Kazakhstan makes return to markets; risk appetite grows, then dwindles; Brazil in focus

By Christine Van Dusen

Atlanta, Oct. 6 – Kazakhstan sold notes on Monday as emerging markets assets tightened dramatically – on news that a market-friendly candidate was elected in Brazil and the protests in Hong Kong calmed – but faded as investors digested the news.

Many bonds gave up their gains into the close. For example, bonds from Brazil started the session “furiously tighter,” with Brazil-based Petroleo Brasileiro narrowing as much as 30 basis points during the morning and Vale SA tightening as much as 13 bps, a New York-based trader said.

By the afternoon, sellers piled up, and Petrobras moved back out, as did some high-grade corporate bonds, he said.

Brazil’s sovereign bonds managed to finish Monday up about 50 cents, he said, while other high-grade names outside of Brazil firmed slightly. But volumes were low, he said.

Support for Mexico-based Cemex SAB de CV dwindled, with few sellers spotted, he said.

Meanwhile, tensions remained high in Ukraine, though major headlines over the weekend were limited, a London-based analyst said.

“Russian credit default swaps spreads are 3 bps tighter this morning, with banks also seeing spreads tighten, although a few corporate names are trading a little weaker,” he said.

Bonds from the Middle East put in a “lackluster” session on Monday, given that most of the region was celebrating the Eid holidays, a London-based trader said.

Still, Emirates NBD’s perpetual notes continued to trade while most long-dated bonds were firm, he said.

“Saw further demand for Saudi Electricity Co. and DPWorld, as well as Street demand on Qatar and Bahrain sovereign,” he said. “More retail demand for Kuwait Energy’s 2019s and some Abu Dhabi Islamic Bank and Dubai Islamic Bank perpetual retail flow.”

Middle Eastern bonds widen

Most bonds from the Middle East saw their spreads widen slightly on Monday, the London trader said.

Qtel International and Abu Dhabi National Energy Co. were the most popular bonds during the session, he said.

“Some money went into the seven- to 10-year part of those curves,” he said. “We don’t expect much more activity tomorrow.”

Turkey outperforms

Turkey saw its bonds outperform after Fitch Ratings affirmed the sovereign’s rating at BBB- and maintained a stable outlook.

“Thirty-year paper is marketing up 1.75 to 2 points,” a London-based trader said.

Russia’s 2030s were seen trading between 112 1/8 and 112 1/4.

“From Central and emerging Europe, flows have been muted after seeing better sellers last week,” he said.

Kazakhstan prices two tranches

In its new deal, Kazakhstan priced a $2.5 billion issue of notes due Oct. 14, 2024 and 2044, a syndicate source said.

The $1.5 billion 3 7/8% 10-year notes priced at 98.387 to yield 4.073%, or mid-swaps plus 150 bps.

The notes were talked at a spread in the 175 bps area.

The $1 billion 4 7/8% notes due in 2044 priced at 96.324 to yield 5.116%, or mid-swaps plus 200 bps.

Talk was set in the 230 bps area.

Citigroup, HSBC and JPMorgan were the bookrunners for the Rule 144A and Regulation S deal.

Pemex sets talk

Mexico’s Petroleos Mexicanos SAB de CV (Pemex) set talk for a new issue of 10-year notes and a tap of its 2044 notes, a market source said.

The new 10-years were talked at a spread in the Treasuries plus 210 bps area.

The tap of the 2044s was talked at a spread in the Treasuries plus 240 bps area.

The existing $2.75 billion 2044 notes carry a 5½% coupon.

BofA Merrill Lynch, Credit Agricole CIB and JPMorgan are the bookrunners for the deal.

The proceeds will be used for the early redemption of Pemex’s 2015 notes, to finance an investment program and for working capital needs.

Pemex is a Mexico City-based petrochemical company.

InRetail Consumer sets talk

Peru’s InRetail Consumer set talk in the high-5% area for its upcoming issue of $300 million notes due in seven years, a market source said.

Citigroup and Credit Suisse are the bookrunners for the Rule 144A and Regulation S notes, which are non-callable for four years.

The proceeds will be used to fund a buyback of the company’s 8 7/8% notes due in 2018.

The tender offer for all $300 million of the outstanding senior notes began earlier this month. InRetail expects to settle purchases of notes tendered by the early deadline on Oct. 10.

InRetail Consumer is the pharmacy and supermarket division of Intercorp Peru, a conglomerate based in Lima.

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