EM credit soft; some potential issuers look to postpone deals to Q1; Venezuela uncertain

By Rebecca Melvin

New York, Nov. 15 – Emerging credit markets remained soft on Wednesday as the defensive tone that began to sound last week continued. A few deals trickle through, but as the countdown to year-end gets underway, there are issuers in the pipeline that have decided to postpone their offerings until next year, a market source said.

A second market source said that markets are soft, but “next year is a different animal, and there’s risk there.”

The source suggested that if an issuer could get the deal done, even at terms that were not as aggressive as deals pricing in the recent past, it might be better not to wait.

Nevertheless there are at least a few issuers that have opted to wait until first quarter 2018, the first source said.

The market is “defensive and a bit soggy,” and it’s “best to be patient,” the source said.

Regardless of market tone, the window for new issuance before year-end is on the cusp of starting to close anyway.

Anyone going to market should try to do it before next Tuesday ahead of the Thanksgiving holiday in the United States, a source said. “After that, there is about one week to execute before year end and that is the week of Nov. 27. The December 4 week, people begin to close up their books, and then the [Federal Reserve’s Open Market Committee] meeting is scheduled Dec. 13.”

One of the issuers on the calendar likely to execute the week of Nov. 27 is Emirates SembCorp Water & Power. The company is currently on an extended roadshow for a $400 million offering of senior secured notes due 2035.

Also on Wednesday, investors eyed the situation surrounding Venezuela and Petroleos de Venezuela SA debt, as the path forward for the cash-strapped countries and its creditors remained uncertain. Standard & Poor’s and Fitch Ratings said on Monday that the country has defaulted on certain of its bonds. But other entities have yet to weigh in on the defaults, and it is unknown whether Venezuela will cure the defaults or not.

“It’s a mystery to everyone,” a New York-based market source said. “Thankfully, it is isolated from the rest of region, and everyone had expected it was only a matter of time.”

The most helpful step would be for both sides to put up the most experienced negotiating teams as possible. “This will be one of the most difficult restructurings in history, and it needs a serious team on both sides,” the second source said.

Venezuela has taken things to the extreme – even to the point of humanitarian crisis, so it is difficult to trust that the government will be acting in good faith, a source said.

Argentina had a very large and complicated restructuring, but it was not as dire as this one. There was still a viable banking system and surviving industry in Argentina, the source pointed out.

On the deal calendar, Credito Real SAB de CV Sofom ER is roadshowing $230 million of subordinated perpetual notes under Rule 144A and Regulation S deal.

The proceeds will be used to refinance debt and for corporate purposes.

The Mexico-based consumer lender plans to use proceeds to refinance debt and for general corporate purposes.

Pricing deals were the Argentine province of Entre Rios, which priced a $150 million add-on to its 8¾% notes due 2025 at 105.827 to yield 5.55%. Pricing came tight compared to guidance for a yield in the 7.6% area and initial price talk in the high 7% area.

And the Commonwealth of the Bahamas priced $750 million of 11-year senior notes at par to yield 6%, which was tighter than initial talk in the mid-6% area.

Other deals on Wednesday were African Development Bank’s €500 million of ¼% seven-year bonds at 99.282 to yield 0.35% and Bank of China Ltd. Paris Branch’s €700 million of three-year floating-rate green bonds at par to yield Euribor plus 47 basis points.

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