Trends in EM and CEE Debt Capital Markets International Business - PowerPoint PPT Presentation

Trends in EM and CEE Debt Capital Markets International Business Congress – Law, Banking and Finance CEEMEA Debt Capital Markets Venice, 21 April 2017

A series of big events shaped Emerging market primary markets in 2016 and 2017YTD Monthly Emerging markets primary issuance since January 2016 170 CEEMEA Latam Asia USD EM Sovereign Bond Index 69 68 165 64 60 58 56 55 160 15 USD bn 15 32 45 36 18 20 39 25 155 11 33 16 24 27 14 9 27 19 13 9 12 150 11 11 21 19 4 6 18 1 13 11 3 11 5 2 6 29 28 145 6 25 5 22 23 21 21 20 19 13 12 12 11 10 9 140 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Brexit-induced Post-FOMC Trump election Volatile start in 2016 Improving market backdrop Brexit volatiliy issuance rush victory Strong start in 2017 EM rally  Shaky start in  EM issuance enjoyed a  Heightened  The FOMC  A sharp rise in  Despite ongoing uncertainty  EM markets 2016 with turnaround as oil prices volatility meeting mid- global bond yields regarding the policies of the demonstrated heightened China began to stabilise in late before and a swift September since Donald new US administration, growth concerns February after the primary markets picked up in rebound after opened the Trump’s surprising   Aftermath of the The FOMC meeting at the Brexit door for a very election victory the first months of 2017 the Brexit December Fed end of March suggesting referendum active end to spurred an  Issuance driven by LatAm and vote driven by rate hike the Fed would remain  EM primary the month and underperformance Asian borrowers dovish central  Low commodity “cautious” towards future markets  The run-up to the March rate bank policies October of EM debt prices rate hikes was viewed as a volume fell  The hike led to some volatility at December dovish signal significantly rate hike also the end of February in June increased volatility Source: Bondradar as of 2 April 2017 2

Second highest annual issuance volume on record in 2016 despite repeated bouts of financial markets' volatility Emerging markets bond issuance in previous years  2016 was a year of surprises, stunning political 507 upsets, and repeated bouts of financial markets’ 481 457 429 volatility. Despite these shocks and after a dismal 350 start, financial markets demonstrated a USD bn 275 remarkable resilience, essentially shrugging off concerns about the impact of the Brexit vote and 177 resulting in a long run of risk-on sentiment that pushed portfolio flows to EM to a record high during the summer and early fall 2011 2012 2013 2014 2015 2016 2017YTD  In 2016, EM produced its second highest annual issuance volume on record at USD 481bn, CEE bond issuance in 2016compared to previous years following only 2014's USD 507bn 128  Issuance varied throughout the year with 120 different regions seeing periods of record supply as well as extended dry spells 81  Primary markets slowed abruptly after 69 USD bn 60 Donald Trump's unexpected USD election 44 victory 22  The more self-sufficient Asian region was the only source of consistent issuance in the final two months of the 2011 2012 2013 2014 2015 2016 2017YTD year Sources: Bondradar, UniCredit research as of 2 April 2017 3 Note: CEE includes CIS countries and Turkey

Record-breaking issuance start to 2017YTD Emerging markets bond issuance in Q1 2017 compared to previous years  Emerging market issuance was very strong in the 177 first three months of 2017, with USD 177bn of Eurobonds placed by corporate and sovereign 131 130 129 115 issuers. USD bn 95  This was twice the issuance in 1Q 2016, 85 with corporate issuers based in China placing three times as much so far in 2017 compared to last year. Chinese financial and corporate issuers with USD Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 36bn of bonds issued dwarfed any other single country CEE bond issuance in Q1 2017 compared to previous years  Issuance in CEE was also strong, but its relative importance has diminished in the last few years, partly as a result of lower government financing 40 needs and a substitution of external debt for debt 33 denominated in local currencies. 30 28 USD bn  Outside of CEE, sovereign issuance was very 22 16 16 strong with Argentina issuing USD 10bn and Middle Eastern issuers also very active with first- time issuer Kuwait placing USD 8bn in March Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Sources: Bondradar, UniCredit research as of 2 April 2017 4 Note: CEE includes CIS countries and Turkey

What regions were driving EM issuance growth ? CEE issuance is lagging behind other EM regions CEEMEA CEEMEA LatAm LatAm Asia Asia +80% +10% +10% USD bn USD bn USD bn +54% -25% 182 -23% +55% 156 -36% 236 -41% 136 +156% 135 201 123 123 +235% +99% 183 152 87 80 57 45 75 22 22 22 2013 2014 2015 2016 Q1 2016Q1 2017 2013 2014 2015 2016 Q1 2016Q1 2017 2013 2014 2015 2016 Q1 2016Q1 2017 Growth drivers in the CEEMEA region CEE/CIS (1) Middle East Africa CEE Middle East Africa USD bn USD bn USD bn +190% -36% 128 -1% +36% +17% 91 -46% +315% 81 +2087% +33% -20% 60 -28% 17 44 40 39 15 -32% 12 31 27 8 8 22 16 7 0.4 2013 2014 2015 2016 Q1 2016Q1 2017 2013 2014 2015 2016 Q1 2016Q1 2017 2013 2014 2015 2016 Q1 2016Q1 2017 Source: Bondradar as of 9 April 2017 5 (1) Including Turkey

