Record growth in CEE DCM driven by innovation and investor demand

The Central and Eastern Europe (CEE) region has witnessed strong growth in primary bond volumes in 2023 and 2024, marking a significant recovery from 2022, which was affected by external macroeconomic factors and regional geopolitical developments. The region has rebounded strongly, with CEE bond issuance surpassing USD100 billion equivalent in 2024, a 42% increase over the previous record set in 2023, according to Bond Radar.

Innovative approaches to accessing new funding sources combined with investor base diversification have propelled this record growth.

Borys Matiash, BNP Paribas Head of CEE Debt Capital Markets, said: “BNP Paribas has played a crucial role in supporting CEE borrowers with their international debt funding programmes by expanding the funding toolkit and tapping into new pockets of liquidity. This includes numerous transactions in G3 currencies (US dollar, euro, and yen) across various formats, including conventional benchmarks, green, social and sustainable offerings, as well as structured and innovative private placements. The increased funding has been well supported by growing investor demand in the region.”

Going sustainable and digital

Sustainable bonds have become an important financing tool for the CEE region resulting from greater awareness of the importance of sustainable development for the local economy, and of the capabilities of green finance to support critical public infrastructure. The focus on social and transitioning aspects is prominent, not only for the sovereign but also for both the banking and corporate sectors. BNP Paribas ranks #1 in CEE ESG-labelled issuances for 2024 according to Dealogic for the second year in a row.

Innovation is another key theme in the region, such as the issuance of the first-ever digital bond in the eurozone by the Republic of Slovenia, as part of the European Central Bank’s experimentation programme in digital assets. On this occasion, Slovenia issued digital securities worth EUR30 million with a 3.65% coupon, maturing on 25 November 2024, using Neobonds, BNP Paribas Global Markets’ private tokenization platform.

Diversifying funding sources

Another prevailing theme in the CEE region has been the diversification of funding sources. This was evidenced by a rebound of CEE issuers tapping into the most liquid pool of debt liquidity – the USD market with the likes of Slovenia, Bulgaria and Poland, coming back onto the USD bond market for the first time in almost a decade.

While many issuers continued to raise debt in their domestic currency or euros, adding USD-denominated issuances have provided investor diversification, additional debt capacity, as well as lower cost of financing on a post-swap basis, making it an efficient alternative to complement euro funding. On the back of supportive market trends, 2024 saw the entrance of new pools of capital with among others US crossover money returning to CEE markets.

Matt Doherty, BNP Paribas Head of CEEMEA Syndicate, observed: “The investor landscape for CEE bonds is notably diverse compared to other emerging markets. Most CEE fixed income opportunities are of investment-grade quality, which attracts a wide range of investors including the traditional emerging market investors, US crossover money, regional CEE investors, and rates buyers.”

Sovereigns and financial institutions lead issuance

The resurgence in supply has been largely driven by record-breaking volumes from the sovereign, supranational and agency (SSA) sector, amounting to the equivalent of USD73 billion. These SSA transactions contributed to 70% of the total CEE volumes, consistent with previous years. Geopolitical risks, and sustainability commitments have together pushed their funding higher.

Meanwhile, the banking and financial sector was another significant contributor to the increase in primary activity in the region as they continue to raise capital to comply with the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) required by their supervisory authorities.

Historically, the Financial Institutions asset class was modest in the region, but it has now established itself with record volumes of USD20 billion equivalent in 2023 and USD16 billion equivalent in 2024, with numerous debut issuers from across CEE entering the market this year.

The variety of borrowers has increased significantly due to this regulation, and while the corporate supply is still small, it is expected to keep growing.

CEE corporate issuance also grows

Corporate supply in the CEE primary bond markets has seen a significant rebound after a modest contribution to overall volumes in 2023. This resurgence is driven by corporates seeking to diversify their funding sources in the market alongside traditional bank financing.

With a positive market backdrop, there has been a reopening of market access for corporate issuers across the entire credit spectrum.

“The breadth of corporate debt markets potential across CEE is unmatched, supported by strong national champions across various sectors as well as international export-oriented businesses. In 2024, we led corporate bond transactions across the entire credit spectrum, including investment grade-rated national champions like MVM, sub-investment grade debuts like Telekom Srbija, as well as highly-structured High-Yield refinancings like airBaltic,” Matiash noted.