Emerging sovereigns set for borrowing binge but weaker names struggle

* Scramble to borrow after COVID-19, oil rout
* EM sovereign sales could hit record -banker
* Investment-grade names to tap multiple times
* But weaker nations to struggle without help

By Tom Arnold
LONDON, April 29 (Reuters) - A flurry of international debt
issuance by investment-grade emerging market sovereigns in 2020
should help offset a dearth of sales by lower-rated names,
barred from capital markets until they can muster support in the
form of debt relief or emergency funding.
Gulf governments such as Qatar, Abu Dhabi and Saudi Arabia,
have provided a significant chunk of 2020 bond sales so far,
accounting for around half of the sovereign emerging sales as
they scrambled to raise cash to plug budget shortfalls caused by
plunging oil prices. Israel and Indonesia have also raised money in the wake of
the COVID-19 outbreak.
With $100 billon already issued year to date, despite a
drought in March, emerging sovereign debt issuance could surpass
the record of $178.3 billion in 2017, said Stefan Weiler, head
of Central and Eastern Europe, Middle East and Africa debt
capital markets at JPMorgan.
"If the market is supportive and there are no setbacks with
respect to the virus infection rates and the loosening of
restrictions on economies therefore continues to unfold as
currently anticipated, I expect that market access will broaden
and sovereign issuance further accelerate," he said.
"The low interest rate environment should again drive
investors to emerging markets and sovereigns - being the most
liquid - will benefit first."
Much of the issuance is expected to be driven by
investment-grade names repeatedly tapping the market. Israel has
issued more than once this year, for example. Saudi Arabia has said it could borrow around $26 billion
more this year, while Kazakhstan plans to borrow $3 billion on
foreign capital markets. With yields higher than at the start of the year, borrowers
have paid a premium to issue. And with institutional investors
looking to lock in juicy returns, longer-dated issues have
proven popular.
Israel this month sold $1 billion of 100-year bonds, while
Indonesia raised $4.3 billion, including a 50-year tranche worth
$1 billion. GRADE STRUGGLE
A glimmer of light for high-yield names emerged last week
when BB-rated Guatemala and Paraguay both issued, with the
former drawing some $8 billion in demand for its $1.2 billion
issue. But other lower-rated countries may struggle to issue as
investors prove more selective.
"In the BB-rated space, some countries are likely to get
access," said Sara Grut, Goldman Sachs emerging markets
strategist. "Oman would be a country that might struggle to come
to market. Oman will have an external funding gap this year, and
would need to get funding elsewhere, but under the current low
oil price environment, it would be difficult for the country to
access the international market."
Oman will likely require support from its wealthier
investment-grade neighbours or a recovery in oil prices, Grut
said.
Bahrain, which received $10 billion in support from Saudi
Arabia and other Gulf states in 2018, will likely require
additional support in 2020, Grut noted.
International debt markets are expected to remain off limits
for single-B rated oil exporters such as Nigeria and Angola.
"For sub-Saharan Africa, it becomes more difficult to issue
as they are more vulnerable" from a fiscal perspective, said
Citigroup emerging market strategist Luis Costa.
This month, G20 governments agreed to freeze around 77
poorer nations' debt payments for the rest of the year, while
the IMF is seeking some $18 billion in new resources to help
further. "Before single-Bs can come back to the primary market, there
are three things they need to think about. IMF emergency
funding, and debt relief from the G20 and Chinese," said Andrew
MacFarlane at Bank of America, referring to the large amount of
debt African nations owe China.