High demand for EM notes from Mexico's ICA, South Africa's Transnet, Malaysia's CIMB Bank

By Christine Van Dusen

Atlanta, July 19 - Investors, tired of the broken record that is the European debt crisis, scrambled to gobble up new bonds from Mexico's Empresas ICA SAB de CV, South Africa's Transnet SOC Ltd., Malaysia's CIMB Bank Bhd., Development Bank of Kazakhstan and Russian Agricultural Bank on a firm and positive Thursday for emerging markets assets.

"Everyone has just become sick and tired of the whole Europe thing, with everyone crying wolf on Europe every week and still the world doesn't come to an end," a New York-based emerging markets strategist said. "So now, maybe, they're throwing caution to the wind."

After months of sitting on their cash, investors are eager to put it to work, but new issues are not keeping pace with the demand.

"We remain in an environment of excess demand relative to supply," the strategist said. "More money is chasing the supply, and the supply base is insufficient. They can only hold off so long before they have to put the money to work. That has more to do with it than anything else."

In the secondary market, the tone was constructive and gains were noted, according to a report from Barclays Capital.

The JPMorgan Emerging Markets Bond Index Global spread was up over 10% year-to-date, a New York-based market source said.

"That's pretty phenomenal," he said.

In its new deal, construction company ICA sold $350 million 8 5/8% notes due July 24, 2017 at par to yield 8 5/8%, a market source said.

The notes were talked in the 9% area.

Bank of America Merrill Lynch, Deutsche Bank and Goldman Sachs were the bookrunners for the Rule 144A/Regulation S notes.

"This new deal seems to have generated a lot more demand than we thought it would," the strategist said. "It's only $350 million, but incredibly oversubscribed."

Transnet sells notes

Also on Thursday, rail, port and pipeline company Transnet priced a $1 billion issue of 4% notes due July 26, 2022 at 98.855 to yield Treasuries plus 262.5 basis points.

The notes priced tighter than talk, set at Treasuries plus 300 bps to 312 bps.

JPMorgan and Standard Bank were the bookrunners for the Rule 144A and Regulation S deal.

As for the new deal from Malaysia, CIMB Bank priced a $350 million issue of 2 3/8% five-year notes at 99.393 to yield 2.505%, or Treasuries plus 190 bps, via CIMB, Deutsche Bank and Citigroup.

The Regulation S deal priced at the tight end of guidance, which was set at Treasuries plus 190 bps to Treasuries plus 195 bps.

The notes were issued under CIMB's $1 billion euro medium-term notes program.

DBK prices bonds

In another new deal, Development Bank of Kazakhstan priced RM 240 million 5½% notes due 2017 at par to yield 5½%, a market source said.

HSBC, RBS, Halyk Finance, AmInvestmentBank and Kuwait Finance House were the bookrunners for the Regulation S deal.

The bank is based in Astana, Kazakhstan.

Moscow-based Russian Agricultural Bank priced a CHF 350 million issue of 3 1/8% notes due 2015 at par to yield 3 1/8%, a market source said.

BNP Paribas and UBS were the bookrunners for the deal.

Access Bank does deal

These new deals followed the late-Wednesday pricing of commercial lender Access Bank plc's $350 million issue of 7¼% notes due July 25, 2017 at par to yield 7¼%, or Treasuries plus 665 bps.

The notes priced in line with talk, set at the low- to mid-7% area.

Citigroup and Goldman Sachs were the bookrunners for the Rule 144A and Regulation S deal.

Proceeds will be used to support the company's trade finance business and serve as a source of long-term foreign currency funding, according to a company filing.

Sberbank plans tap

In other deal-related news, Russian lender Sberbank is planning to once again tap its 6 1/8% notes due Feb. 7, 2022, this time at a yield of about 5.06%, a market source said.

The original issue totaled $500 million and priced at par to yield Treasuries plus 432.8 bps. From there, the issuer added on $250 million at par.

"They'll probably tap it for $250 million, at least," the market source said.

Mapletree deal oversubscribed

The new issue of S$600 million 5 1/8% perpetual notes from Singapore's Mapletree Treasury Services Ltd. attracted S$4 billion in orders, a market source said.

The notes priced at par to yield 5 1/8% via Citigroup, Deutsche Bank and HSBC in a Regulation S deal.

About 70% of the orders came from Singapore, 24% from Hong Kong and 6% from others.

Private banks accounted for 70%, funds 25%, insurers 2%, banks 2% and others 1%.

The notes are guaranteed by Mapletree Investments Pte. Ltd., a Singapore-based real estate company.

Venezuela, Argentina tighten

In trading on Thursday, "investors were waiting for a nice big sell-off," a New York-based market source said. "There was a little bit of a sell-off, but a nice, big one didn't happen."

Bonds from Venezuela were firm on Thursday, mostly unchanged on the day. And bonds from Argentina moved just a tiny bit.

"Venezuela is tighter by four points and Argentina is tighter by two, spread-wise, but prices are suffering, reflecting the impact of the pullback on the long end of the Treasury curve," he said.

Investors should be defensive

Investors should maintain a defensive bias due to cyclical weakness, according to a report from Nick Chamie, global head of emerging markets research for RBC Capital Markets.

Emerging markets cannot save the world economy, he said, given that fiscal deficits are offering less room for stimulus and the room to cut rates has significantly diminished.

For the medium term, the growth outlook for emerging markets is "subdued," he said, with the average growth rate for the period of 2011 to 2013 falling below that of the 2004 to 2007 period.

Aleesia Forni contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.