New deal from Temasek; oil prices give EM credit whiplash; Lat-Am tightens; Bahrain trades

By Christine Van Dusen

Atlanta, Feb. 24 – Singapore-based investment company Temasek Holding Ltd. sold notes on an up-and-down Wednesday, which saw oil prices drop on concerns about oversupply, then climb on reports that last week’s inventories were smaller than expected.

“Cautious start in the morning, with a retreat in oil prices,” a strategist said. “The Kingdom would instead seek to enforce the ‘freeze’ proposal that it already agreed on with fellow OPEC members Qatar and Venezuela and non-OPEC producer Russia.”

The session was “wild” for many emerging markets issuers, with “EM credit getting whipped around between gains and losses,” a New York-based trader said. “As we came in this morning, risk-off seemed to be the tone of the day as North American markets took their cue from moves overnight.”

But at midday, the markets “aggressively reversed to the upside,” he said.

Brazil’s five-year credit default swaps spreads closed at 451 basis points from 467 bps, and Mexico’s moved to 196 bps from 199 bps.

High-yield names from the region were mixed, he said, with Venezuela’s 2027s closing at 38 from 38.25, PDVSA’s 2017s finishing unchanged at 45 and Argentina’s Bonar 2024s unchanged at 107.25.

“Flows saw better buying for most of the session, but we did see some opportunistic sellers emerge later in the day,” he said. “Markets try to find some stability and consolidate in a range. EM credit has had a good run, as low rates globally attract yield seekers. It remains to be seen, though, if this is simply a bear market reversal or if we can look forward to the next leg higher in risk assets.”

Brazil downgraded

Meanwhile, Brazil was downgraded two steps from Baa3 to Ba2 as Moody’s Investors Service expressed concern that debt could further deteriorate and that the political climate could hurt the sovereign’s ability to improve its fiscal condition.

This came as a new phase began for the corruption investigation in Brazil, according to a report from Schildershoven Finance BV. This week police searched the apartment of a strategist behind the president’s campaign. He has been accused of receiving kickbacks from Petroleo Brasileiro SA.

Odebrecht under pressure

Also from Brazil, Odebrecht SA’s bonds were “under pressure” as police searched the company’s offices, the Schildershoven report said.

“Additionally, the police have arrested one of the company’s directors,” the report said. “It is difficult to predict future dynamics on this case.”

Lat-Am corporates rebound

From the Latin American corporate space, some names that opened weakly on Wednesday made their back up as oil rebounded, another trader said.

He pointed to names like Mexico’s Cemex SAB de CV and Brazil’s Vale SA as standouts.

“Even with recent rally and risk-on, overall conviction still feels light in our space, and recent strong buying has abated, for the most part,” he said. “Client and Street flows and volumes are markedly lighter than yesterday.”

South Africa outperforms

Looking to South Africa, investors were focused on the finance minister’s budget speech, which the markets hope will “restore confidence in the republic’s economic path by acknowledging the danger of a rating cut and the importance of fiscal consolidation,” the strategist said.

In response, South African bonds outperformed many of their peers.

But given that the big picture for commodity-focused sovereigns is cloudy – and that any reforms would need time to make an impact – the strategist said he remains “skeptical that South Africa can avoid a rating downgrade to junk after all.”

Bahrain in focus

Investors were also watching Bahrain, which on Tuesday priced $600 million in taps of its 2021 and 2026 notes.

The $275 million tap of the 5 7/8% notes due Jan. 26, 2021 priced at 99.678 to yield 5.95%, matching talk. And the $325 million tap of the 7% notes due Jan. 26, 2026 priced at 95.533 to yield 7.65%, also matching talk.

Bank ABC, BNP Paribas, Citigroup, HSBC and JP Morgan were the bookrunners for the Rule 144A and Regulation S deal.

The deal was previously canceled after Bahrain’s credit rating was downgraded by Standard & Poor’s.

The new bonds were a reduction from the “initial deal last week of $750 million that was cancelled after the rating downgrade by Standard & Poor’s to BB from BBB-,” a trader said. “Both bonds were offered with a substantially higher concession.”

Russia, Ukraine argue

Russia and Ukraine met in a European court to argue over the latter sovereign’s unpaid $3 billion of debt, Schildershoven said in its report.

“At the same time, Ukraine is seeking $63 billion in lawsuits and other legal claims from Stockholm to the Hague over [President] Putin’s annexation of Crimea,” the report said. “It looks like legal debates could last for years and would maintain tension between two countries.”

Russia was also in the news after announcing, with the United States, the ceasefire agreement in Syria that is expected to go into place on Feb. 27.

But “tensions in the region may escalate further in the nearest future,” the report said. “That could negatively affect the Russian capital market.”

Temasek prices two tranches

In its new deal, Singapore’s Temasek priced a two-tranche issue of €1.1 billion of notes due March 1, 2022 and 2028 via subsidiary Temasek Financial (I), according to a company announcement.

The deal included €600 million 0.5% notes due 2022 that priced at 99.336 to yield 0.613%, or mid-swaps plus 48 bps.

The €500 million 1½% notes due 2028 priced at 99.913 to yield 1.508%, or mid-swaps plus 80 bps.

Barclays, Citigroup and HSBC were the bookrunners for the Regulation S deal.

The proceeds will be used for general business purposes.

Bank of China releases book

Bank of China Hong Kong’s new three-tranche issue of $2 billion notes due March 1, 2019 and 2021 drew a final order book totaling $4.6 billion

The deal included $900 million floating-rate notes due in 2019 that priced at par to yield Libor plus 105 bps and attracted $2.1 billion in orders

The $600 million 1 7/8% notes due 2019 priced at 99.742 to yield Treasuries plus 107.5 bps brought in $1.4 billion in orders.

The $500 million 2 3/8% notes due 2021 priced at 99.831 to yield Treasuries plus 120 bps attracted $1.1 billion in orders.

Bank of China, Citigroup and Standard Chartered Bank were the bookrunners for the Regulation S deal.

On Wednesday, the three-year floaters were trading at 100.15, the three-year fixed notes were trading at 99.749 and the five-year notes at 100.15.

Khazanah attracts orders

The new deal from Malaysia’s Khazanah Nasional Bhd. – $750 million 3.035% notes due March 1, 2021 that priced Tuesday at par to yield Treasuries plus 178 bps – drew a final order book of more than $850 million, a market source said.

CIMB, DBS Bank and Standard Chartered Bank were the bookrunners for the Regulation S deal.

Malaysian accounts picked up 50% of the orders, other Asian countries 39% and European accounts 11%. Banks bought 81%, agencies and central banks 13% and fund managers and insurers 6%.

The notes traded early Thursday at Treasuries plus 185 bps, then moved to 192 bps bid, 188 bps offered.

Khazanah is the investment holding arm of the government of Malaysia and manages the government's commercial assets.

© 2015 Prospect News.
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