Kazakhstan guides pricing of euro notes; Naftogaz plans notes; Mexico bonds weaker, stable

By Rebecca Melvin

New York, Nov. 5 – Kazakhstan was pricing dual tranches of euro-denominated senior notes on Monday when only a single inaugural benchmark had been expected.

“It looks like it went pretty well,” a London-based market source said regarding Kazakhstan’s five-year and 10-year tranches.

The combined order book was around €4 billion with a slight skew to the five-year notes.

No gray market was heard in the notes, which were seen pricing to yield 1.575%, plus or minus 2.5 basis points, for the five-year tranche and 2.4%, plus or minus 2.5 bps, for the 10-year issue.

Also in the Central & Emerging Europe region, Naftogaz of Ukraine announced that it plans to price dollar-denominated five-year notes. Citigroup and Deutsche Bank are managing meetings between the Kiev-based oil and gas company and fixed-income investors in the United States and London.

Back in established issues, CEE bond spreads were little changed on the day. The recently priced Ukraine five-year and 10-year senior notes were down about 0.5 point, but they were only 5 bps wider, a market source said.

Ukraine priced $750 million of the 9% 2024 notes and $1.25 billion of the 9¾% 2028 notes last month.

Mexico’s bond spreads remained wider a week after they were rocked by news the country’s president elect is canceling a $13.3 billion airport project, which has $6 billion of bonds tied to it and was already one-third of the way done.

While virtually all of Mexico’s paper moved wider on “all the noise...it seems to have found some place of stability at current levels,” a New York-based market source said on Monday.

The decision sparked fears that Andres Manuel Lopez Obrador may not honor other contracts or investor-friendly policies.

Whether AMLO, as the president elect is known, hurt the debt new issue market is difficult to say, but, he “definitely rocked the market as far as Mexico is concerned and caused more overall cautiousness in Latin America [debt] specifically,” the market source said.

“Prospective Mexican corporate issuers are affected as it has a created an environment of heightened uncertainty in Mexico,” the source said. “And yet, some discounting of his comments is still being done until the team comes into office.”

AMLO has said that his reasons for canceling the project are because the budget cost is overvalued and because of corruption plaguing the contractor processes.

About the $6 billion of airport bonds outstanding there is much speculation on whether the bonds will be paid or restructured and, if restructured, by how much.

In addition, Fitch Ratings said that canceling the project will cost about $5 billion, although AMLO says his alternative of renovating and expanding the existing airport will save money in the long run.

Fitch lowered its outlook on Mexico’s sovereign debt rating to negative from stable last week, citing “policy uncertainty.”

Mexico’s currency and much of the bond space has lifted from lows notched last week, but they have not yet recovered to their levels prior to the cancelation bombshell.

Petroleos Mexicanos’ 6½% bonds due 2027 stood at 97.60 late Monday, which is up from below 97 last Tuesday but below the price tag of more than 98 that this bond received the week before.

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