emerging-market corporate debtpa-pers.org/newweb/documents/makingtheworldsfastest... · 2012. 5....

This presentation is provided by AllianceBernstein L.P. AllianceBernstein Fixed Income is referred to as AllianceBernstein herein. This presentation booklet has been provided to you for use in a private and confidential meeting to discuss a potential or existing investment advisory relationship. This presentation is not an advertisement and is not intended for public use or distribution beyond our private meeting.

For financial representative or institutional investor use only. Not for inspection by, distribution or quotation to, the general public.

Emerging-Market Corporate Debt Making the World’s Fastest-Growing Economies Work for You

May 2012

Shamaila Khan Portfolio Manager—Emerging Market Debt

Fraser Hughes is Research Director at the European Public Real Estate Association (EPRA) based in Amsterdam, The Netherlands. He joined EPRA in 2001. He was responsible for design and development of the FTSE EPRA/NAREIT Global Real Estate Index series, now seen as the leading benchmark for global real estate securities. In conjunction with AXA Investment Management, he was instrumental in the creation of listed real estate exchange traded fund (ETFs) market. Currently there are seven FTSE EPRA/NAREIT ETFs, issued by Barclays iShares and AXA listed on NYSE, LIFFE and Euronext. He is a regular contributor to a broad range of publications, a frequent speaker at real estate conferences and a visiting lecturer at IPF/Cambridge International Land Institute led courses.

He started his career with Charterhouse Tilney in Liverpool, were he worked for five years. He worked for a number of Investment Banks in London before joining FTSE Group. At FTSE he gained an in-depth understanding of European equity indexation. He moved to Euronext Amsterdam in 1998 as a researcher where he worked developing new index and derivatives products, quoted on the exchange.

He holds a BA (Hons) in Finance and an MSc in Investment Management from City University, London.

Why emerging-market corporates?

What’s the best way to assess the opportunity? Some key analytical tools

AllianceBernstein.com

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Developed Markets

Emerging Economies

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Emerging Markets: Faster-Growing Economies, Better Credit Metrics

Historical analysis and current estimates do not guarantee future results.

As December 31, 2011

*As of October 31, 2011. Emerging economies are Argentina, Brazil, China, Hungary, India, Indonesia, Poland, Russia, Saudi Arabia and Turkey; developed economies are Australia, Austria,

Belgium, Canada, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, Portugal, South Korea, Spain, Sweden, Switzerland, UK and US.

Source: International Monetary Fund and AllianceBernstein

Public Debt as a Percentage of

GDP*

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30

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00 02 04 06 08 10 12E 14E

Pe

rce

nt

Developed Markets

Emerging Markets

Real GDP Growth


929 903 994 990

1,174

1,320 1,440

340 436 549 561

605 709

867

2005 2006 2007 2008 2009 2010 2011

EM Sovereigns EM Corporates

4,000

1,100 867

US InvestmentGrade

US High Yield Emerging-MarketCorporates

Emerging-Market Opportunity Set Is Expanding—Driven by Corporates

2

Estimated Corporate Debt Stock USD Billions

Current analysis and estimates do not guarantee future results.

As of December 31, 2011

*EM corporates include supranationals and quasi-sovereigns. Stock is the combination of US/hard currency and local-currency offshore bonds.

Source: J.P. Morgan and AllianceBernstein

EM Bond Stock: Sovereigns vs.

Corporates* USD Billions


Emerging Corporates: Less Debt, More Attractive Spreads

3

Net Leverage to EBITDA* Multiples

Spread per Turn of Net Leverage** Basis Points/Multiples

US Corporates EM Corporates Historical analysis and current estimates do not guarantee future results.

*As of December 31, 2011

**As of April 9, 2012

Leverage refers to the last 12 months (LTM) ratio of debt capital (bank loans, bonds, etc.) to EBITDA (earnings before interest, tax depreciation and amortization).

Source: Bank of America and AllianceBernstein

3.9

2.7

1.8

1.4

3.5

2.0

1.4

1.2

B

BB

BBB

A

161

164

140

125

286

301

230

176

B

BB

BBB

A


Emerging Corporates: Healthier Cash Reserves than US Peers

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2007 2008 2009 2010 2011C

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US IG Corporates EM IG Corporates

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US HY Corporates EM HY Corporates

High-Yield Corporates Investment-Grade Corporates


As of December 31, 2011

Source: Bank of America and AllianceBernstein


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EM Corporates: Potential for Additional Yield and Carry

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EM Corporates vs. EM Sovereigns** EM Corporate Spread Premium vs.

