The Eastern European corporate bond market covers a large part of Eurasia, from Poland to Kazakhstan in the east, and Turkey in the south. Non-sovereign capital debt markets have been developed in 21 countries across the region. The latest country in the region to enter the non-sovereign Eurobond market was Uzbekistan in 2019, when Uzpromstroybank issued a USD 300m Eurobond on the London Stock Exchange.
“Brun Lubert Supports Debt Listings in Eurasia.”
Brun Lubert supports domestic and global debt listing solutions for corporates in Eurasia. We collaborate with a premium network of listing agents, brokers, bookrunners, and law firms to ensure effective bond listings and commercial paper issues. From advisory to acting as anchor investor, we assist corporates to navigate the complex fixed income life cycle.
Lack of Corporate Debt Culture
The macroeconomic situation following the disintegration of the Soviet Union was unfavorable for fixed income markets. Soviet rule had stifled the development of a corporate debt culture. High and variable inflation was rampant. Next, when exchange rate regimes began to gain more credibility, corporates favored foreign currency debt, as domestic interest rates were higher.
“Corporate Debt Markets in Eastern Europe and Central Asia Emerged Slowly after the Disintegration of the Soviet Union.”
Governments preferred the sale of state assets to international investors in exchange for cash and a promise for further investments, resulting in larger corporates financing their investments from retained earnings. The lack of rating agencies and hedging instruments made debt securities carry higher risk. Shortfalls in liquidity led to significant issuance costs and pricing problems. Private banks were fiercely competing for corporate clients, which during the first post-Soviet years lowered the cost of bank loans. Bankable projects were scarce, and successful bond issues remained the exclusive habitat of governments and large corporates.
Attractive Debt Opportunities.
The case for investing in corporate debt in Eurasia is supported by the issuers’ strong credit quality and attractive valuations, as well as by higher global interest rates. From a macroeconomic perspective, corporates are less leveraged than issuers in other emerging markets and in developed markets’ high-yield spaces. Issuers based in Eurasian markets tend to have strong risk/return characteristics when compared to other debt investment alternatives, supported by high credit ratings, larger profit volumes, and high book values of their assets.
Total emerging markets corporate debt maturing in the next 3 years equals 51% of the total EM corporate debt outstanding of USD 4.4 trillion (2023). Although the market anticipates to roll over, many of these bonds were issued during the lower interest era of 2020-2021, when lending at the lowest coupons to emerging markets became close to a competitive sport. We consider it unlikely markets will return to the same level of interest in Eurobond issuances.
“51 Per Cent or USD 2.2tn of Corporate Debt in Global Emerging Markets Will Mature in the Next Three Years.”
Broader Eurasia Benchmark
The most important feature of a benchmark is an adequate representation of the market. The JP Morgan CEMBI Broad, a widely used benchmark, covers 81 corporate issuers in 14 countries in Eastern Europe with a bond market value of USD 113b. Brun Lubert works with a broader Eurasia benchmark including issuers in 21 countries across Eurasia with established capital markets.
Kazakhstan Exchanges Play Key Role in Central Asia.
There are 6 stock exchanges in Central Asia with a total capitalization of more than USD 100 billion.
The Kazakhstan Stock Exchange or KASE in Almaty, established in 1993, with a capitalization of USD 49.8 billion in 2023. The Astana International Exchange or AIX, established in 2017 within the Astana International Financial Center, with a total cap of corporates listed at USD 45.2 billion in 2023. The growth of KASE as an advanced exchange has been driven by a consistent increase in liquidity across foreign exchange, securities, money, and derivatives markets. Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan operate local stock exchanges.
In March 2020, the Astana branch of the Construction Bank of China issued the first yuan-denominated bonds in Kazakhstan. All funds raised were allocated to the financing of local infrastructure and Belt and Road initiative projects in Kazakhstan.
Eurasian Sukuk and Green Bonds
The Qatar International Islamic Bank in 2020 cross-listed USD 500 million worth of Islamic securities, the first Islamic sukuk debt instrument listed on the AIX. The same year, DAMU Entrepreneurship Fund, as part of an agreement with UNDP to promote renewable energy source investment, issued green coupon bonds of the AIX of 200 million Tenge, due to mature in 36 months with a coupon rate of 11.75%. This was the first debt listing that met with exchange green bond principles, and the first listing of green bonds in Kazakhstan. KASE’s official list includes 16 issued ESG bonds
