Ukraine, Petrobras deals slip in debut trading; KazTransGas prices; South Africa on deck

By Rebecca Melvin

New York, Sept. 19 – Three new emerging markets deals slipped in first-day trading on Tuesday after those issues priced at terms that were tight compared to initial talk.

The new Ukraine 7 3/8% notes due 2032 were seen in trade at 99½ bid, 99¾ offered after the sovereign priced $3 billion of the 14¼-year notes at the tight end of 7 3/8% to 7½% price talk. That talk was revised from about 7¾% initially.

Two tranches for $2 billion by Brazil’s Petroleo Brasileiro SA (Petrobras) also traded down, but one source chalked up the weakness to technical factors that will shake out shortly.

The new Petrobras 5.3% notes due 2025 traded down between 3/8 point to ½ point on Tuesday, and the Petrobras 6% notes due 2028 traded down a full point, a New York-based analyst said.

The Petrobras deal, including about $1 billion in each tranche, was structured a little differently than usual in that there was a private exchange tied to the deal, so there was some selling of the new bonds ahead of the exchanges settling next week, said the analyst, focused on Latin America fixed income.

“They were both reasonably fair,” the analyst said regarding the pricing of the notes. “But they both traded down probably because of the technical factors that should blow over” once the deal is completely done.

Meanwhile Kazakhstan’s KazTransGas JSC (KTG) launched and priced $750 million of 4 3/8% 10-year notes (expected rating: //BBB-) at 99.799 to yield 4.4%, according to a market source. The gas supply company’s deal priced on top of talk and under Rule 144A and Regulation S distribution.

The Republic of South Africa also launched dual tranches of dollar-denominated notes that had not priced by the end of the U.S. session.

South Africa guided talk for the dollar-denominated notes down to 4 7/8% to 5% for the 10-year tranche and down to 5¾% to 5 7/8% for the 30-year notes. That pricing was revised from initial talk in the 5% area and the 5 7/8% area, respectively.

Citigroup, Deutsche Bank/Nedbank and HSBC were joint bookrunners of the Securities and Exchange Commission-registered South Africa deals.

The existing South Africa sovereign curve was marked 3 to 6 basis points wider on the session, a London-based trader said.

Overall, the emerging primary markets started out a little slower this week, compared to last week’s breakneck pace, but that may be related to the fact that there is a monetary policy meeting Tuesday and Wednesday in the United States, which “always makes people a little cautious,” a market source said, and the Rosh Hashanah Jewish holiday, which starts Wednesday evening.

People may look and say there is an Federal Open Market Committee meeting and a holiday, so this is not the best week to do a deal, a source said.

But a solid pipeline of new debt for the emerging markets is expected to resume with a healthy amount of sovereign debt expected to continue, a market source said.

Last week, Mexico City Airport’s $4 billion dual-tranche offering accounted for almost half of last week’s volume in Latin America.

“Sovereigns are opportunistic, so it’s hard to say what else is going to come, but I suspect decent volume,” a source said.

There was $8.4 billion of new issuance in Latin America last week. The market should remain resilient especially since a lot of the new issuance is being used to repurchase old debt.

Given the liability management issues, the net impact in which many are effectively replacing debt is not overwhelming the market.

CEEMEA opens wider

Most of the Central & Eastern Europe, Middle East and Africa credit space opened slightly wider on Tuesday as emerging market currencies traded softer against the U.S. dollar in anticipation of the U.S. Federal Reserve policy meeting, according to MUFG credit strategy associate, Trieu Pham.

Notably, the lira touched the 3.5-per-U.S.-dollar-threshold, while Turkey sovereign cash was 5 bps wider on average, Pham wrote in a note Tuesday.

The FOMC meeting got underway on Tuesday and will wrap up on Wednesday. It will likely come out with an announcement of balance sheet normalization in the very near term, with the Treasury reinvestment program likely to be “proportionally distributed along the yield curve.”

Still, there is a decent amount of speculation about what the Fed will do in December with about one third to better than 50% expecting there will be a rate increase in December.

South Africa debt eyed

Emerging markets players eyed the launch of the South Africa’s dual tranche offering of 10- and 30-year notes early Tuesday, which saw revised guidance of 4 7/8% to 5% for the 10-year tranche and 5¾% to 5 7/8% for the 30-year notes.

According to earlier media reports, the sovereign might issue about $2 billion of notes.

At this tightened pricing, it looks like the bonds would trade “about 5 to 10 bps inside the Turkey curve (Ba1 neg/BB neg/BB+), which we consider fair,” MUFG’s Pham wrote in a note.

“We general consider the Turkey curve as attractive following the recent [$1.75 billion tap] on the 2047 notes, but are somewhat wary of the geopolitical risks from the planned Kurdish independence referendum while Turkey’s higher external financing needs poise a somewhat higher risk ahead of [Wednesday’s] FOMC rate decision,” Pham wrote.

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