Petrobras sees buyers on possible recapitalization; TAQA struggles; Korean Air gets orders

By Christine Van Dusen

Atlanta, Nov. 20 – Brazil was the focus of attention on an otherwise mostly quiet, illiquid Friday, as the government considered several ways of recapitalizing debt-saddled Petroleo Brasileiro SA.

“With close to $20 billion in debt maturing in the next year and a half, and a veritable mountain of debt to be repaid in 2019 to 2021 by a company that has had negative free cash flow for years, something had to be done,” a trader said. “This is undoubtedly good news for Petrobras, but the impact in Brazil’s sovereign spreads is less clear and probably long-term negative.”

A recapitalization would affect not only sovereign debt but also public sector debt, he said.

In response, buyers were out “in droves” for bonds from Petrobras on Friday, a New York-based trader said.

The curve was a little bit stronger after “a blistering move yesterday afternoon,” he said.

The rest of the Brazilian corporate market was slightly better, he said, with Gerdau SA moving back up after getting knocked down one point.

“Even Codelco is a bit firmer, as we’ve already seen a few buyers of the 2021s, which have been better-offered recently as they touched their all-time wides again,” he said.

Brazil-based Vale SA remained at Thursday’s widening, he said.

Also on Friday, Brazil released data showing that the country eliminated more than 16,000 jobs in October. During the same month a year ago, Brazil created 123,785 jobs, according to a report from Barclays Capital.

For other emerging markets debt, the tone was “fairly bullish,” a London-based trader said. “But don’t forget the yuan devalue and pick-up in U.S. inflation as tail risks to EM credit.”

Turkey firms, TAQA struggles

In other trading, Turkey’s bonds opened firmly on Friday, “as expectations build on a market-friendly cabinet,” a trader said.

From the Middle East, Abu Dhabi National Energy Co. (TAQA) struggled, he said.

“I’ve been wary of this credit for some time, and it’s underperformed Abu Dhabi peers by some margin since the summer,” he said. “The 2021 from TAQA is now at a trading level not seen since Easter 2012.”

Middle East in focus

Bonds from Dubai continued to “hold in relatively well,” he said, given that its economy relies on more than just oil.

“Demand for Saudi Electricity Co. today, but still a decent 40 basis points to 50 bps wider on the month,” he said.

Also from the Middle East, market-watchers were whispering about a possible issue from Saudi Arabia in 2016.

“This, like Bahrain, remains the big risk, with a clearing level on benchmark size seeing a re-pricing of other assets at the expense of secondary holders,” he said.

Televisa issues notes

Late on Thursday, Mexico’s Grupo Televisa SAB priced a two-tranche issue of $1.2 billion notes due Jan. 30, 2026 and Jan. 31, 2046, a market source said.

The $300 million 4 5/8%10-year notes priced at 99.385 to yield 4.7%, or Treasuries plus 245 bps. Initial price talk was set in the 262.5-bps area.

The $900 million 6 1/8% 30-year notes priced 99.677 to yield 6.147%, or Treasuries plus 312.5 bps, following talk in the 337.5-bps area.

Goldman Sachs & Co., HSBC Securities (USA) Inc. and Morgan Stanley & Co. LLC were the bookrunners for the Securities and Exchange Commission-registered deal.

The proceeds will be used for general corporate purposes, including capital expenditures associated with the continued growth of its cable and telecommunication segments.

Grupo Televisa is a Mexico City-based mass media company.

Korean Air releases final book

The final book for the new issue of notes from Korean Air Lines Co. Ltd. – $300 million 2½% notes due 2045 that priced Thursday at 99.963 to yield 2.513%, or Treasuries plus 130 bps – was about $900 million from 47 accounts, a market source said.

BNP Paribas was the bookrunner for the Regulation S notes, which were guaranteed by the Export-Import Bank of Korea.

About 91% of the orders came from Asia and 9% from Europe, the Middle East and Asia, with banks picking up 53%, asset and fund managers 36%, private banks 8% and insurers 3%.

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