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Emerging Markets Issuance Faces Another Lackluster Year

A slump in investor sentiment and rapidly escalating hard-currency borrowing costs caused emerging markets issuance to fall away in 2022.  As central banks tightened monetary policy amid inflationary pressures, gloomy economic prospects saw fixed-income investors exercise caution and focus primarily on their domestic markets, shying away from emerging markets debt. Hard-currency borrowing costs jumped from a discount of 138 basis points (bps) in 2021 to a 66 bps premium by the end of 2022 (chart 1). The strength of the dollar also weighed on corporates' demand for U.S. dollar-denominated issuance, which plummeted to $110 billion in 2022 from $300 billion in 2021 (chart 2).

Chart 1


Chart 2


2022 Trends: A Look Back

Emerging markets issuance in 2022 was on average 24% down on the last three years.  However, there were marked geographical differences. Greater China debt issuance was up 59% on pre-pandemic levels (2017-2019 average) while emerging markets Asia (excluding Greater China) was 13% higher. Eastern Europe, Middle East, and Africa (EEMEA) and Latin America's issuance was only 57% of that in 2017-2019 (chart 3). The slowdown in issuance can be attributed to issuers taking advantage of low interest rates, especially in 2019-2020, which stemmed from central banks' ultra-accommodative monetary policies in response to the pandemic. These low interest rates created a favorable environment in which issuers could refinance existing capital structures or issue new debt and seize the opportunity to extend their debt maturities and strengthen their liquidity positions.

Chart 3


Domestic issuance has remained a viable option for refinancing.  Our data show diverging trends for domestic and foreign markets, with domestic markets generally remaining a valid alternative for refinancing in 2022, even more than in previous years (chart 4a). As a result, foreign issuance only made up 8% of total emerging markets borrowings in 2022 compared to 17% in 2021 and above 30% at the beginning of the 2010s (chart 4b).

Chart 4a


Chart 4b


While this trend toward more domestic issuance has been ongoing in Asia (chart 4c), the difference between 2021 and 2022 is particularly stark in Latin America. In 2019-2021, foreign issuance made up about two-thirds of total issuance but in 2022 it was just 24%.

Chart 4c


Fixed rate issuance was the favored option in 2022.  Last year, persistent inflationary pressures and widening corporate credit spreads were recurrent themes, emphasizing the risk of rising interest burdens for borrowers with floating rate debt. Interest rates led to prolonged volatility as central bank policies faced macroeconomic challenges such as high inflation, tight labor markets, China's reopening, and the Russia-Ukraine conflict. This led issuers to move toward fixed rates, with the exception of Latin America, mainly driven by Brazil. A plausible explanation is the greater caution from investors in the region due to the historically high inflationary pressures and the structurally widespread use of floating rates.

Chart 5a


Chart 5b


Speculative-grade issuance took a dive in 2022. The yearly aggregate of $5 billion was the lowest since the 2008-2009 financial crisis, while to find equally subdued investment-grade numbers we would need to go back to 2011 (chart 6a). The gloomy picture is accompanied by 11 speculative-grade defaults in our rated universe in 2022, the majority of which were in Greater China operating in the real estate sector. The two primary causes were missed payments and distressed exchanges.

Corporate yields are still landing at levels far above pre-pandemic times especially for speculative grade issuers (chart 6b). This represents a clear downside risk for companies looking to access funding in the near term. The sectors more exposed to refinancing risk at the lower end of the emerging markets rated universe are utilities and real estate (see "Risky Credits: Reshuffling Credit Risk In Emerging Markets," published Feb. 1, 2023).

Chart 6a


Chart 6b


Interest rates remaining high and refinancing needs staying low will likely result in subdued issuance.  Short-term maturities were previously a good indicator of issuances, with high refinancing needs leading to a high volume of issuances. However, 2022 saw a deviation from this pattern, with issuances only accounting for one-third of short-term maturities at the start of the year. This was due to the rapid increase in interest rates, which caused a shift in the optimal capital structure mix to less debt and more equity. As a result, issuance declined as companies opted to repay debt with cash and avoid the bond markets. Low issuance volumes are likely to persist as short-term maturities have plummeted from $162 billion in 2022 to $133 billion for 2023. Outside China, high interest rates relative to the time when the debt was originated will continue to encourage debt repayment rather than refinancing as companies can rely on resilient liquidity positions.

