EM suffers with upheaval in Brazil, attacks in Turkey; TSKB still ‘stellar’; Ezdan trades

By Christine Van Dusen

Atlanta, May 13 – Investors were watching Brazil and Turkey on Friday as both dealt with political turmoil and Turkey coped with more terror attacks.

“In Brazil, the Senate yesterday decided to move forward with the motion to impeach President Rousseff,” a London-based strategist said. “Rousseff now has to stand down for up to 180 days and stand trial while Vice President Temer assumes her role temporarily.”

And in Turkey, new terrorist actions “serve as a tragic reminder of Turkey’s involvement in the fight against several militant and terror groups,” he said.

Meanwhile, the country’s leadership is undergoing a reshuffling.

“This time around it could be detrimental to Turkey’s fundamentals, and not just noise,” he said. “Turkey has held in relatively well due to its diversified economy and tight fiscal stance, and well-run institutions, but with [President] Erdogan looking to run the economy in an unorthodox fashion we could see some of the cornerstones deteriorate over time.”

Turkey’s bonds have widened as much as 30 basis points versus its peers, he said.

“I think we need another negative catalyst for us to underperform more,” he said. “We have seen a pause in selling from real money since a competitor put Turkey on underweight, but most accounts seemed to have been positioned that way already or over the last week lightened up.”

Local investors were seen on Friday adding benchmark 10-year bonds at about z-spread plus 300 bps to 315 bps, he said.

“So we seemed to have found a clearing level for now,” he said.

TSKB fades but still ‘stellar’

Against this backdrop, Turkey-based Turkiye Sinai Kalkinma Bankasi’s (TSKB) new deal, a $300 million issue of 4 7/8% green bonds due 2021 that priced at 99.244 to yield mid-swaps plus 387.5 bps, was fairly active in trading on Friday.

After strong performance on Thursday – hitting a high of 100.26 as investors embraced the green bond – TSKB’s notes faded, a trader said.

The notes were seen Friday at 99.55 bid, 99.85 offered.

“Still a stellar trade for the issuer,” he said.

The bond’s spread is unlikely to narrow from here, the strategist said.

“We consider room for further tightening from these levels as fairly limited, not to mention that the issuance comes ahead of further political uncertainty,” he said.

Lat-Am ‘lackluster’

Bonds from Latin America saw a “lackluster” finish on Friday, as the “rout in equities and oil hurts sentiment in the EM credit realm,” a New York-based trader said.

Spreads were wider on the day, with Brazil’s five-year credit default swaps spreads moving to 328 bps from 326 bps and Mexico’s to 167 bps from 165 bps.

“Cash prices are lower for the most part, as U.S. Treasury strength does little to offset spread widening,” he said. “Latin American high yield continues to perform well in the face of overall weakness in other markets.”

Venezuela names get a boost

Venezuela got a boost from news that China is looking to renew its $5 billion loan in about 60 days.

The sovereign’s 2027s closed at 45.50 from 44, and PDVSA’s 2017s closed at 63.25 from 59.75, the New York trader said.

“Argentina remains firm, with Bonar 2024s moving up to 110 from 109.60 and the 2026s at 103.50 from 103,” he said. “Very light day with regards to flows. The few inquiries we did field were two-way, for the most part.”

Abu Dhabi sees demand

Looking to the Middle East, volumes and interest picked up during the week, with recent notes from Abu Dhabi seeing ongoing demand, a London-based trader said.

Perpetuals from the region were a “mixed bag” on Friday, he said.

Boubyan climbs

The new issue of notes from Kuwait’s Boubyan Bank KSCP – $250 million 6¾% perpetual notes that priced this week at par – has moved up 2¾ points since issuance, the trader said.

Boubyan Capital, HSBC and Standard Chartered Bank were joint global coordinators for the Regulation S sukuk. Boubyan Capital, Dubai Islamic Bank, Emirates NBD Capital, HSBC, KFH Capital, National Bank of Kuwait and Standard Chartered Bank were joint lead managers and bookrunners.

“Many have underestimated this market, and some issuers have printed very useful-sized deals so far this year,” he said.

Qatar, Bahrain get attention

Long-end paper from Qatar seemed to be in “wait-and-see” mode amid rumors of upcoming supply, the trader said.

“Still good performance from Bahrain, especially the 2020s and 2021s,” he said, pointing out that the notes have tightened about 30 bps during the month.

Ezdan settles down

Qatar-based real estate developer Ezdan Holding Group’s new $500 million 4 3/8% notes due 2021 that priced this week at 99.446 to yield 4½%, or mid-swaps plus 333 bps, “seems to have settled down after a wild debut,” the trader said.

“A slew of weaker hands got out early doors and pushed her down to a low of 96.75,” he said. “It’s since recovered, and we’ve traded two-way today in the 97.70 to 98.20 range. I suspect over time this one will be OK, given the bonds feel to me that they are being slowly picked up, regionally.”

HSBC and Mashreq were the joint global coordinators for the Regulation S sukuk. Barwa Bank, Emirates NBD Capital, HSBC and Mashreq were the lead managers and bookrunners.

Poland could get downgrade

Also on Friday, investors were watching Poland for an outlook revision from Moody’s Investors Service.

“The expectations of the outlook revision to negative, or even the rating downgrade, are quite high,” according to a report from Schildershoven Finance BV. “If the agency will change the rating outlook only, bonds could slightly rebound.”

Issuance from Mendoza

In other news, Argentina’s Province of Mendoza priced $500 million 8 3/8% notes due May 19, 2024 at 98.710 to yield 8 5/8%, a market source said.

Citigroup and Credit Suisse were the bookrunners for the Rule 144A and Regulation S deal.

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