NEXGEM’s Next Wave Washout
Exotic sovereign issuers in JP Morgan’s NEXGEM after a banner 2013 were conspicuously absent in January, as only Sri Lanka’s $1 billion deal sustained the category which was set to represent one-tenth the annual total. Monthly volume was $25 billion split among a dozen countries, but was outstripped by almost $40 billion in external corporate activity with that index’s superior return and spread performance. However that sum was less than half dollar-denominated public placement as $10 billion was in euros and the same amount filed under the US Regulation “S” sophisticated buyer program. In Sub-Sahara Africa Kenya and Zambia have received IMF backing for taps but their timing and yields could be indefinite roadblocks. Egypt and Lebanon are on political and geopolitical investor watches, and the Dominican Republic will try to squeeze through the default-prone Caribbean window but may have to first resume Fund monitoring. Sri Lanka’s GDP growth and inflation were each 7 percent last year as the central bank just cut interest rates another 50 basis points on solid export, remittances and tourism. The currency has settled after a scare following international community human rights condemnation, but the current account and fiscal deficits remain around 5 percent of GDP. With the civil war’s close relations have warmed with India despite slower output gains there and the opposite monetary tightening policy. Agriculture and state-owned banking are mainstays in both countries, and Colombo’s National Savings Bank floated a $750 million bond several months ago to lift reserves. The African burst may subside as candidates like Cote D’Ivoire and Gabon rethought strategy in December. The former completed a domestic rollover on the regional francophone market, and may postpone a Eurobond now permitted under its IMF arrangement until further clearance of supplier arrears and clarification of 2015 election guidelines. A credit rating is lacking and President Outtara has been criticized for the cautious pace of outreach to opposition parties and rebel fighters as his former rival faces war crime charges in The Hague. Gabon’s $1.5 billion exchange retired previous instruments which were dropped from the EMBI benchmark, as the ruling party swept local elections and high oil prices support 6 percent growth. A diversification campaign targets mining and timber, and continued infrastructure spending may erode traditional fiscal balance.
In the Middle East, Iraq was widely pegged for its first post-restructuring commercial bond, but a delayed budget and coalition infighting and Baghdad-Kurdistan conflict have stymied prospects ahead of April parliamentary contests. Sunni lawmakers resigned in protest over Prime Minister Maliki’s arrest of a member as Al-Qaida combatants pour into Anbar province after the US military’s departure. On the oil front the government seeks to increase daily production by 500,000 barrels but the main Erbil zone continues to insist on operational and revenue autonomy without the same responsibility for large capital outlays needed to lubricate future capacity.
