Ecuador jumps as market sinks; True Move prices $225 million; Gazprom, Abu Dhabi talk benchmarks

By Aaron Hochman-Zimmerman

New York, July 25 - In the primary market, Thailand's True Move Co. Ltd. priced and big boys Russia's OAO Gazprom and the Emirate of Abu Dhabi talked their benchmark-sized deals but three more deals dropped from the calendar without making it to market.

In the secondary sphere, bonds were on the downside for a fourth consecutive session, with one major exception - Ecuador, whose bonds firmed smartly and whose spread versus U.S. Treasuryies narrowed markedly following the announcement that economy minister Richard Patino had been reassigned to another cabinet post and had been replaced by his deputy. While officials in Quito said that the country's polices would be unchanged, many in the market breathed an audible sigh of relief that the hard-line Patino - who had talked up the prospect of a possible debt restructuring - had been replaced by someone thought to be more a technocrat than an ideologue.

While Ecuador's bonds sizzled, Argentina's fizzled, falling for a ninth straight day and leading the overall market downturn for a second straight session.

Even Brazil, considered a much more solid credit than the neighboring Argentines, was lower, although not by very much.

Outside of Latin America, Philippine bonds continued to fall and the cost of its credit default swaps contracts continued to rise.

Turkey, whose bonds had firmed over the previous two sessions following the successful general elections there, was also seen lower.

Commentary on the emerging markets was widely negative.

"I don't see much flow now," said an emerging markets syndicate official about the deal pipeline.

A Latin American market analyst said that the market remains weak, but has found support at its current levels which are at "the lows of the cycle."

Nonetheless, one emerging markets analyst believes that hope remains for corporate issuers.

"There is still demand for paper," the analyst said, pointing to corporates like True Move.

In general, "everyone is just watching the CDX and the iTraxx so far as I can tell ... not much attention being paid to the new issue calendar," the analyst added.

True Move prices, gains

Thailand's True Move priced $225 million of seven-year 10 3/8% senior unsecured notes (B1/B) at 98.787 to yield 10 5/8%.

Deutsche Bank underwrote the deal, which was lowered from $230 million and came significantly higher than talk in the area of 10%.

The Bangkok, Thailand-based mobile phone service provider is expected to refinance its outstanding long-term Thai baht-denominated syndicated loan facility.

In trading, the notes were seen having moved up to 99.5 bid, bucking the general market trend.

"There's still a bid out there for EM corporates, even less well-known names," an emerging markets analyst commented.

Meanwhile, terms emerged as Qatar Real Estate Investment Co. was able to price its $300 million five-year floating rate sukuk (A2/BBB+) at Libor plus 73 basis points Tuesday.

The issue came in a little narrower than initial guidance of Libor plus 75 bps.

HSBC had the books for the Doha, Qatar-based real estate and land developer.

Even under sour market conditions "you'll still see Middle Eastern and Gulf deals getting done," said an emerging markets syndicate official.

Talk for two big deals

The Emirate of Abu Dhabi set the size at $1 billion and talk at mid-swaps plus 18 to 20 basis points for its planned offering of five-year notes (Aa2/AA /AA).

Citigroup and Deutsche Bank will have the books for what will be the Emirate's inaugural issuance.

Pricing is expected Thursday.

Russia's Gazprom, described as "the bellwether corporate in EM," by an emerging markets syndicate official, issued talk of 30-year Treasuries plus 220 to 225 basis points for its upcoming dollar-dominated benchmark-sized notes (//BBB-).

Pricing is also expected Thursday.

ABN Amro and Morgan Stanley will bring the deal to market for the Moscow-based oil company, which is 50.002% controlled by the Russian government.

Three more pull back

Dismal market conditions caught up with two Latin American issuers and one European.

Mexico's Corporacion Durango, SAB de CV pulled its $520 million two-tranche senior unsecured issue (B+/B+).

The first tranche was made up of five-year amortizing notes.

The accompanying tranche was intended to be a 10-year offer, non-callable for five years. The second tranche would have been paid as a bullet at maturity.

Merrill Lynch had the books for the deal.

Proceeds from the sale were intended to refinance existing debt and for general corporate purposes.

Corporacion Durango is a Durango, Mexico-based bag and box manufacturer.

First Investment Bank withdrew its €100 million issue of 10-year notes (Ba1/BB).

The deal had been talked in the Libor plus 250 basis points area.

Deutsche Bank had been mandated to bring the deal to market.

First Investment is based in Sofia, Bulgaria and is the largest domestically owned full service bank in Bulgaria.

Cyrela Brazil Realty SA announced the postponement of its Brazilian reais 500 million 10-year notes (BB).

Credit Suisse was the bookrunner for the Sao Paulo, Brazil-based homebuilder and real-estate developer.

The bonds had five years of call protection.

"It's not great ... So many deals have been pulled," said a syndicate official.

Subprime jitters still hurt

Apart from the special situation in Ecuador, emerging markets secondary trading pretty much remained in the same funk it has in over the past several sessions, with investor fears about how strong an impact the lingering U.S. subprime mortgage lending industry meltdown might have on other sectors of the debt markets casting an overall pall. Market sentiment was not helped by news of the cancellation of efforts to sell $12 billion of leveraged loans and junk bonds to potential investors in connection with the buyout of Chrysler Group by Cerberus Capital Management LP, due to poor market conditions; to keep the auto giant's buyout alive, the seven underwriting banks led by JP Morgan Chase & Co. will keep $10 billion of that debt on their books for now, while seller DaimlerChrysler AG and buyer Cerberus will each put up $1 billion.

