By Laura Cochrane
Nov. 19 (Bloomberg) -- From Angola to Belarus, emerging- market governments are planning first-time debt offerings to take advantage of the biggest bond rally in at least 11 years.
Investec Asset Management Ltd., Aberdeen Asset Management and Threadneedle Asset Management Ltd. say they may buy some of the $4 billion of debt Angola plans to sell, as well as proposed dollar bonds from Belarus. Vietnam aims to raise $1 billion in its first offering of foreign-currency securities in four years, Deputy Prime Minister Nguyen Sinh Hung said yesterday. Iran, under three sets of United Nations Security Council sanctions, targets a 1 billion euro ($1.5 billion) sale by December.
Developing-nation government bonds are trading near the lowest yields on record, at an average of 6.49 percent, after the biggest 12-month decline since JPMorgan Chase & Co. began tracking the data in 1998. Sales rose 70 percent to a record $554 billion this year as central banks cut interest rates to pull the world out of the worst recession since World War II. Debuts are planned by governments without credit ratings or dependent on international bailouts.
"It's because of the wall of money that comes from extremely accommodative monetary policy globally," said Edwin Gutierrez, an emerging-market money manager who invests $5 billion in assets for Aberdeen in London. "There is just absolutely loads of liquidity out there still trying to find a home for that money."
Developing-nation dollar bonds have returned 26 percent so far this year, according to JPMorgan's benchmark EMBI+ Index, compared with a 23 percent gain in the Standard & Poor's 500 index. Emerging-market debt is trading at average yields 0.15 percentage point above a low in 2007 of 6.34 percent, JPMorgan indexes show.
Demand for higher yields was one reason investors placed $28 billion of orders for Qatar's $7 billion bond sale this week, the largest emerging-market deal to date. They received 1.85 percentage points more in interest on the five-year securities than U.S. Treasuries, compared with 3.4 percentage points when the government went to market in April.
Qatar, the world's biggest exporter of liquefied natural gas, sold securities including $3.5 billion of five-year bonds that yesterday rose to 100.1 cents on the dollar from an issue price of 99.87 cents, according to ING Bank NV data on Bloomberg.
"There is money around looking for a home and that is what is driving the bull market," said Peter Eerdmans, the head of emerging-market debt at Investec in London, who oversees $950 million in assets. "People are allocating into emerging-markets because they are the standout performer."
Angola is seeking to sell its first international bonds to help pay for construction projects after a decline in oil proceeds, which account for about 80 percent of state revenue. The southwest African nation said Nov. 13 that it plans to begin selling the debt without a rating from Moody's Investors Service, S&P or Fitch Ratings, which bondholders use to help assess creditworthiness.
The country will need to offer higher yields than other sub-Saharan nations including Ghana, whose bonds due 2017 that were sold in 2007 yield 8.5 percent, said Aberdeen's Gutierrez.
Belarus, a country of 10 million people with an economy the size of Sudan's, has received $3.5 billion of International Monetary Fund bailout loans this year. The country invited bids from banks to manage its debut sale of international bonds next year, Pavel Ladik, an aide to Finance Minister Andrei Kharkovets, said in a phone interview Nov. 13. The country is rated B1, four levels below investment grade, by Moody's.
Sri Lanka, Vietnam
Sri Lanka, which emerged from a 26-year civil war in May, sold $500 million in bonds due 2015 at yields 5.06 percentage points above U.S. Treasuries. The Cayman Islands is raising $312 million in 10-year notes this week in its first international sale, according to Bloomberg data.
Vietnam plans to fund energy projects with a $1 billion bond, its first since an inaugural sale in 2005, Hung, 63, said in an interview in Hanoi yesterday. Indonesia may sell its first bonds in euros next year, Rahmat Waluyanto, director general of the Finance Ministry's debt management department, said in an interview in Jakarta today.
Russia and Kazakhstan announced plans to issue their first bonds in at least a decade this month to fund growing budget deficits.
Lack of Transparecy
"Qatar can pull off a $7 billion issue and immediately establish itself; Belarus and Vietnam are not going to do that," said Alexander Kozhemiakin, director for emerging-market strategies at Standish Mellon Asset Management in Boston. "The yield pickup has to be sufficiently high to compensate for the lack of transparency and the relative illiquidity of these issues."
Bond sales by emerging-market companies and governments broke the previous record of $367 billion in 2007, according to data compiled by Bloomberg. Developing-nation financing costs have tumbled as U.S. Treasury yields, the benchmark for pricing dollar-denominated debt issued by developing countries, have fallen to 2.19 percent on five-year notes.
The Federal Reserve slashed its interest rate to 0.25 percent from above 5 percent. U.S. benchmark five-year yields are down from as high as 5.23 percent in 2006.
The additional yield investors require to buy emerging- market debt rather than U.S. notes dropped to a 14-month low of 2.89 percentage points last month from a record 8.65 percentage points in October 2008, according to JPMorgan's EMBI+ Index. The spread rose 3 basis points today to 3.08 percentage points.
Dubai raised $1.93 billion last month in the first global sale by the government rather than a state-owned entity, offering 6.39 percent yields on five-year debt. The yield on the bonds, which comply with Islamic restrictions on interest payments has dropped to 6.13 percent, Royal Bank of Scotland Plc data on Bloomberg show.
"Bond sales on a global scale have been absolutely staggering this year," said Fabianna Del Canto, who helped arrange Qatar's offering as syndicate manager at Barclays Capital in London. "Going into next year the large asset managers look like they may dedicate a considerably larger amount of their asset allocation in fixed income to the emerging-markets."