Chart 7


2023 Trends: A Look Forward

Greater China.  Analyst: Eunice Tan

Among emerging markets, China could see more debt issuance with the easing of COVID-19 restrictions and the reopening of its economy. We also believe there will be relief for the real estate/property builders sector, which has issued the most offshore bonds of any nonfinancial corporate sector in recent years. With maturities of over $1.9 trillion of bonds due between 2023 and 2025, based on face value issuers should see limited pressure from rising market volatility or from efforts to clamp down on leverage.

LATAM.  Analysts: Luis Manuel Martinez; Diego Ocampo

With median yields for the 'BB' category at 7%-9%, companies are trying to avoid tapping international capital markets. Current borrowing costs appear higher than most sectors' asset returns, prompting deleveraging across sectors. We expect activity in domestic markets to remain vibrant in 2023 as policy rates dwindle and as cross-border issuance rises slowly (see "Dwindling Fundamentals, Elusive Funding," published Feb. 13, 2023, on RatingsDirect).

EEMEA (GCC).  Analyst: Tatjana Lescova

In the Gulf Cooperation Council (GCC) region relatively high oil prices have reduced financing needs for energy exporters and also strengthened public fiscal positions. Mega projects in Saudi Arabia, for example, will sustain issuance from corporates as public funding alone will not suffice (see "Saudi Capital Markets Will Be Key To Powering Corporate Investments," published Nov. 29, 2022). Furthermore, GCC countries are targeting foreign debt investors in an attempt to deepen and open up their debt capital markets. Still, the increasing cost of funding in the GCC, and globally, has somewhat reduced the region's appetite to increase debt; the focus for corporates is mostly on refinancing. We foresee quite manageable bond refinancing needs for the next two years with about 20% of issuers' debt (rated by S&P Global Ratings) coming to maturity.

EMASIA.  Analyst: Xavier Jean

We expect 2023 to be a transition year for U.S. dollar bond issuance in Asia's emerging markets. While foreign currency issuance is likely to be muted for weaker companies with narrower business profiles, we believe a pick-up could be on the cards for larger, more financially solid issuers in the second half of 2023.

Issuance by lower-rated entities ('B' category and below) is likely to be subdued in the first half of 2023. Investor confidence remains fragile: operating performances and earnings outlooks lack positive momentum given rising costs, generally subdued consumer demand, and, for exporters, question marks over external demand from Europe and North America. Liquidity-starved foreign currency issuers in countries such as China, Vietnam, Indonesia, and Malaysia restructured their debt often in 2022, pushing back maturities to beyond 2024 and reducing the need to access foreign currency markets in the next 12 months. We are also seeing a more-pronounced shift to domestic funding sources compared to previous capital markets cycles. Smaller companies in are taking advantage of cheaper domestic funding channels (domestic bond or bank markets) because costs are usually comparable or lower than the low-to-mid-double-digit coupon rates for a five-year U.S. dollar-denominated note.

We see a slightly brighter outlook for issuance at investment grade-rated companies especially in the second half of 2023. On the demand side, we are observing greater investor appetite for better capitalized firms with limited refinancing risk and more diversified and resilient operations. On the supply side, larger issuers also appear keener to get back to the U.S. dollar bond market after mostly staying away in 2022. After the so-called shock of higher borrowing costs in 2022, our economists expect higher funding costs will persist for the next few years and corporate treasurers appear to be slowly accepting them. Refinancing requirements remain significant for larger regional companies--especially SOEs across Southeast Asia--while investment activities remain robust, creating a funding gap that domestic banks and bond market cannot fill alone.

Related Research


This report refers exclusively to corporate and financial issuance. We do not consider structured finance and sovereign issuance. Where not specified, issuance data includes issuance we do not rate.

Emerging markets consist of:

  • Latin America (LATAM): Argentina, Brazil, Chile, Colombia, Peru, Mexico.
  • Emerging Asia (EMASIA): India, Indonesia, Malaysia, Thailand, Philippines, Vietnam.
  • Eastern Europe, Middle East, And Africa (EEMEA): Poland, Saudi Arabia, South Africa, Turkey.
  • Greater China: China, Hong Kong, Macau, Taiwan, and Red Chip companies (issuers headquartered in Greater China but incorporated elsewhere).

This report does not constitute a rating action.

Emerging Markets Research:Luca Rossi, Paris +33 6 2518 9258;
Gregoire Rycx, Paris +33 1 4075 2573;
Secondary Contact:Jose M Perez-Gorozpe, Madrid +34 914233212;
Research Contributor:Yogesh Kumar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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