Morning Commentary: New deals expected Tuesday; ratings agencies weigh in on South Africa

By Colin Hanner

Chicago, April 4 – Two new bond offerings are on tap in emerging markets on Tuesday, a market source said, while sovereign bonds tended to tick lower.

In the geopolitical sphere, South Africa continued to feel the lash of the firing of its finance minister from last week.

“In South Africa, all rating agencies” – Fitch, Moody’s and S&P – “have now commented following the cabinet reshuffle and removal of finance minister Gordhan as the most prominent previous cabinet member,” a market source said.

Inching closer to below-investment-grade territory, the market source said further actions by new South African finance minister Malusi Gigaba, as well as any continued political infighting, could prove harmful for investors in the country’s sovereign bonds.

“Any indication that those factors might put pressure on South Africa’s rating will likely see sovereign cash underperforming CDS,” the source said.

New deals coming

Russia-focused Borets International Ltd. tightened talk on its upsized $330 million offering of non-callable five-year notes to 6¾%, according to a market source, who added that books closed around 10 a.m. ET on Tuesday.

The issue size is increased from $300 million.

Talk tightened from the earlier 6¾% to 7% yield talk.

HSBC is leading the deal. The syndicate also includes Goldman Sachs and Sberbank.

Borets, which has global headquarters in Dubai, manufactures and services electric submersible pump systems for the energy industry.

OJSC MMC Norilsk Nickel is expected to sell dollar-denominated notes on Tuesday, a market source said.

Societe Generale CIB will act as a stabilizing manager.

The securities will be issued via MMC Finance DAC.

MMC Norilsk Nickel is a Moscow-based mining and metallurgical company.

No other details of the deal were available at press time.

Sovereign ticker

Generally, sovereign bonds were down around midday in the United States on Tuesday.

Columbia’s 7 3/8% notes due 2019 were quoted with a 110.15 bid, 110.40 offer, less than 1/8 point lower.

The sovereign’s 4 3/8% notes due 2021 were quoted with a 106 bid, 106½ offer, more than 1/8 point higher, and the 2 5/8% notes due 2023 were quoted at 96.35 bid, 96.85 offer, nearly 1/8 point higher.

Two of Mexico’s sets of notes were unchanged – the 5.95% notes due 2019, which were bid at 107.70, 108 offer, and its 5 1/8% notes due 2019, which were quoted at 108.15 bid, 108.55 offer – but its 3½% notes due 2021 were quoted at 103.65 bid, 103.15 offer, less than 1/8 point higher on the session.

Saudi Arabia’s 2 3/8% notes due 2021 were quoted at 98.37 bid, 98.57 offer, and its 3¼% notes due 2026 were quoted at 97.55 bid, 97.65 offer.

State oil

Petroleos Mexicanos SAB de CV was “opening a little wider, [though] we have seen buyers,” a market source said.

The company’s 6% notes due 2020 were quoted at 107.35 bid, 108 offer.

And its 3½% notes due 2020 were quoted at a 100.80 bid, 101.30 offer.

Petroleos de Venezuela SA’s bonds were lower on the day, a market source said.

The company’s 5¼% notes due 2018 were quoted at 94 bid, 95 offer, a 1½-point loss since Monday.

The 8½% notes due 2017 were quoted at 83 bid, 84 offer, 1 point lower. The 8½% notes due 2020 followed with a similar loss to a 73 bid, 74 offer.

And its 9% notes due 2021 were quoted with a 47½ bid, 48¾ offer, a 1¼ to 1½ point drop.

Paul A. Harris contributed to this review

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