMEA debt market for sovereigns following the outbreak of the pandemic with a €1.1bn dual-tranche deal on 24 March, the first from the region in over a month. In the Middle East and Northern Africa (MENA), meanwhile, Mamoura reopened the market with a US$4bn deal, which became the first corporate issuance from the region since the outbreak, with the largest order book ever for a Reg S-only transaction from the emerging markets. It was also the largest US dollar-denominated Reg S-only corporate issuance from throughout the emerging markets. BNP Paribas was lead manager on the transaction.
The market for Middle Eastern and Central Eastern Europe government debt in particular gathered momentum, given the greater investor appetite for higher-grade issuers. In giving the wider CEEMEA market the jolt it needed, lower grade issuers were then able to take advantage.
Notable sovereigns that entered the fray included Serbia's €2bn 7-year bond in May, marking the largest ever single-tranche euro issuance by a sub-investment grade sovereign from the CEEMEA region, and the second largest in the emerging markets overall. It was also the first sub-investment grade emerging markets euro sovereign following the Covid-19 outbreak.
Romania followed up with a €3.3bn dual-tranche bond that gathered investor interest topping €12.4bn - a record for Romania - in May against a background of persistently volatile markets. Meanwhile, Abu Dhabi's €3bn triple-tranche transaction was the first in emerging markets sovereign space in the last five years to price a benchmark tap with a negative new issue premium, meaning it was priced more favourably than the country's outstanding debt. At US$20bn+, it was the largest order book seen for a tap deal in this segment in the last five years.
Spotlight on BNP Paribas in CEEMEA
BNP Paribas' CEEMEA debt capital markets (DCM) team played a role in driving forward the region's recovery from COVID-19 in 2020. The bank has advised and helped issuers place more than US$37bn of sovereign debt in the region. It was active on one-third of all sovereign debt raised in the first half of 2020.
Overall, the bank has lead-managed a total of 22 transactions in the region between January and June, amounting to US$42.6bn in bond issuance and representing approximately 30% of the entirety of CEEMEA supply.
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