Uruguay prints $1.25 billion bonds due 2031; Mexico prices $2 billion; two Middle East banks price

By Rebecca Melvin

New York, Jan. 16 – A pair of Latin American sovereigns and a pair of Middle Eastern bank issuers have priced deals in the past two days in the emerging markets debt primary, representing a strong showing for segments of the market that have seen little issuance for months.

“It’s alive,” a New York-based market source said of the Latin American debt market.

Latin America’s debt primary has been more or less shut since September, succumbing to a series of global and regional shocks including fears related to slowing global growth and the United States and China trade dispute.

The Middle East region saw Saudi Arabia sell $7.5 billion of notes in two tranches earlier this month and Oman priced a $1.5 billion seven-year sukuk in October. But there has been a dearth of Middle Eastern credits pricing deals in between.

Debt players on Wednesday eyed the Republic of Uruguay’s $1.25 billion of 4 3/8% bonds due 2031, which priced at a tighter-than-expected yield of 175 basis points over U.S. Treasuries.

The pricing was tighter than guidance for a yield of Treasuries plus 185 bps, plus or minus 5 bps. “It was surprising and certainly positive” for the Latin America debt primary market, a New York-based market source said. “It was a very good book, and they used it to tighten below where they thought it was possible,” the source said.

Initial price talk for the Uruguay 2031 notes was at Treasuries plus low 200 bps.

Following on the heels of Uruguay’s success, the United Mexican States announced on Wednesday that it was offering U.S. dollar-denominated 10-year global notes. The sovereign ended up pricing $2 billion of notes to yield Treasuries plus 185 bps, which was tighter than initial price talk for a yield of Treasuries plus 210 bps area, according to a syndicate source. Further details were not immediately available.

The premium was about 50 bps higher compared to that paid by the sovereign for a 10-year note at the beginning of 2018. That deal priced with a yield spread of Treasuries plus 135 bps.

“Mexico is tricky,” a New York-based market source said on Wednesday before the deal priced.

There were doubts about whether Mexico would come with a deal given “a very mixed reaction” to the proposed deal from investors last week.

But in fact, the sovereign didn’t do as badly as the state-owned oil company, Petroleos Mexicanos SAB de CV, the source said, regarding those meetings aimed at testing the waters. “For the sovereign, it was OK.”

Now Uruguay has set the tone for sovereigns, and it seems like a solid market, the source said.

Mexico sovereign bonds have rebounded from a sharp drop starting in October when the country’s leftist president-elect Andres Manuel Lopez Obrador announced that he was canceling the Mexico City Airport project for which $6 billion of bonds had already been sold. Since then, AMLO, as the new president is often called, has delivered a fiscal 2019 budget considered sound by many market players and negotiated a deal with holders of the Mexico City Airport bonds.

Mexico has benefited not only from AMLO’s reassuring actions, but also from a global narrowing of interest-rate spreads in the last few weeks as investors weigh the probability that the U.S. Federal Reserve will slow its current course of interest rate increases going forward and that the United States and China will avert a full-blown trade war.

On Tuesday and Wednesday, there was also a pair of new issues for Middle East banks. First Abu Dhabi Bank PJSC’s newly priced $850 million five-year sukuk, or Islamic bond “did OK,” a London-based market source said on Wednesday.

After first-day trading, the market source closed the notes at 99.95 bid, 100 offered. The deal priced at 99.838 for a profit rate of 3.911% or a yield spread of mid-swaps plus 130 bps.

Meanwhile, Dubai Islamic Bank PJSC’s DIB Tier 1 Sukuk (3) Ltd., a subsidiary of Dubai Islamic Bank PJSC, priced $750 million of perpetual Tier 1 capital certificates at par on Wednesday for a profit rate of 6¼%, or Treasuries plus 366.4 basis points.

The bonds are callable at par on Jan. 22, 2025 or on each profit distribution date thereafter. They are also callable following a capital event at 101.

Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, HSBC, JPMorgan, KFH Capital, Sharjah Islamic Bank and Standard Chartered Bank were joint lead managers and bookrunners of the Regulation S deal.

The deal saw an order book of more than $3.6 billion.

The Tuesday Abu Dhabi Bank sukuk was upsized from an initially talked $750 million deal size, and pricing was tightened from guidance of mid-swaps plus 140 bps and initial talk at mid-swaps plus 150 bps.

Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, KFH Capital, NCB Capital Co., Sharjah Islamic Bank and Standard Chartered Bank were joint bookrunners of the bond, which priced on Tuesday under Regulation S.

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