Oil prices boost EM; Ukraine, Russia crisis continues; Lat-Am spreads narrow; NBAD plans notes

By Christine Van Dusen

Atlanta, Aug. 19 – Oil prices rose on Friday, even after reports that Saudi Arabia hit a seasonal export record, during a positive but low-liquidity session for emerging markets assets.

“Oil prices above $51 per barrel will support investor demand in the market. However, the Russian and Ukrainian markets may underperform due to the raised tensions between the countries,” according to a report from Schildershoven Finance BV. “Risk is skewed to the downside, as market participants may fix profits before the weekend.”

Taking at look at Ukraine, the crisis with Russia continued to deteriorate into the end of the week after the president said the military could consider imposing a draft if hostilities worsen.

“The Russian-Ukrainian raised tensions negatively affect investor mood,” the report said. “However, the reaction is still quite moderate.”

Overall, volumes and liquidity remained poor for emerging markets assets, as is typical for August, a trader said.

“It’s only really Turkey that has drifted wider,” he said. “Given the performance since the attempted coup and the overhanging rating decisions, it’s not a surprise to see some profit-taking. That said, when you start looking to allocate cash into the market, even with the potential short term event risks, Turkey does look interesting.”

As Fitch Ratings prepares to review Turkey, “risk currently prices in a premium over other credits rated in the crossover region,” he said.

In trading from Latin America, spreads drifted a bit wider and cash prices dipped slightly, a New York-based trader said.

Five-year credit default swaps spreads for Brazil closed at 252 basis points from 250 bps, while Mexico’s moved to 132 bps from 130 bps, he said.

“Cash prices feel a bit heavy as rates back up a bit and equities slide,” he said. “Lat-Am high yield is also softer on the day.”

Lat-Am tightens

PDVSA’s 2017s closed at 74.25 from 75.50, Venezuela’s 2027s were down at 48.65 from 49, and Argentina’s Bonar 2024s closed at 118 from 118.75, the trader said. The latter sovereign’s 2026s closed at 112 from 112.65.

“Volumes were extremely subdued, as has been the case for summer Fridays, with scrappy two-way inquiry,” he said.

Zambia in talks

Zambia remained on radar screens on Friday amid what the government is calling great progress in talks with the International Monetary Fund about a possible $1.2 billion loan program.

“Following last week’s election in Zambia and despite allegations by the opposition that the poll was rigged, the focus now falls on a potential IMF deal,” an analyst said.

Egypt mandates

As Moody’s Investors Service was said to be taking a look at Romania and Egypt, the latter sovereign mandated four banks to lead a dollar-denominated transaction, a market source said.

BNP Paribas, Citigroup, JPMorgan and Natixis are the bookrunners for the deal.

Other details were not immediately available on Friday

Jackson Hole ahead

Looking ahead, investors are awaiting next week’s Jackson Hole economic policy symposium, which could have an impact on emerging markets debt, said Peter Kinsella, an analyst with Commerzbank.

“EM assets enjoyed a superb August,” he said. “The immediate outlook will depend on the general tone from speakers at the Jackson Hole symposium next week. There is a chance of a paradigm shift for markets, and consequently we think it makes sense to retain broad long EM exposures.”

After the United Kingdom voted to exit the European Union, “investors increased risk allocations and shorted the dollar,” he said. “Initially the market response can be understood as betting on central bank response functions towards any economic fallout as a result of the vote.”

The recent rally “implies that markets are getting rather giddy or that we are seeing the beginning of a paradigm shift in terms of how markets think about monetary policy, especially from the major central banks,” he said. “Essentially investors are asking whether the ‘lower for longer’ rates theme is at risk of becoming ‘lower forever.’”

China Aircraft rises

In trading on Friday, the new issue of notes from Hong Kong-based China Aircraft Leasing Group Holdings Ltd. – $300 million 4.9% notes due 2021 that priced Monday at par – was spotted at 101.358 bid, 100.887 ask after trading Wednesday at 100.705 bid, 100.392 ask, a market source said.

China Everbright Bank and DBS Bank were the bookrunners and joint lead managers for the Regulation S deal.

The proceeds will be used for the aircraft leasing company’s new aircraft acquisitions, for financing its aircraft disassembly center, for business expansion and for general corporate purposes.

HNA trades up

China’s HNA Group Co. Ltd. saw its new issue of $300 million 6% notes due Aug. 18, 2019 that priced Monday at par to yield 6% trade at 102.023 bid, 101.560 offered after being spotted at 101.922 bid, 101.551 offered earlier in the week, a market source said.

The issuer is a Haikou City, China-based business conglomerate that focuses on airport services, air transportation, real estate, hotel and catering, travel services, commercial retail, logistics and transportation, financial services and network information technology businesses.

NTPC moves higher

India-based NTPC Ltd.’s recent Rs. 20 billion 7 3/8% green bonds due Aug. 10, 2021 that priced at 99.575 to yield 7.48% were seen Friday at 100¼ bid, 100½, flat to earlier in the week, a market source said.

Axis Bank, HSBC, MUFG and Standard Chartered Bank were the bookrunners for the New Delhi power company’s Regulation S deal.

The proceeds will be used to finance investments in renewable energy projects.

NBAD sets roadshow

National Bank of Abu Dhabi will set out on Aug. 22 for a roadshow to market a dollar-denominated and benchmark-sized issue of green bonds, a market source said.

BofA Merrill Lynch, Bank of Toyko-Mitsubishi, Credit Agricole CIB, Citigroup, HSBC and NBAD are the bookrunners for the deal.

The roadshow will end on Sept. 5.

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