Venezuela, PDVSA extend gains on ‘truce’ hopes; new Vedanta slips; EM sovereigns weaker

By Rebecca Melvin

New York, Aug. 4 – Venezuela and Petroleos de Venezuela SA bonds continued to lift on Friday amid confidence that debt interest will be paid by the isolated sovereign on Saturday and despite ongoing uncertainty about the country’s political situation.

Venezuela’s ruling socialist party was set to convene the new national constituent assembly on Friday as calls to abandon the plan from the United States, Brazil, Mexico, Argentina, the European Union and others remained unheeded.

Meanwhile, there were reports of division among opposition leaders about whether to boycott upcoming regional elections in December. The elections involving mayors and governors were supposed to have occurred in 2016. Now there is word of an agreement between the government of President Nicolas Maduro and the opposition regarding holding these elections in exchange for stopping the protests, a New York-based trader said.

Some branches of the opposition support participating in the elections, unwilling to give the unpopular Maduro regime leeway for victory. But others say the elections are rigged and there is no point in participating.

The bonds are going up on speculation that there will be a truce between the opposition and the government, the trader said.

“It’s a confusing signal being sent to the people that are against Maduro and no one understands it,” the trader said.

Meanwhile, Antonio Ledezma, one of the two opposition leaders rounded up in midnight raids on Tuesday was returned to house arrest on Friday. But there was no word on the second leader, Leopoldo Lopez, who was also detained.

Venezuela and PDVSA bonds started the day lower but moved up and closed about 1.5 points higher on the day.

The near-dated PDVSA bonds due later this year was 83 bid, 84 offered near the close after earlier trades at 82¼.

Elsewhere in emerging markets, Vedanta Resources plc’s newly priced notes slipped below par on Friday after the metals and mining company priced $1 billion of the 2024 notes at par to yield 6 1/8%. That was the midpoint of guidance, which had been revised down from 6 3/8% initially talked.

The new Vedanta notes were down to around 99.60 bid, 99.90 offered, a London-based market source said.

The deal broke on a day when emerging markets sovereigns saw a little bit of selling across the board after a stronger-than-expected U.S. nonfarm payrolls report for July sent U.S. Treasuries lower.

“Things were marked down with the Treasuries move,” a London-based sellsider said.

The Republic of Iraq’s new 6¾% notes, which priced on Wednesday, had pushed up again in trade to as high as 100.6 on Friday, but then slipped back to 100.35 bid, 100½ offered by the close in tandem with the broader Treasuries move, according to market sources.

The U.S. Labor Department said that nonfarm payrolls rose a seasonally adjusted 209,000 in July from the month before, which was better than forecasts. According to one poll, the increase was expected to be 180,000 new jobs.

Average hourly earnings climbed 2.5% from a year earlier, which was in line with the modest pace of increases this year but also better than expected. Many analysts had expected hourly earnings to slip.

The unemployment rate ticked down to 4.3% from 4.4% in June.

Ten-year Treasuries traded off after the data, sending yields up. But even with the move on Friday Treasuries ended at about unchanged for the week. Other data that came in the past week was mixed U.S. manufacturing and non-manufacturing data and disappointing car sales.

“All eyes were on nonfarm payrolls,” and otherwise the emerging markets were extremely quiet, a market source said.

While things were marked down with the Treasury move, many dealer positions were more hedged than normally already because personnel are away on vacation.

In addition to the Vedanta bonds, Bangalore-based lender Canara Bank priced $400 million 3¼% notes due 2022 (expected ratings: Baa3//BBB-). The issuance was made under the company’s $2 billion medium-term note program.

The Iraq bond, which one source said tried for 100.75 on Friday, pulled the rest of the high-yielding emerging market sovereign risk tighter.

Commodity exporters outperformed, including Ghana, Gabon, Ecuador, Angola and Iraq, which were all 20 basis points to 30 bps tighter on spread, according to a note by MUFG Securities.

Vedanta slips on the break

Vedanta priced at 6 1/8% yield, which was in the middle of guidance at 6 1/8% area plus or minus 12.5 bps. The range was revised down from 6 3/8% initially talked.

Proceeds will be used primarily to repurchase $774,772,000 of 6% bonds due 2019 and $900 million of 8¼% bonds due 2021 and to repay other indebtedness. Vedanta has received and accepted for purchase $522,513,000 of the 2019 bonds and $229,843,000 of the 2021 bonds.

Vedanta priced $1 billion of seven-year senior notes (expected ratings: B3/ B+/) under Rule 144A and Regulation S.

Barclays, Credit Suisse, DBS Bank Ltd., First Abu Dhabi Bank, JPMorgan and Standard Chartered Bank were joint global coordinators and joint bookrunners with Axis Bank and Icici Bank Ltd. – IFSC Banking Unit also acting as joint bookrunners.

Concurrently with the new bond issue, the company has received commitments from global and Indian banks for $840 million of five-year term loans.

Upon completion of these transactions, Vedanta will refinance part of its 2019 and 2021 bond maturities and extend the company’s average debt maturity by 1½ years.

In January Vedanta priced $1 billion of 5½-year senior notes at par to yield 6 3/8%. The yield printed at the tight end of yield talk in the 6½% area. Initial price talk was in the 6¾% area.

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