Peru's $500 million 12-year notes troubles some investors; market awaits economic data

By Reshmi Basu and Paul A. Harris

New York, April 26 - The Republic of Peru priced $500 million 12-year notes Monday but drew complaints from some investors for weighing down the country's yield curve.

In the afternoon, Peru the $500 million of notes due 2016 at 99.813 to yield 8.40% or 395 basis points over Treasuries.

The deal, upsized to $500 million from $300 million, came towards the rich end of price talk. Price talk of 8 3/8% to 8½% surfaced late Monday morning.

"It came in slightly cheap to the existing 2015, which basically resulted in the widening of the Peru curve from the old level," said a fund manager.

In early morning, Peru's 9 7/8% bond due February 2015 was quoted at 355 basis points over U.S. Treasuries, significantly tighter than the 395 basis points at which the new bond priced.

Meanwhile, Peru's 9 1/8% bond due February 2012 was at 233 basis points and its 8¾% bond due November 2033 at 402 basis points in early morning.

"It's not very nice for these guys to bring it so cheap because it affects the rest of the curve," the fund manager added.

While the issue may be good for the country, it hampers investor's portfolios.

"They are using a moment of market stability to bring this deal," said the fund manager.

"They bring it cheap, so it impacts your existing holdings. It's kind of unnerving."

Furthermore, the cheap price of the new issuance was not enough to bring the fund manager aboard, especially given the impact it had on existing securities.

"It's hard to justify buying something right now," he said.

He added that the current unpredictable market can turn with U.S. Treasuries.

"Even though you may say it came cheap, usually you want to sell something to buy this new issuance. You aren't going to sell once the market was depressed because of the new issuance. It's sort of an endless circle."

Confused emerging market debt looks to U.S. data

One thing that may stir things up in emerging markets is this week's release of U.S. economic data, notably the release of initial claims numbers on Thursday, as investors try to second-guess the Fed.

"This is a busy week for economic figures in the U.S.," said the fund manager.

"People are looking more at the first week in May when the unemployment figures come," he added.

"That will be the most important date for the whole market to look at to see where the U.S Treasury rates may move."

However, the initial claims numbers may be a preliminary indication as to how the economy is moving.

With investors waiting for the upcoming data, there was little trading activity Monday.

The JP Morgan EMBI Index was marginally weaker at the close of Monday's session.

The index fell 0.10%. Its spread to Treasuries widened by two basis points.

And the fund manager offered this advice during this volatile environment: "Don't have too large of a duration and try to get the best current yield in the particular curve."

Philippines adds to the pipeline

Unlike Peru's "cheap issue", the Philippines' upcoming new deal may be too rich for some investor's blood.

The Republic of Philippines plans to issue a $300 million add-on to its 8 3/8% bond due 2011 and 8¼% bond due 2014.

The offering is intended to give underweighted investors the chance to build up their holdings in the name.

"It was a good opportunity for investors to come to neutral before the presidential elections on May 10," said the fund manager.

"But even then, Philippines hasn't been the best performer this month."

Moreover, he anticipates the deal will price aggressively.

The $300 million amount is expected to be divided somewhat evenly between the notes.

The order book has been doing well in Asia and Europe and, for the most part, evenly split between the two markets.

Deutsche Bank and Morgan Stanley are running the offering.

Pricing is expected at a slight concession to existing the country's securities.

Korea Midland talk

Also Monday, Korea Midland Power set price guidance for its offering of $150 million seven-year notes in the area of 125 points over U.S. Treasuries.

Pricing could take place as soon as Tuesday, after the company finishes its roadshow in New York on Monday.

Credit Suisse First Boston and JP Morgan are bookrunners on the Rule 144A/Regulation S deal.

And Hong Kong's NCL Corp. started a roadshow this week for its $350 million to $450 million senior notes due 2014.

The roadshow will run from April 26 through May 5.

Pricing is expected on May 6.

Proceeds will be used to repay bank debt and general corporate purposes including the construction of new cruise ships.

JP Morgan is the bookrunner on the Rule 144A/Regulation S offering.

© 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.