Russia bonds improve; Gaz Capital sells notes; Lat-Am, Africa, Central Europe bonds suffer

By Christine Van Dusen

Atlanta, Nov. 10 – Russia’s Gaz Capital SA printed new notes – capitalizing on the Russia-friendly environment created by the election of Donald Trump as president of the United States – on a busy and volatile Thursday for emerging markets assets.

Many emerging markets bonds on Thursday saw “huge inquiry and flow, dominated by [exchange-traded fund] accounts all looking for the door,” a London-based trader said. “We risk falling into a vicious circle of outflows and trapped longs up against a dealing community either light or trying to protect their year. Two U.S. holidays this month won’t help liquidity either.”

Rates have made a “40 basis points round trip in the 10-year in 48 hours,” he said, “Truly staggering.”

Setting the stage for Gaz Capital’s new €1 billion 3 1/8% loan participation due 2023, Russia outperformed on Thursday, with its 4¾% notes tightening 10 bps since Tuesday, even as the European Union added six members of the Russian Federation State Duma to the list of people subject to restrictive measures.

“We do not expect that extension of the sanction list will hurt the demand for the Russian sovereign eurobonds, as investors have already taken into account the ‘sanction’ factor,” according to a report from Schildershoven Finance BV.

Ukraine’s 7¾% notes due in 2026 widened significantly as investors worried that the United States could change its policies toward the sovereign.

“Ukraine’s eurobonds headed for their biggest retreat in a year on investor concern that the U.S. President-elect Donald Trump will be less willing than his predecessor to protect the eastern European nation from Russian aggression,” Schildershoven said in its report. “Actually, we do not expect major immediate changes in the U.S. policy over the Ukraine and consider the market reaction as unfairly strong.”

Lat-Am underperforms

Latin America continued to be the clear underperformer, given the rhetoric on global trade and immigration, a London-based analyst said.

Meanwhile, London-based Rio Tinto plc – which has iron ore mines in Latin America – saw its bonds drop as former executives were accused of corruption.

“Investors should closely watch for Rio Tinto’s bonds, as yields increased,” Schildershoven said. “Bonds due in 2025 negatively reacted to this announcement, with the price [dropping] 229 bps. Such negative dynamics came at the moment when fundamentals substantially improved.”

Saudi Arabia dips

Saudi Arabia flows were heavy again, a trader said. The 2021s closed down a point, with 99.60 the high and 98.37 the European close. The 2046s closed down two points, at 93¼ bid, 93¾ offered.

“The mist of uncertainty has certainly not been lifted as of now, but all in all, the implications for EM are more likely to be negative on a geopolitical and trade-relation agenda that could favor some against others,” a London-based analyst said.

There could be higher demand for commodities, which has lifted oil and copper prices.

Poland better, others pummeled

From Poland, investor sentiment improved slightly on the news that the central bank is likely to keep the rate at 1½% throughout 2017.

The sovereign’s 4% notes due in 2024 that priced at 99.194 traded Thursday at 108.32 bid, 108.67 offered, a trader said.

Bonds from Africa, Lebanon and Central and Emerging Europe were “all pummeled lower” on Thursday, another trader said.

“South Africa, in particular, was taken to the woodshed,” he said.

Gaz Capital prices bonds

In its new deal, Russia’s Gaz Capital priced €1 billion 3 1/8% loan participation notes due Nov. 17, 2023 at par to yield 3 1/8%, according to a company announcement and a market source.

JPMorgan, Bank of China, Gazprombank and Unicredit were the bookrunners for the Rule 144A and Regulation S deal.

The notes are the 39th series to be issued under Gaz Capital’s $40 billion debt issuance program.

The notes were issued on a limited recourse basis for the sole purpose of funding a loan by Gaz Capital to PJSC Gazprom, according to a Fitch Ratings report.

The proceeds will be used by Gazprom for general corporate purposes, the agency said.

Moscow-based Gazprom is Russia’s largest state-owned energy company.

Galicia increases program

Banco de Galicia y Buenos Aires SA – a subsidiary of Argentina’s Grupo Financiero Galicia SA – received approval to increase its notes program from $600 million to $1.1 billion, according to a company filing with the Securities and Exchange Commission.

Grupo Financiero Galicia is a Buenos Aires-based financial services holding company.

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