EM Sovereigns*

Historical analysis and current estimates do not guarantee future results. As of 31 March 2012 *Bank of America Merrill Lynch Emerging Markets Corporate Plus Index minus Emerging Markets External Debt Sovereign Index **J.P. Morgan CEMBI Broad Diversified vs. J.P. Morgan EMBIG Source: Bank of America Merrill Lynch, J.P. Morgan, and AllianceBernstein

Average

Credit Crisis

Corporates Sovereigns

Percentage from

Investment-Grade

Issuers

70 62

Percentage from

Investment-Grade

Countries

91 62

Number of Countries 36 45

Number of Issuers 325 75

Yield (%) 5.6 5.6

Spread (Basis Points) 385 342

Average Quality BBB BBB–

Average Duration

(Years) 5.2 7.3


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EM Corporates: Attractive Yield Pickup over US Corporates

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Investment-Grade: EM Corporate Spread Premium vs. US

High-Yield: EM Corporate Spread Premium vs. US

Historical analysis and current estimates do not guarantee future results As of 31 March 2012 Investment-grade —JPMorgan CEMBI IG index minus JPMorgan JULI BBB index; high yield—JPMorgan CEMBI Sub-IG Index minus JPMorgan US High Yield BB Index Sources: JPMorgan and AllianceBernstein

Six-Year Average

Six-Year Average


EM Corporates: Default Rates Comparable to Developed Corporates

7


Through January 31, 2012

Last 12 months (LTM) issuer-weighted default rate

Source: Bank of America Merrill Lynch and AllianceBernstein

7

High-Yield Default Rates

LT

M Issuer

Defa

ult R

ate

(P

erc

ent)

AllianceBernstein.com 8


Sovereign fundamentals strong

Corporate fundamentals strong

Valuations attractive


Making the World’s Fastest-Growing Economies Work for You


Key Analytical Tools: Top-Down and Bottom-Up Analysis

9

Bottom-Up

Top-Down

Investment Opportunity

Issuer Industry Capital Structure

Market Cycle Country

Fundamentals Currency Macro/Economic

Outlook


Evaluating Quasi-Sovereigns: Combination of Macro and Credit Analysis

10

Source: AllianceBernstein; see Disclosures and Important Information

More macro intensive

More credit intensive

Chile Israel

Strong Sovereign

Weak Quasi

ENAP Israel Electric



11




Chile Israel

Chile Mexico

Codelco Pemex

Strong Sovereign

Weak Quasi Strong Quasi

Strong Sovereign




12




Chile Israel

Chile Mexico

Codelco Pemex

Strong Sovereign

Weak Quasi Strong Quasi Weak Quasi

Strong Sovereign Weak Sovereign

Venezuela Ukraine


PDVSA Naftogaz



13



Chile Israel

Chile Mexico

Codelco Pemex

Strong Sovereign


Weak Sovereign


Dubai

Strong Sovereign Weak Sovereign

Venezuela Ukraine


DEWA PDVSA

Naftogaz



Historical example only. Past performance does not guarantee future results.

As of February 21, 2012

Indonesia refers to 5⅞% 2020; PLN refers to 5½% 2021.

Source: Bloomberg and AllianceBernstein; see Disclosures and Important Information.

Indonesia: strong country fundamentals

PLN: strong company fundamentals

Investment implications: use PLN to express positive view on Indonesia

When Both Country and Company Fundamentals Matter

14

Best-case investment scenario: Indonesia and PLN in late 2011


Indonesian Government Bonds:

Spread vs. US Treasuries PLN:

Spread vs. Indonesian Government Bonds

1.8

2.1

2.4

2.7

Dec 11 Jan 12 Feb 12

Pe

rce

nt

0.6

0.8

1.0

1.2

1.4

Dec 11 Jan 12 Feb 12

Perc

ent

Awarded Investment-Grade Status

When Both Country and Company Fundamentals Matter

15

Best-case scenario: Sovereigns outperform treasuries, quasi-sovereigns outperform

sovereigns

Historical example only. Past performance does not guarantee future results.


Indonesia refers to 5⅞% 2020; PLN refers to 5½% 2021.

Source: Bloomberg and AllianceBernstein; see Disclosures and Important Information

Fitch Moody’s


Relative Value: Don’t Invest Unless You’re Paid Enough to Do So

16

Banco do Brasil’s “nifty perpetual bond” (Financial Times)

Yields are as of January 12, 2012. Banco do Brasil new bond is 9¼% perpetual issued January 12, 2012; Banco do Brasil existing bond is 8½% perpetual issued in 2009.