Primary issuance of selected EM countries Russian issuance picked up again in 2016 but is still subdued compared to 2013 CEEMEA LatAm Asia Russia Mexico China CEEMEA CEEMEA CEEMEA USD bn USD bn USD bn +36% +/-0% +10% -25% -19% -79% 39 52 38 38 +102% 126 +329% 29 112 103 -43% +199% 16 62 -55% 46 15 +/-0% 9 11 5 5 5 11 2013 2014 2015 2016 Q1 2016 Q1 2017 2013 2014 2015 2016 Q1 2016 Q1 2017 2013 2014 2015 2016 Q1 2016 Q1 2017 CEEMEA Turkey CEEMEA Brazil Indonesia CEEMEA +10% +27% USD bn -83% USD bn USD bn -21% +4% 43 -7% -62% 39 17 16 +96% +64% 15 13 +171% 12 12 12 +19% 20 +/-0% 7 5 4 10 10 4 7 3 2013 2014 2015 2016 Q1 2016 Q1 2017 2013 2014 2015 2016 Q1 2016 Q1 2017 2013 2014 2015 2016 Q1 2016 Q1 2017 CEEMEA Poland Argentina CEEMEA South Korea CEEMEA +181% -54% +13% USD bn USD bn -24% +30% USD bn 12 +956% 24 24 +72% 35 22 9 +184% 19 -31% 5 -26% 19 4 4 13 +174% 3 7 +17% 3 3 1 1 2013 2014 2015 2016 Q1 2016 Q1 2017 2013 2014 2015 2016 Q1 2016 Q1 2017 2013 2014 2015 2016 Q1 2016 Q1 2017 Source: Bondradar as of 9 April 2017 6

CEE primary market characteristics versus Emerging markets Primary market activity in CEE in 2017YTD Volume by country Volume by type Volume by currency SSA Corp FIG EUR USD Other Russia Turkey Poland Slovenia Romania Other 3% 3% 3% 5% 13% 7% 22% 16% 21% 17% 27% 26% 34% 35% 17% 7% 37% 47% 46% 49% 51% 28% 30% 9% 12% 4% 7% 18% 64% 39% 4% 10% 3% 6% 16% 15% 13% 8% 15% 21% 70% 24% 12% 58% 56% 55% 54% 51% 21% 46% 48% 41% 40% 15% 29% 25% 22% 14% 12% 2013 2014 2015 2016 2017YTD 2013 2014 2015 2016 2017YTD 2013 2014 2015 2016 2017YTD Primary market activity in Emerging Market in 2017YTD Volume by region and country Volume by type Volume by currency China Middle East CEE/CIS Brazil Mexico Other SSA Corp FIG EUR USD Other 5% 4% 8% 17% 10% 12% 19% 23% 21% 19% 33% 33% 35% 35% 39% 8% 5% 8% 8% 32% 8% 39% 4% 6% 44% 9% 82% 80% 8% 56% 2% 48% 76% 78% 73% 12% 12% 13% 16% 28% 9% 19% 15% 8% 49% 42% 34% 9% 29% 29% 26% 25% 23% 26% 16% 14% 15% 14% 15% 12% 2013 2014 2015 2016 2017YTD 2013 2014 2015 2016 2017YTD 2013 2014 2015 2016 2017YTD Source: Bondradar as of 2 April 2017 7

A closer look at the Russian primary market  The strong performance of Russian credits over the last two years coupled with the scarcity of supply (compared to 2013) led to a spike in demand for recent Russian issues, especially for blue chip corporate companies  Demand is further enhanced by domestic investors (unlike other EM markets such as Turkey)  Recent Russian issuers therefore managed to reprice their secondary curve and price bond transactions flat or with a negative new issue premium (e.g. Gazprom, Nornickel, Severstal, etc.) Russian issuance volumes by industry Oil & Gas FIG Metals & Mining Transport Chemicals Sovereign Other  Russian primary issuance 6% 8% dominated by Metals & Mining 3% 16% 16% 27% 13% and Oil & Gas credits 2% 20% 6%  FIG issuance is still subdued 15% 3% compared to 2013 34% 56% 14% 75% 30% 11% 17% 15% 13% 25% 22% 20% 15% 16% 2013 2014 2015 2016 2017YTD Source: UniCredit research, Bloomberg as of 10 April 2017 8