Emerging markets rally as sector heard bursting with cash; huge demand for massively upsized CVRD deal

By Paul A. Harris

St. Louis, Nov. 16 - Emerging markets rallied in the face of phenomenal liquidity, a trader told Prospect News on Thursday afternoon.

For example, the trader said, the massively upsized deal from Vale Overseas Ltd./Companhia Vale do Rio Doce (CVRD), increased to $3.75 billion from $2.5 billion, was still hugely oversubscribed, even at the bigger level.

Later in the day, the company confirmed that demand outstripped supply by 3.4 times, giving total demand of $12.75 billion.

CVRD added that the 11-year tranche was placed with 290 accounts and the 30-year tranche with 240 investors. Of the total, 60% were high-grade bond investors.

In addition, CVRD claimed its deal as the largest debt offering ever by a Latin American company in the global capital markets.

CVRD's notes (Baa3/BBB) priced as a $1.25 billion tranche of 6¼% 11-year notes at a 168 basis points spread to Treasuries.

Price talk was for Treasuries plus 170 basis points. The 11-year notes came at a 99.267 dollar price to yield 6.346%.

The company also priced a $2.5 billion tranche of 6 7/8% 30-year notes at a 225 basis points spread to Treasuries, on top of price talk. The 30-year notes came at a dollar price of 98.478 to yield 6.997%.

Credit Suisse, UBS Investment Bank, Santander and ABN Amro led the debt refinancing from the Brazilian mining company.

Hutchison plans £500 million

Most of Thursday's news involved the higher end of the credit spectrum.

Hutchison Whampoa UK plc, a subsidiary of Hong Kong-based conglomerate, Hutchison Whampoa Ltd., unveiled a £500 million offering of unsecured notes (A3/A-/A-) in two tranches.

The deal is comprised of notes set to mature in November 2017, with price guidance of Gilts plus 105 basis points, and notes maturing in November 2026, with price guidance of Gilts plus 127 basis points.

The deal, which is being led by ABN Amro and The Royal Bank of Scotland, is expected to launch and price on Friday.

Gazprom sizes deal

Also from high grade land, Russian energy giant OJSC Gazprom set tranche sizes at $1.35 billion and €500 million for its approximately $2 billion equivalent two-part offering of notes (Baa1/BBB-/BBB-).

The dollar-denominated notes are being marked with price guidance of mid-swaps plus 110 basis points.

The euro-denominated notes, meanwhile, are guided at mid-swaps plus 118 basis points.

Pricing is expected on Friday via Credit Suisse and UBS.

Ecuador a little softer

While most of the asset class rallied, the debt of Ecuador continued to trade off because of political noise ahead of second round elections set for a week from Sunday.

Ecuadorian presidential candidate and former finance minister Rafael Correa, who has advocated that bondholders grant better rates on the country's sovereign debt, has been said to have drawn even with his opponent Alvaro Noboa, who had enjoyed as much as a 12% lead after the first round of voting.

A buy-side source spotted Ecuador's 10% step-up bonds maturing in August 2030 trading at 99.50 bid, 99.75 offered on Thursday, while the 9 3/8% notes maturing in 2015 were at 106.50 bid, 106.90 offered.

Both bonds were off ½ point on the bid side, the investor said.

However Ecuador's 12% bonds maturing in November 2012 were at 102.70 bid, 103.20 offered, up 1.70, the source added.

This investor said that Ecuadoreans are now in a "quiet period" ahead of the elections, with very little information circulating in the media inside the country.

Given this quiet period, the buy-sider counselled that one should be cautious with respect to the recent poll numbers that showed Correa advancing.

This source also has had an eye on Argentine warrants - based on actual gross domestic product versus projected gross domestic product - which he characterized as the highest beta asset in the entire emerging markets.

They had a good run over the past two weeks, from trading around 10 to almost 13, the buy-sider said.

Now they are coming back a little.

Phenomenal liquidity

Later in the session, a trader who focuses on Asian fixed income said that emerging markets were 5 bps tighter on the day, and added that Brazil had printed a new all-time tight in its five-year credit default swaps.

This source also noted Ecuador as an exception to the rallying emerging markets, and added that Asian high yield paper had not rallied as much as the broad market.

© 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.