With that kind of sour sentiment producing a flight-to-safety response among fixed-income investors, U.S. Treasuries remained strong on Wednesday, with the yield on the benchmark 10-year notes holding steady at 4.90%, a nearly eight-week low, and yields on the two-year notes driven down to 10-week lows at 4.73% on a successful auction, at below-predicted rates, of $18 billion of new two-year notes, as market nervousness spurred demand for the short Treasury paper.

With Treasuries continuing to hold the high ground and EM prices dropping, spreads - seen as a proxy for market aversion to risk - continued to widen, with the widely followed JP Morgan & Co. EMBI+ index quoted showing an average EM spread over Treasuries of 195 basis points, up 4 bps on the session. That puts that spread at its widest level since last December. Most individual EM country spreads measured by EMBI+ also widened - notably, Argentina's which were 20 bps wider.

Ecuador jumps on ministerial change

But Ecuador was the notable exception to the rule on Wednesday, with that nation's spread over Treasuries tightening by an eye-popping 69 bps, falling to 682 bps from 751 bps previously on news of the cabinet shakeup. The country's benchmark 10% dollar-denominated bonds due 2030 shot up to 85 bid, 86 offered from prior levels at 81.5 bid, 82 offered. Their yield fell by nearly ¾ percentage point to 11.92%.

The bonds began rising from the session's opening on rumors, followed by news reports, indicating that president Rafael Correa would remove Patino, his controversial economy minister. The upside move accelerated when the Ecuadoran government confirmed that Patino - an outspoken advocate of debt restructuring currently under investigation by the country's Congress - would assume the newly created post of coastal region affairs minister, to be replaced at the economy ministry by Fausto Ortiz, currently Patino's deputy.

The new minister "has basically outlined the possibility of two paths," observed Enrique Alvarez, head Latin American debt strategist for IDEAglobal, an international financial research company. "One is there would be some local debt creation, and on the other side, a continued payment of external debt."

Ecuador has more than $10 billion of external debt, racked up by the present regime's predecessors. When he ran for president last year, Correa, a left-wing populist, sharply criticized the debt as "illegitimate" and "illegal," strongly hinting that he might decide to not pay some of it - or perhaps even any of it - following the lead of Argentina, which defaulted on $100 billion of debt in 2002, forcing most bondholders to accept just 30 cents on the dollar.

When Correa took office, he and his new finance minister, Patino, continued to roil the markets with talk that they might force debtholders to take a haircut of as much as 60% - or more - although Ecuador did surprise the markets by making its scheduled bond interest payments on time, avoiding default. Patino at times changed his tone, sounding more conciliatory towards debtholders and less bellicose.

"Though president Correa has sort of identified the new minister as someone who will continue the same sort of policies on sovereign debt as the departing minister, Patino," Alvarez said, Ortiz "is seen more as a technocrat instead of an actual political mate of the president. So I think the market here is expressing some hope that Ecuador is going to have somewhat better performance going forward because the prospect of possible debt restructuring is beginning to fade, at least in the short term."

He noted the fact that "there's a political background to everything that's going on, with Congress investigating and then censuring the minister after a tape surfaced on which Patino was heard discussing with foreign bankers how the country's debt market could be manipulated. Patino has denied any wrongdoing, saying he was talking in theoretical terms.

The analyst noted that Correa had kept Patino in power as long as he did despite strong Congressional objections to prove his power to put whomever he wanted in the position, but decided to shift Patino out of the high-profile economy minister's job because the continued controversy arising from the scandal "was starting to eat into his popularity."

Correa "has opted for the easier road - he's basically moved Mr. Patino to the side, he hasn't discarded him altogether. He'll still have likely input into government decisions. At the same time, he puts in a new face, and to a certain sense, he tries to sell it to the local population that nothing has changed." However, added Alvarez, "we know that this round has been won, to a certain extent, by Congress, - which is an oddity because Correa hasn't let anyone turn his arm up till now."

Argentina slide continues; Brazil slips a little

While Ecuador's bonds were hot, Argentina's most definitely were not, leading the downsiders for a second consecutive session.

Its 8.28% dollar-denominated bonds fell nearly a full point to around the 89.5 level, while the bonds' yield widened by 9 bps to stand at 9.25%.

Overall, Argentina's spread over Treasuries widened out 20 bps on the day to 401 bps, the widest gap seen in nearly 13 months.

Brazil's widely traded 11% dollar-denominated global bonds due 2040 - considered the most liquid EM issue - was seen having lost about 1/8 point on the session to 130.688 bid.

Turkey bounce seen over

Turkey's spreads versus Treasuries were seen having widened out by 6 bps to 203 bps, and the yield on the country's benchmark 2009 bond was seen having risen to 17.26% from 17.18% at the close Tuesday.

That retrenchment marked the end of two straight days of solid gains, following the successful completion this past weekend of Parliamentary elections, which left prime minister Tayyip Erdogan's ruling AK Party in command of the national legislature, but not having enough power so as to rile up secularists, who fear Islamist influences from within the party such as Erdogan himself, as well as the country's foreign minister, Abdullah Gul. Efforts by the AK Party earlier this year to install Gul as the country's president provoked widespread opposition from the secularists, almost creating a constitutional crisis. Gul said Wednesday that he might make a new bid for the presidency.

Philippines debt lower, CDS prices climb

Philippine government bonds were seen in retreat, continuing a slide sparked after Fitch Ratings warned that Manila's fiscal deficit may almost double this year, blaming lower-than-expected revenues.

The country's dollar-denominated benchmark 2031 bonds slid to 108.5 bid, 109 offered, and its 2032s dropped to 94.625.

The price of a 5-year credit default swaps contract linked to that debt widened out as far as 157 bps - the highest level for the year so far - before dropping back to 150/155 bps, still well up from Tuesday's 141/146 bps.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.