Mexico has become the latest emerging market sovereign to conclude a liability management exercise, saving some $55 million and helping to lower external debt as a proportion of total public debt from 33% to 28% by the end of the year.
Liability management has grown in popularity in recent years, thanks to relatively benign market conditions and emerging market economies’ improving fundamentals, which have allowed them to act more strategically than before.
Lebanon was one sovereign to take advantage of a period of greater confidence in its debt – at least before this summer’s conflict – successfully completing several liability management transactions. Its most recent foray came in April, when it sold three new Eurobonds totalling more than $2.6 billion that enabled it to reduce its coupon payments and extend its debt maturity profile.
There are several sovereigns, though, for which a liability management exercise would make a great deal of sense but that have not yet undertaken one.
One such is Turkey, which is believed to be considering such a programme. Economy minister Ali Babacan told investors earlier this year that the sovereign was looking at swapping some of its short-term international debt for longer-dated issues.
Russia should also look at such measures. It has been carrying out some moves to improve the structure of its debt in recent years. It recently completed the early repayment of its Paris Club debt, saving some $12 billion in interest payments on debt that was not due until 2020. It also launched a second exchange of Soviet-era FTO debt in the first half of September, with some $600 million of debt eligible.
With foreign currency reserves of almost $280 billion and a stabilization fund of more than $50 billion, even following the early repayment, Russia does not have to worry about potential debt repayment problems in the same way as some of its emerging market peers do.
But that is why this is precisely the time to consider further liability management moves.
Russia has enough double-digit coupon bonds outstanding to make it worthwhile to exchange them for lower-coupon, longer-dated paper. And with its credit ratings likely to be raised as a result of its Paris Club repayment, there has never been a better time to do this.