Banco do Brasil

New Bond

Banco do Brasil

Existing Bond

Yield 9.25% 7.90%

Bank Rating Baa1/BBB Baa1/BBB



17


Yields are as of January 12, 2012. Banco do Brasil new bond is 9¼% perpetual issued January 12, 2012; Banco do Brasil existing bond is 8½% perpetual issued in 2009.


Banco do Brasil

New Bond

Banco do Brasil

Existing Bond

Yield 9.25% 7.90%

Bank Rating Baa1/BBB Baa1/BBB

Structure Bondholders less

protected (Basel III)

Bondholders more

protected



18


Banco do Brasil

New Bond

Banco do Brasil

Existing Bond

Credit Suisse

Comparable Bond

Yield 9.25% 7.90% 10%

Bank Rating Baa1/BBB Baa1/BBB AA1/A

Structure Bondholders less

protected (Basel III)

Bondholders more

protected

Bondholders more

protected

Yields are as of January 12, 2012. Banco do Brasil new bond is 9¼% perpetual issued January 12, 2012; Banco do Brasil existing bond is 8½% perpetual issued in 2009; Credit Suisse

comparable bond is 7⅞% 2041 issued in 2011.



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Avoiding Worst-Case Scenarios: Watch for Warning Signs

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Arantes Alimentos


*Refers to senior unsecured notes, 10½%, 2012.

Source: Bloomberg and AllianceBernstein; see Disclosures and Important Information.

Arantes Alimentos Bond: Price*

Jun 2008: Bond issued

Dec 2008: Missed first coupon payment

Feb 2012: Still pending resolution

Jan 2009: Filed for bankruptcy protection

“Flavor of the month”: Arantes was the last of six Brazilian beef companies to issue bonds

Risk-insensitive market: investors were desperate for yield

Lack of track record: short operating history

Inconsistencies: management gave changing account of expansion strategy

Signs of desperation: first road show had failed; brokers pushed the bond at any price buyers would accept

[insert document identifier] AllianceBernstein.com

Case Study: Pemex (Issued September 2011)

New peso-denominated issue looked less attractive than comparable existing US dollar bond…

…the yield was lower, it was less liquid, and the bond language offered slightly less protection under local law compared with US law

One option: Don’t buy peso bond; buy dollar bond and swap into Mexican pesos to achieve a higher yield than the new issue

20

Explore all the Options, Consider Simple Derivative Strategies

[insert document identifier] AllianceBernstein.com 21

Making the World’s Fastest-Growing Economies Work for You


Sovereign fundamentals strong

Corporate fundamentals strong

Valuations attractive


Both top-down and bottom-up analysis matter

View relative value in global industry context

Pay close attention to corporate governance

Where Can Emerging-Market Corporates Fit in Your Asset Allocation?

Dedicated mandate

Incorporated into your emerging-market portfolio

Incorporated into your credit portfolio


Disclosures and Important Information

Disclosure on Security Examples References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be considered recommendations by AllianceBernstein. The specific securities identified and described in this presentation do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable. Upon request, we will furnish a listing of all investments made during the prior one-year period. Past performance is not a guide to future performance. Additional Information The value of investments and the income from them can fall as well as rise and you may not get back the original amount invested. The value of non-domestic securities may be subject to exchange-rate fluctuations. The views and opinions expressed in this presentation are based on AllianceBernstein’s internal forecasts and should not be relied upon as an indication of future market performance or any guarantee of return from an investment in any AllianceBernstein services. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

22


A Word About Risk

23 23

The contents of these materials are subject to amendment, supplement or other modification at any time. There is no guarantee that any forecasts or opinions contained in these materials will be realized.

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A portfolio of ACMBernstein a mutual investment fund (Fonds commun de placement) organized under the laws of Luxembourg, which conducts business outside Germany and Austria under the name AllianceBernstein.

Fixed-Income Securities Risk. Investment in fixed-income portfolios entails certain risks. Investment returns and principal value of this fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Dividends are not paid for all share classes and are not guaranteed. The value of underlying fixed-income investments of a portfolio can vary dramatically, in response to the activities and results of individual companies or because of general market and economic conditions and changes in currency exchange rates. The value of a portfolio’s investments may decline over short- or long-term periods. Specific fixed-income risks include interest rate risk, lower-rated and unrated investments risk, prepayment risk, sovereign debt obligations risk, corporate debt risk. These and other risks are described in a fund’s prospectus. Prospective investors should read the prospectus carefully and discuss risk and the portfolio’s fees and charges with their financial adviser to determine if the investment is appropriate for them.

AllianceBernstein (Luxembourg) S.à.r.l. is the management company of the AllianceBernstein—RMB Income Plus Portfolio.

AllianceBernstein® and the AB logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P. ©2012 AllianceBernstein L.P. www.alliancebernstein.com

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