* Refinancing in core debt mkts poses
fleeting risk to EM
* Emerging mkt debt calendar light relative
to develpd mkts
* Longer maturity in EM; rollover costs
lower than before
By Sujata Rao and Sebastian Tong
LONDON, May 24 (Reuters) - A debt
refinancing scramble in the developed world
poses only a fleeting risk to emerging
sovereign borrowers, whose longer debt maturity
profiles and light redemption calendars should
enable them to weather any storm.
Historically large amounts of debt are due
to be rolled over across the world in the
coming years as predominantly short-dated debt
issued by U.S. and euro zone governments to
bail out their banks start to fall due.
With financial markets still fragile, the
prospect of having to roll these vast sums
continuously are unnerving global investors.
Even the European Central Bank warned recently
the euro zone's over-reliance on short-term
borrowing had boosted refinancing risks.
Traditionally, this risk to "core" debt
markets and the prospect of rising benchmark
borrowing rates would see most emerging market
sovereigns crowded out.
But many investors reckon the picture looks
less scary for developing countries this time
around.
"Emerging markets have not been caught this
time in the debt rollover cycle," said
Pierre-Yves Bareau, who runs $8 billion in
emerging debt at JP Morgan Asset Management.
"A lot of euro zone debt is front-loaded
but in emerging markets, they have tried to
push forward debt maturity. Plus, the cost of
rolling over debt is lower than it used to be."
With the exception of some weak links such
as Hungary, the emerging debt calendar is
nothing like that of developed states. ING Bank
estimates their total external debt service
needs for 2010 at $75.9 billion -- of which
half has already been raised.
That compares with the 1.3 trillion euros
the euro zone must find over the next year to
repay maturing debt or the $1.6 trillion the
U.S. Treasury has to redeem this year - a fifth
of all outstanding Treasuries.
Secondly, the past decade has seen emerging
debt maturities get longer -- the opposite to
the process in developed markets -- and that
reduces vulnerability to short-term market
turmoil.
"Emerging markets is an under-invested
asset class so I am less concerned about the
crowding out than the impact of risk aversion
... (that is) if people start getting more
worried
about de-leveraging and the rollover risk in the developed
world," Bareau said.
Because past debt rollover crises were in emerging markets,
these countries made a push to cut down on short-maturity debt.
Even non-investment grade issuers Turkey and Egypt have pushed
their dollar curves out to 30 years, unthinkable a decade ago.
Today, average maturity for emerging sovereign dollar bonds
listed on JPMorgan's EMBI Plus index <11EMJ> is 12 years, down
only slightly from pre-crisis peaks. On local debt, the GBI-EM
index has an average tenor of 5.6 years, JPM data shows.
U.S. Treasuries' average maturity fell in late 2009 to a
26-year low of just over four years. For euro zone bonds it is
6.5 years.
FOREIGNERS' HOLDINGS
Deutsche Bank strategist David Duong says the extent of
vulnerability can be more clearly gauged by comparing debt
volumes held by foreigners in emerging markets and the
peripheral euro zone states, the bloc's weak link.
He calculates major emerging nations must redeem
foreign-held debt worth 2.3 percent of GDP over the next three
years, versus 12 percent of GDP in Portugal, Ireland, Greece and
Spain. In Greece, this is a massive 20 percent of GDP.
"Emerging market external rollover needs seem relatively
small compared to peripheral EMU," Duong told clients. "We
believe most emerging market countries are within their limits
to comfortably apply their rollover needs over the next several
years ... although Latin America and Asia rank better in this
regard than EMEA."
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For a factbox on emerging Europe debt rollover, click
[]
For a factbox on total 2010 EM debt needs, click
[]
For a factbox on 2010 EM local debt rollover, click
[].
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A key factor has been strong investor appetite. EPFR data
shows emerging bond funds absorbed a record $10 billion in the
first quarter , helping emerging borrowers -- sovereign and
corporate -- to raise almost $100 billion in this period.
"Fund flows into dedicated emerging bond funds have been
very high since late last year and this has sustained the
primary bond market," said Regis Chatellier, senior emerging
markets strategist at Morgan Stanley.
HOT SPOTS
But Chatellier warned: "If fund flows were to drop very
substantially, we would probably see the direct impact on the
emerging markets primary market"
Recent steep market sell-offs make that a very real risk.
Emerging Europe was where pressures were highest last year
as the economic downturn, huge funding needs and currency
depreciation put some debt repayments in doubt and forced some
Kazakh and Ukrainian state-run firms to restructure debt.
Now many countries in the region are backed by the
International Monetary Fund, there has been some growth recovery
and the amounts due for redemption are in most cases, smaller.
There are a few hot spots. Hungary potentially is one -- 11
percent of its debt held by foreigners comes up for redemption
in the next three years, Deutsche's Duong estimates. Poland, the
Philippines and Turkey too have fairly high amounts of
foreign-held debt to roll over -- 5-7 percent of GDP.
On local bonds, Turkey's redemptions this year amount to
17.8 percent of GDP while Hungary and Philippines have 11
percent.
However, analysts say that high foreign exchange reserve
levels mean emerging domestic rollover risks are minimal, at
least in the near term.
