Fitch: CIS+ banks may maintain high level of Eurobond issuance in 2025

CIS+ Eurobond bank placements materially increased to $3.5 billion in 2024, far exceeding the previous peak of $1.3 billion in 2020, although this is still small in absolute terms compared to most other regions, Report informs referring to Fitch Ratings.

"CIS+ banks’ 2025 Eurobond debt issuance could approach the record levels of 2024, spurred by refinancing needs, favorable economic conditions and positive investor sentiment, Fitch Ratings says. We expect banks in Uzbekistan and Kazakhstan to lead by volume. There has been just one placement so far this year – a $0.4 billion senior unsecured Eurobond issued by Kazakhstan’s ForteBank (BB/Stable) – but we expect several more to follow. Eurobond placements are likely to be driven by refinancing needs, with $1.8 billion of debt maturing in 2025–2026. Additionally, strong economic growth in the region should support loan growth and bank performance, which will, in turn, bolster issuance. CIS+ banks, like those in GCC countries and Turkiye, have benefitted from positive investor sentiment towards emerging markets. We expect geopolitical influences in the CIS region to remain the key sensitivity to our forecasts," reads the report.

"Pent-up demand following a prolonged period of limited issuance and the shut-out of Russian issuers from international markets may continue to create issuance momentum for CIS+ banks. Russian issuers used to be the largest borrowers in the region, and some investors may still be looking to the broader CIS+ region to fill the gap. We expect Uzbek banks to place Eurobond debt ahead of their USD0.7 billion of maturities this year, although some of this was refinanced in 2H24. This follows the sovereign’s February Eurobond issuance. External foreign-currency debt is an important part of Uzbek banks’ funding profiles, as reflected in the sector’s high loans/deposits ratio (end-2024: 173%). Some Uzbek banks are likely to issue Eurobonds for the first time to help fund loan growth given the limited supply of long-term funding in the domestic market and banks’ efforts to diversify their funding structures away from state-related sources. They are also likely to continue issuing more Uzbek soum-denominated external debt while the soum exchange rate is relatively stable.

The Development Bank of Kazakhstan (BBB/Stable), a Kazakh quasi-sovereign entity with proven access to foreign funding and a heavy reliance on external borrowings, issued USD1.4 billion equivalent of Eurobonds in 2024 – enough to refinance most of its debt maturing in 2025–2027. However, we believe the bank may tap the international markets again this year, in accordance with its long-term strategy to increase its use of market funding," Fitch noted.

"Other Kazakh banks may also look to issue given the gradual increase in the Kazakh banking sector’s loans/deposits ratio (end-2024: 83%; end-2022: 76%), and strong loan growth prospects. However, liquidity generally remains abundant and foreign-funding refinancing needs for the sector are limited.

Banks in Armenia, Azerbaijan and Georgia are less likely to place Eurobond debt this year. Georgian issuers TBC Bank and Bank of Georgia (both: BB/Negative) may face less favourable investor sentiment due to political risks, which are reflected in the Negative Outlook on Georgia’s ‘BB’ sovereign rating, notwithstanding the banks’ largely solid and resilient performances.

The largest banks in Azerbaijan and Armenia have limited incentive to issue given their comfortable liquidity positions. International Bank of Azerbaijan (BB/Positive) had a particularly low loans/deposits ratio of 62% and a low blended funding cost of 1.9% at end-1H24."

Eurobonds placed by Azerbaijan on the international financial market account for 27% or $1.387 billion of the country's external public debt. The maturity date of the Eurobonds in the amount of $310.7 million (coupon payments of 5.125%) expires in 2029, and the maturity date of the Eurobonds in the amount of $1.076 billion (coupon payments of 3.5%) expires in 2032.