Emerging markets: Baidu, MOL Hungarian Oil, Turkey sells notes; Cofide returns after long absence

By Rebecca Melvin

New York, Oct. 9 – Emerging markets bonds saw Baidu Inc. sell $950 million of notes, MOL Hungarian Oil and Gas plc sell €650 million of notes and Korea National Oil Corp. sell $700 million of notes this past week, but the biggest deal was the Republic of Turkey’s $2.5 billion in a single tranche of 6 3/8% five-year notes.

There was more corporate paper than sovereign pricing in a week of decent actively early in the week before things tapered off ahead of the long holiday weekend in the United States in observance of Columbus Day.

Baidu’s two tranches included $650 million of 2026 notes to yield 140 basis points over Treasuries and $300 million of 2030 notes to yield 160 bps over Treasuries. Goldman Sachs (Asia) LLC, BofA Securities, Inc. and J.P. Morgan Securities LLC were the joint bookrunners for the Beijing-based web services company’s deal.

MOL Hungarian priced €650 million seven-year bonds to yield mid-swaps plus 200 bps, according to a market source; and Korea National Oil priced $400 million 7/8% notes due 2025 and $300 million 1 5/8% notes due 2030 on Monday via BNP Paribas, Citigroup Global Markets Inc., Hongkong and Shanghai Banking Corp. Ltd., Korea Development Bank and UBS AG, Hong Kong Branch.

Turkey sold $2.5 billion of 6 3/8% five-year notes (expected ratings: B2//BB-) at 99.894 to yield 6.4% on Tuesday. BofA Securities, Citigroup and JPMorgan were the bookrunners of the notes that will be listed on the Luxembourg Stock Exchange’s regulated market.

Turkey is not one of the year’s EM sovereign defaulters. That list includes Argentina, Ecuador and Lebanon. But the nation is struggling. Moody’s Investors Service downgraded the government of Turkey’s issuer and senior unsecured debt ratings to B2 from B1 in mid-September, attributing the cut to a decline in foreign-currency reserves, political pressures and limited central bank independence and weakening of fiscal buffers.

Sector flows

Nevertheless, the financial markets got off to a pretty good start for the new quarter, 2020’s last. Signs of stress persist, mainly tied to economies bending under the bludgeoning of the Covid-19 coronavirus pandemic.

But U.S. stocks on Friday were headed for their best week since August. EM debt was looking better amid a dip in Treasuries, and fund flows were positive again for the week ended Oct. 9, according to EPFR-tracked Emerging Markets Bond Funds.

Market ebullience was attributed to a widening lead that former vice president Joe Biden was taking in opinion polls regarding the U.S. Election, thereby reducing the chances of uncertainty after Nov. 3.

According to EPFR, EM bond fund flows started the final quarter of 2020 by chalking up another inflow, hitting a five-week high. Both hard and local currency emerging markets bond funds attracted more than $1 billion.

Overall, retail flows for all emerging markets bond funds were positive for the 12th time in the past 14 weeks and funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates absorbed fresh money for the 20th time in the past 24 weeks.

Funds dedicated to sharia-compliant debt posted their biggest inflow since early February, but frontier markets bond funds chalked up their third straight outflow, according to EPFR’s weekly Global Navigator brief.

At the country level, China bond funds posted a 23rd consecutive inflow, Korea bond funds recorded their biggest inflow in three years and flows into South Africa bond funds rebounded from two straight weeks of outflows to a five-week high.

The latest allocations data for global emerging markets bond funds shows exposure to China at a fresh record high while allocations for Turkey are at levels last seen in the second quarter of 2003.

Additional issuance

Other notable deals this past week included Antofagasta plc’s $500 million of 2 3/8% senior notes due 2030 (BBB/BBB+), which priced on Thursday. The Rule 144A and Regulation S deal priced at 99.647 to yield 2.415%. Joint bookrunners were Citigroup, JPMorgan, BNP Paribas Securities Corp., Scotia Capital (USA) Inc. and SMBC Nikko Securities America, Inc., for the deal that will be listed on the London Stock Exchange’s regulated market. Antofagasta is a London-based mining conglomerate with operations in Chile.

Fellow mining concern, Fresnillo plc, based in Mexico City, sold $850 million of 4¼% senior notes due 2050 (Baa2/BBB). The proceeds of the Rule 144A and Regulation S notes were to be used to fund a tender offer for the company’s 5½% notes due 2023 and for general corporate purposes.

Noteholders tendered approximately $482 million of the 5½% notes in the tender offer, as previously reported.

Corporacion Financiera de Desarrollo SA (Cofide), a development bank based in Lima, Peru, sold a $500 million issue of 2.418% seven-year notes (BBB/BBB+), returning to the international market after a five-year absence.

The coupon represents the lowest ever for Cofide, and the second-lowest spread at 195 bps over the American benchmark rate.

The issue was nearly five times oversubscribed and notably not guaranteed by the republic.

Proceeds will be used to purchase up to $600 million of 2022 and 2025 notes.

The notes that were repurchased had 4¾% coupons. Through a cash tender offer, the bank was able to buy back $552.17 million of the notes from both issues, as previously reported.

Switching continents, Central & Eastern Europe-focused PPF Telecom Group BV, formerly PPF Arena 1 BV, sold a €500 million eurobond due Sept. 29, 2027 (Ba1/BB+/BBB-) with a 3¼% coupon.

More than 90 accounts subscribed to the offering, according to the company.

Initial price talk was in the 3½% area. Revised talk was for a yield of 3 3/8%.

Credit Agricole CIB, Raiffeisen Bank International, Societe Generale and UniCredit Bank were joint bookrunners and joint global coordinators.

Proceeds will be used to repay existing bank loans.

The telecommunications infrastructure company operates O2 Czech Republic, CETIN and Telenor CEE.

From Hong Kong, Crown International Corp. Ltd. finally said it has decided to terminate a proposed bond issue, citing the ongoing impact of the Covid-19 pandemic, according to a company announcement on Wednesday.

The proposed issue was announced in December 2019 and delayed in March due to the pandemic, and the company said that the current situation, while improved, continues to limit travel and necessitate lockdowns in various countries and cities.

The company said it will seek other financing solutions to support its future development.

The Hong Kong-based property and hotel investment holding company said it will make further announcements about the bonds.

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