Improving credit quality has also had a positive impact on emerging-marke issuance. Downgrades accounted for 54% of all emerging-market rating actions in the second quarter, the lowest share since first-quarter 2000. And receptive global demand has led to an increase in the share of cross-border issuance by emerging-market borrowers year-to-date. Higher-rated issuers -- especially in the Asia-Pacific region -- are likely taking advantage of more attractive margins in the cross-border market in lieu of costlier funding alternatives, such as syndicated loans or domestic bonds.
New bond issues posted a strong upturn year-to-date, recording an increase of 18.9%. Emerging-market entities raised $61.3 billion in the period ending Aug. 6 compared with $51.5 billion in January-August of the previous year and $78.4 billion in full-year 2002. July saw especially heavy volume of $11.7 billion, the highest single-month volume since May, 2002.
The biggest gains by region were seen in the Commonwealth of Independent States (CIS) region, where volumes nearly tripled, albeit from low levels. The Asia-Pacific region -- traditionally the largest borrower by volume -- saw gains of 8.5%, whereas Latin America expanded 50.5%. However, issuers based in Eastern Europe and the Middle East failed to participate in the upside so far this year. Among the top borrowers by country in 2003 have been Taiwan ($8.9 billion), Mexico ($7.8 billion), Hong Kong ($6.4 billion), and South Korea ($5.8 billion).
The telecommunications sector saw a noteworthy increase in volume to $9.1 billion in the year ended Aug. 6, nearly twice the level seen in the corresponding period a year earlier. Some large issues from Hong Kong-based conglomerate Hutchison Whampoa Ltd. -- totaling $3.6 billion -- accounted for a significant portion of that rise, coupled with some sizable issues from Russian and Brazilian telecoms. Banking sector volume advanced 5.6% year-over-year, to $14.6 billion. And bond issues from the smaller utility sector gained 26.4% year-over-year, to $4.2 billion, prompted by increased borrowing from issuers based in Latin America and the Asia-Pacific regions.
Issuers from the integrated oil and gas sector featured prominently on the list of top emerging-market borrowers this year by volume. Of the nine issuers that borrowed more than $500 million, five belonged to this sector. Mexican state-owned oil and gas company Petroleos Mexicanos (PEMEX) had the largest issue on record, valued at $2.5 billion. Russia's Gazprom followed in second place, with new issues totaling $1.8 billion.
Investment-grade-rated entities continued to have an easier time raising funds in the bond market, even though the recent pickup in investor interest has led to a shrinking gap between these two categories relative to 2001 levels. Of the total emerging-market issues with ratings, 76% were investment grade (BBB- and above) and the remainder speculative grade (BB+ and below).
The increased appetite for risk among global investors has set the stage for increased cross-border issuance. So far this year, the proportion of cross-border issues relative to total issuance by all emerging-market issuers rose to 67%, higher than the 52% in the comparable period a year earlier as well as in the two prior years. The increase in cross-border borrowings was especially prominent in Latin America, where they totaled 67%, vs. 41% in the same period a year ago. The Asia-Pacific region has also demonstrated an increase, to 61% from 49% a year ago.
Looking ahead, emerging-market issuers will continue to take advantage of an attractive funding environment, characterized by relatively low interest rates and investor demand. The decelerating upward momentum in commodity prices -- whose trend is generally positively correlates with emerging-market issuance -- suggests that gains may be more modest in the remainder in the year. It also suggests that although issuance conditions will remain relatively attractive, the chances of matching the mid-1990s highs are remote. By Diane Vazza, head of S&P's Global Fixed Income Research, in New York