* 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.
"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," said
Pierre-Yves Bareau, who runs $8 billion in emerging debt at JP
Morgan Asset Management.
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 have not been caught this time in the debt
rollover cycle," said Bareau.
"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," he 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
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For a factbox on total 2010 EM debt needs, click
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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.
