Saudi Arabia talks new sukuk; Apicorp prices notes; Africa Development Bank to bring deal

By Rebecca Melvin

New York, Sept. 12 – The Gulf Council Cooperation countries were in focus in emerging markets debt on Wednesday, with Saudi Arabia announcing a new sukuk, or Islamic bond, and initial price talk, representing its first new issue activity in five months on the heels of Saudi Arabia’s Arab Petroleum Investments Corp., or Apicorp, pricing $750 million of 4 1/8% five-year senior notes on Tuesday at mid-swaps plus 117 basis points, according to market source.

Abu Dhabi-based Al Hilal Bank and Abu Dhabi Islamic Bank each launched on Wednesday new deals. Al Hilal was pricing a $500 million five-year sukuk to yield mid-swaps plus 148 bps, and Abu Dhabi Islamic Bank was pricing a $750 million tier 1 perpetual Islamic note to yield 7 1/8%.

The notes are non-callable for five years.

Meanwhile, African Development Bank said it plans to price a U.S. dollar benchmark offering of five-year global Securities and Exchange Commission-exempt bonds, with initial price talk at mid-swaps plus 7 bps. The multilateral development bank is based in Abidjan, Ivory Coast.

But outside of the Middle East and Africa, the emerging markets debt market was quiet again, but mostly steady, marking a continuation of stability this week that stands in contrast to volatility in the prior weeks.

“There is no reason for them to move ahead,” a New York-based market source said regarding new issuance for Latin America. The market has been waiting for a restart following the summer slowdown period, but none has yet been forthcoming given a raft of uncertainty surrounding Latin American economies like Argentina and Brazil and uncertainty in the world in general, including China.

“It doesn’t seem like anyone’s going to be in the primary market any time soon,” the market source said, citing a prevailing tone of caution after significant losses racked up this year.

“Investors have lost a fair amount of money this year and there are outflows as investors sit on cash. They don’t want to buy anything because it means they have to sell something else and that’s not easy to do right now.”

Some emerging markets investors are down 7% to 8% for the year to date. Looking ahead, a major event that could spark further selling or a mild recovery is Brazil’s presidential election on Oct. 7.

That “is probably the biggest thing right now other than concerns about China growth,” the source said.

There are still a lot of questions around the outcome of the election, and while polls give leftist candidates a strong showing, Jair Bolsonaro, the frontrunner on the far-right, continues to poll well even as the 63-year old recovers from last week’s life threatening stabbing attack at a campaign rally.

“Bolsonaro has a 50% chance,” a market source said. “More people dislike him than like him, but it is not obvious who the other person is to have a different outcome.”

Although market flows and pricing have stabilized this week from last week, in particular for Mexico and Chile, there is still a lot of uncertainty.

The other big question that factors into whether emerging markets stabilize from here or continue to slide is how China fares economically in the coming months. The next round of U.S. tariffs on some $200 billion of Chinese goods would harm China growth, but whether the tariffs go into effect remains uncertain.

On Wednesday there were reports that the Trump administration has reached out to China for a new round trade talks involving high-level officials. The proposed talks could be held in Washington or Beijing, but they hold out hopes that the trade war can be defused.

“There are questions regarding whether EM contagion could hurt G7 countries. If it’s Argentina or Turkey, it’s unlikely to affect G7 countries, but it its China, that’s different,” the market source said.

© 2015 Prospect News.
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