Emerging-Market Firms Lag In Latest Rush To Issue Bonds

Emerging-market sovereigns have tapped the market in earnest since the beginning of the year, taking advantage of select windows of opportunity, including the latest run of spread tightening.

But don't expect developing-world corporates to follow suit anytime soon - at least not until investors get a clearer picture of whether the global economy is on the mend or the recession will be longer and deeper.

Several emerging governments have tapped international markets since January, as markets have thawed a bit and spreads tightened. The stronger credits were all too eager to jump in.

Developing nations have sold $41.2 billion in hard-currency bonds so far this year, according to ING Wholesale Banking in New York. In the same period last year, they sold nearly $19 billion.

In contrast, emerging-market corporates have sold $14.6 billion in hard-currency bonds so far in 2009, also according to ING. That's a far cry from the $88 billion in hard-currency bonds issued the year before.

Moreover, that diminished amount includes bonds from state-controlled, quasi-sovereign companies such as Brazil's Petroleo Brasileiro SA (PBR), Russia's OAO Gazprom (GAZP.RS) and Mexico's Petroleos Mexicanos.

Other than these companies, which enjoy high marks from investors as they are fully backed by their governments, the emerging-market corporate issuance world has been sparsely populated.

Brazil's telecommunications company Telemar (TNE) is among the latest to tap, pricing $750 million in bonds last week to yield 9.625%. Another Brazilian company, JBS SA (JBSS3.BR), which controls Brazil's meatpacker Friboi, is expected to price $400 million in bonds Wednesday, to yield around 13%.

Those that have tapped markets "will be better placed to withstand further financial turmoil," RBC Capital Markets said in a note to clients Wednesday. But they also paid up - most deals, quasi-sovereign excepted, offered yields of more than 9%.

Emerging-market corporates also might be pushed to the end of the line as developed nations themselves have upped their financing needs to respond to the crisis. Moreover, developed-world companies and banks are also scrambling to raise much needed cash.

Sovereigns have better access to capital markets as investors prefer them in periods of crisis. As the level of uncertainty is greater with companies - too many moving parts to keep track of - investors usually prefer to stick with tried and true sovereigns.

"It is just not as straightforward" to invest in corporates, said Scott MacDonald, head of research at Aladdin Capital Management.

In addition, companies, unlike countries, don't have access to lifelines from multilaterals, donor money and other sources of funds that may come in handy in a pinch.

On Monday, Colombia joined Mexico and Poland in requesting a new flexible credit line from the International Monetary Fund. Like its predecessors, Colombia said it doesn't intend to use the money unless the crisis becomes even more severe.

"Corporates don't have access to the wide range of multilateral organizations ... which are open to the sovereigns even in times of tight credit," MacDonald said. He sees conditions improving starting this year, but it depends largely on a gradual recovery in the U.S. and a clearer picture about the recession worldwide.

In response to the crisis and facing mounting debt obligations coming due, a host of companies in emerging-markets have announced cuts in capital expenditure plans, curtailed expansions and new projects.

The market saw a jump in sovereign issuance so far this year due largely to pent-up demand, since the market was all but shut down in the fourth quarter of 2008, said David Spiegel, head of emerging-market research at ING.

In addition, some emerging markets have seen their financing needs rise as commodities prices go down and hard-currency current-account earnings, tax revenues and other sources of internal financing have dropped, he said.

-By Claudia Assis, Dow Jones Newswires; 201 938 4385; [e-mail].

TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [e-mail] or respond directly to our Talk Back blog at http://talkback.newswires-americas.com. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.)