South Africa’s Eskom Holdings on tap; emerging markets mostly steady; Aruba sells bonds

By Rebecca Melvin

New York, July 31 – As July closed on a quiet note on Tuesday for emerging market bonds, market players were eyeing a proposed dollar bond issue from South Africa’s Eskom Holdings SOC Ltd., which could price as soon as Wednesday.

The Johannesburg-based state-run utility had talked about potentially two tranches, one guaranteed by the government and a second non-guaranteed tranche, both being sold under a $4 billion medium-term note program. According to market sources both tranches are expected for up to $1.5 billion total.

Barclays, JPMorgan, Standard Bank and ABSA Bank are bookrunners for the Rule 144A and Regulation S deal.

The emerging markets secondary was little changed in the early going, although some currencies were under pressure, including the Turkish lira, which crept back up to 4.91 to the U.S. dollar and was weaker after having improved for much of July.

The Indonesian rupiah was also slightly weaker, although the Argentine peso and Brazilian real were slightly stronger.

In the Latin America region, Aruba priced a $125 million private placement of 6˝% bonds due 2029 that priced at par for a yield spread of 355.1 basis points over 10-year Treasuries, according to a New York-based market source.

“It’s a good thing that they could get it priced, but it’s such a unique structure, a private placement, so it doesn’t tell you much,” the source said.

There is the outside chance that new issues could price this week or next. But if not, then the new issue market will effectively be shut until post Labor Day, the source said.

The post-Labor Day market promises to be busy given pent up demand. Many would-be issuers postponed offerings rather than wade into the market volatility of May and June, the source said.

In the secondary market, existing paper was stable. July has been positive in that spreads tightened somewhat and everything was stabilizing, the source said.

On Tuesday spreads were seen a little tighter across the Latin America region even though Treasuries were higher.

Brazil is poised to get a little more volatile however as it gets closer to the October election. But Argentina has improved.

“It’s still up to the government as to whether it can deliver. But we’ve had better signals from that currency for the past month or so,” the source said regarding Argentina.

Investors will be watching central bank policy statements this week. The Bank of Japan already came out on Monday with “more of the same,” but there was still a certain amount of expectation around the Federal Open Market Committee meeting that is expected to wrap up on Wednesday and the European Central Bank policy announcement.

“It’s a central bank heavy week. The FOMC is a critical one. I think the expectation is that it will leave things unchanged,” the source said regarding interest rates.

“But if the economy is growing fast and it wants to communicate that it is independent and uninfluenced by Trump comments, there’s a possibility that it could come out a little more hawkish,” the source said.

Earlier this month U.S. president Donald Trump said in published comments that he “was not thrilled” with higher rates.

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