Despite significant interest from the buy side, primary activity at the start of 2023 is unlikely to serve up the volume in the CEEMEA region that the market is used to seeing.
Market participants do not anticipate a revival of the CEEMEA market in the coming months despite buy-side appetite for deal flow. Corporate issuers are shying away from new deals because of high price tags for new borrowing, while sovereigns are already overloaded with debt in various regions and can only afford to issue new debt if absolutely necessary to meet budgeted expenses. Even the refinancing of impending maturities may prove difficult for African and Central and East European issuers.
The overall maturity wall until 2032 is evenly distributed, with a slightly higher concentration of debt due in the next five years, and 60% of this debt falling in the government sector. Sovereign debt maturity peaks in 2027, with USD 135bn coming due, compared with USD 99bn in 2023. The financial sector is the second-largest by volume of looming maturities, with USD 170bn due between 2023 and 2027, and hitting the USD 34bn mark in 2023 alone. The oil and gas sector is the third significant contributor to the coming maturity wall in 2023, with USD 15bn falling due.
Government issuers need to ramp up activity to rollover at least some debt due in 2023
During the first nine months of 2021, sovereigns issued USD 158bn of debt or 48% of all deal flow. By comparison, 9M22 was a dry period, with only USD 50bn worth of deals coming through. The oil and gas sector did not see even one-tenth of the volume issued last year, while the financial sector saw a 68% YoY contraction in volume.
Pricing on the up
Average prices on long-term senior bonds with over 20 years’ tenor soared to 7.3% in 2Q22 and 3Q22, particularly in Central and Eastern Europe, the CIS countries, and Africa. Gulf countries appear relatively unscathed by tighter fiscal policy aimed at reining in creeping inflation. Overall, pricing on primary debt continues to be deeply affected by Russia’s war in Ukraine, which has created instability and uncertainty, as well as the ability of individual countries to weather a looming recession.
Given that around 60% of the USD 181bn of overall maturity expected in 1Q23 is government debt, with two-thirds coming from Middle Eastern countries, we expect some USD 42bn of this debt to be refinanced, providing rates continue to be favourable for Gulf countries. We do not see any likelihood of Russian or Belarussian refinancings anytime soon, and this debt is currently viewed as distressed. Kazakhstani corporates also opted to tender notes due in 2031 and 2042 instead of refinancing following a decision by national rail operator Kazakhstan Temir Zholy to pull a deal in May because of high pricing and weak books.
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