Greek talks boost some EM, most still weaker; Brazil underperforms; Ukraine deadline looms

By Christine Van Dusen

Atlanta, Aug. 10 – Some emerging markets bonds managed to tick up a touch on Monday morning on the news that Greece’s debt talks were progressing, but most names remained weak as oil prices continued their downward trajectory.

“In Europe, some news reports suggest that further progress is being made by Greece and European credits towards an €86 billion rescue program,” according to a report from Barclays Capital. “Germany’s position is still the toughest among the creditors, towards Greece. European risky assets are only marginally higher.”

Brazil was among Monday morning’s biggest underperformers, a London-based trader said.

“Investors now view a downgrade as the base-case scenario,” he said. “Can’t say we have seen any noticeable flow of that cash being invested elsewhere.”

Bonds from Africa were “very weak,” he said, “with spreads approaching March wides.”

Looking to Asia, investment-grade cash bonds opened Monday’s session with a defensive tone after weaker trade data from China, another trader said.

“However, the market took it as a positive sign for further stimulus,” he said. “Investment-grade cash closed broadly unchanged.”

Oil companies from China held firm, even amid lower oil prices, and 10-year paper from Korea continued to look heavy.

“India is firm, with ongoing demand in the short-end financials,” he said.

Meanwhile, market sources were whispering about a possible local-currency issue of five- and 10-year notes from Saudi Arabia and new bonds from Brazil-based auto wheel-maker Iochpe Maxion.

Icici trades flat

India-based Icici Bank Ltd.’s new issue of 3 1/8% notes due in 2020 that priced at Treasuries plus 160 basis points closed at 160 bps bid, 157 bps offered during Monday’s Asian session, a trader said.

The notes came to the market Aug. 5 via HSBC, Barclays, JPMorgan, BofA Merrill Lynch and Standard Chartered in a Regulation S deal.

“Lackluster session,” the trader said.

Ukraine sets meeting

In other news, Ukraine officials are planning to meet with a committee of creditors on Wednesday in San Francisco in an effort to reach full agreement on the country’s debt, according to a press release from the country’s finance ministry.

“Failure to reach an agreement at the sovereign ... would force Ukraine to implement alternative options for financing its IMF-supported program,” the release said. “Due to these constraints, this meeting is the final opportunity to reach a full agreement in advance of the September and October eurobond amortizations and next IMF review, now planned for September.”

This statement provides “some relief,” given that Ukraine previously had set Tuesday as the “ultimate deadline” for reaching a deal, according to a report from Alexander Paraschiy of Concorde Capital.

“The creditors committee will decide by Wednesday whether to agree on some significant haircut on Ukraine’s debt, or to reject it and face a risk to trigger the introduction of a debt repayment moratorium by Ukraine,” he said. “Our outlook today is that the creditors and the government will find common ground on Wednesday, with a haircut of 10% to 15%. An alternative scenario is a debt moratorium, which would have unclear implications for both parties.”

Asia ‘sluggish’

Later on Monday, Indonesia, the Philippines long end, Mongolia’s 2022s, Sri Lanka and Pakistan moved 25 cents lower as Treasuries sold off, a trader said.

“Quite a sluggish start for sovereigns,” he said. Investment-grade notes from China were quiet at midday in New York, he said, with small selling of technology and oil-related names.

Lat-Am spreads tighten

Low-beta spreads for Latin American bonds closed the day tighter as a rally in commodities gave a boost to investor sentiment, a New York-based trader said.

Five-year credit default swaps spreads for Brazil closed at 319 bps from 333 bps, while Mexico’s moved to 132 bps from 137 bps.

Still, Brazilian bonds remained weak into the close, with liquidity continuing to pose a challenge, he said.

High-yield names from Latin America moved “modestly higher on the day,” he said, with Venezuela-based PDVSA’s 2017s closing at 65.25 from 64.65, he said.

Better sellers were spotted for high-grade names from the region, he said.

Turkish corporates in focus

Banks from Turkey also experienced weakness on Monday morning, particularly for paper with a tenor of five years or more, a trader said.

“Credit default swaps remain well-bid after a lot of selling in the Turkey sovereign belly and the long end,” he said. “The pressure has eased a little here as rates remain well-bid. I guess investors are finding it more difficult to find an attractive alternative.”

Turkey’s KOC Holding AS was trading well against the sovereign, another trader said.

Sritex deal ahead

In deal-related news, some market-watchers were keeping an eye on Indonesia’s PT Sri Rejeki Isman Tbk (Sritex), which in July announced plans to price $420 million of bonds during the fourth quarter.

The textile manufacturing is thinking about building a power plant in Central Java to cut electricity costs by about 30%, according to a report from Schildershoven Finance BV.

Though the project is relatively small, the company is planning other acquisitions and projects, so will need the additional funding that the bonds will bring, the report said.

The option-adjusted spread for its 2019s is 800 bps, in line with most other B-rated Asian issuers, Schildershoven said.

© 2015 Prospect News.
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