Cemex sells notes as Portugal casts shadow over EM; Metalloinvest, Korea Hydro ahead

By Christine Van Dusen

Atlanta, July 6 - Mexico's Cemex SAB de CV was alone in pricing new notes on Wednesday as the news of Portugal's downgrade to junk status by Moody's Investors Service took attention away from emerging markets assets.

"All the action in periphery euro zone puts EM in the shade today, aside from some sporadic selling," a London-based trader said. "Most credits were 5 to 7 basis points wider, with really only South Africa unchanged."

Several issuers did manage to take steps toward the market, including Caribbean Development Bank, Russia's Metalloinvest Management Co. LLC, Russia's Vnesheconombank, Korea Hydro & Nuclear Power and the Republic of the Philippines.

But volumes remain low, an emerging markets strategist said.

"It's the summer period, and July is one of the months with the worst volumes, aside from August, which is even worse," he said. "It could be some investors are taking time off a little bit early this year."

That has also managed to keep the primary market fairly quiet, too, he said.

"It's a combination of summer and Greece," he said. "The good news is that cash positions have been building."

Cemex prints bonds

In its new deal, Mexico-based building materials supplier and cement producer Cemex priced a $650 million add-on to its 9% notes due Jan. 11, 2018 at 97.616 to yield 9½%, a market source said.

Citigroup was the bookrunner for the Rule 144A and Regulation S transaction.

The original issue totaled $1 billion and priced on Jan. 4 at 99.364 to yield 9 1/8% via Bank of America Merrill Lynch and JPMorgan.

Proceeds will be used for general corporate purposes, including the repayment of debt.

The company in June shelved plans for a $650 million issue of notes due 2019 via Bank of America Merrill Lynch and HSBC due to market volatility.

Soon after pricing, the new notes were seen trading at 99.75 bid, 100.25 offered.

Colombia, CLP Power price

The Cemex issue followed the late-Tuesday pricing of the Republic of Colombia's $2 billion 4 3/8% global bonds due July 12, 2021, which came to the market at 99.599 to yield 4.425%, or Treasuries plus 130 bps, a market source said.

The notes priced in line with talk, which was set at the Treasuries plus 135 bps area.

Bank of America Merrill Lynch, Barclays Capital and Citigroup were the bookrunners for the Securities and Exchange Commission-registered deal.

"Colombia is showing us how it's done as they wrap up a $2 billion 10-year in an afternoon," a London-based market source said. "Newly downgraded Portugal can only dream of such liquidity right now."

Also pricing notes late Tuesday was electric company CLP Power Hong Kong Ltd., which sold $300 million 4¾% senior notes due July 12, 2021 at 99.324 to yield 4.836%, or Treasuries plus 170 bps, a market source said.

Deutsche Bank, HSBC, RBS and Standard Chartered were the bookrunners for the Regulation S notes.

Development bank deal on tap

For its planned deal, Barbados-based lender Caribbean Development Bank is looking to issue $200 million five-year floating-rate notes, a market source said.

BNP Paribas is the bookrunner for the Rule 144A and Regulation S offering.

Separately, the Philippines is planning an issue of $500 million before the end of the year, a market source said.

And Korea Hydro & Nuclear Power (KHNP) set price talk for its planned issue of 10-year notes at Treasuries plus 200 bps to 210 bps, a market source said.

Barclays Capital, Goldman Sachs, Morgan Stanley, RBS and Samsung Securities are the bookrunners for the deal.

Metalloinvest taps dealers

Russia-based mining and metallurgy company Metalloinvest Management has mandated BNP Paribas, Bank of America Merrill Lynch, Credit Suisse, ING, JPMorgan, RBS, Societe Generale, Troika Dialog and VTB Capital for an issue of dollar-denominated notes, a market source said.

The Rule 144A and Regulation S transaction is expected to come to the market following a roadshow from July 8 to July 13. The marketing trip will travel from the West Coast to Boston, Geneva, Zurich and New York before wrapping up in London.

"That's actually bringing demand up for other mining assets," a trader said.

Also from Russia, lender Vnesheconombank (VEB) set the tenor for its planned issue of notes at 10 years or more, a market source said.

BNP Paribas, JPMorgan, Morgan Stanley and RBS are the bookrunners for the deal.

Turkey sovereign widens

In trading, Turkey and its corporates were slightly softer on the open, a trader said. In the afternoon, the sovereign curve was trading 6 bps to 7 bps wider.

"Banks, on the other hand, were the outperformers, despite a report stating that profits of Turkish banks declined by 18.4% year-over-year," a London-based analyst said. "We've seen solid demand for Turkiye Is Bankasi AS on the Street."

Retail demand was also seen for Garanti Bankasi AS' 2021 notes "in scrap amounts," he said.

"Given the various rumored new issues in the pipeline, can the banks continue performing?" he said.

Sellers for Gabon, Ghana

From Africa, some Street selling was seen for Gabon and Ghana.

"In contrast, Nigeria - the sovereign and GTB Finance BV - are holding well and seeing nibbling," a trader said. "African Export-Import Bank's 2014 dollar notes are again quiet, with no selling pressure ahead of roadshows."

And Russia's corporates were all performing well while Malaysia's recent sukuk was 25 bps tighter from issuance.

Looking to the Middle East, the recent sukuk issue of notes from HSBC Bank Middle East - $500 million 3.575% notes due 2016 that came to the market at par on May 26 - were seen at 101.55 bid, 101.65 offered early on Wednesday.

By the European afternoon, the notes were trading at 101.56 bid, 101.71 offered, 2 bps tighter on the week, a trader said.

Middle East in focus

Dubai was "a tad wider today as the market takes a breather," he said, also noting that better buying was seen for Abu Dhabi Islamic Bank and Abu Dhabi National Energy Co.'s 2016s.

"While I'm pretty cautious about Bahrain, the bonds are fairly well supported locally," he said.

Qatar's Qtel International saw better buyers for its 2025s and better sellers for its 2021s.

"The 2016s are not looking too appealing at the moment on the z-spread basis," he said. "However, it's close to par and at the five-year sweet spot, maturity-wise."

EM poised for rebound

Taking a look at the big picture for emerging markets debt, the asset class is expected to rebound in the next one to three months as a mix of growth and inflation allow for easing in policy tightening, according to a report from Nick Chamie, head of emerging markets research for RBC Capital Markets.

"Recent position cleaning will help rally through August," he said, but the "Greek debt restructuring could trigger contagion and bank stresses in September."

Looking ahead to the next four to 12 months, Chamie expects returns to moderate and for valuations to return to above fair value.

He recommends rebuilding EM exposure in the third quarter, focusing on positioning and valuations and favoring selective high-beta external debt.

Paul A. Harris contributed to this article.

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