Emerging Markets: Baidu prices $1 billion 2027, 2031 notes; ADB issues $1 billion floaters

By Rebecca Melvin

Concord, N.H., Aug. 20 – In what was a quiet week in emerging markets debt issuance, which is typical for the waning days of August, there were signs of shifting market forces amid world events that have been anything but tranquil.

In the primary market, Baidu, Inc. sold a combined $1 billion of senior notes (A3//A) in two tranches on Wednesday, and Asian Development Bank priced $1 billion of five-year floating-rate notes on Thursday, according to Prospect News data.

The slowdown followed a flurry of deals from Latin American and China, in particular, in recent weeks, completed prior to the height of the summer vacation season in mid-August.

But the week ends with lower oil prices, a stronger dollar and less appetite for risk among investors in general – a series of negatives for emerging markets debt.

Behind the moves are the Covid-19 pandemic, which continues to wreak havoc globally; the latest Federal Reserve meeting minutes, released on Wednesday, which revealed that central bankers were planning to taper bond purchases before the end of the year; and in addition, a swift Taliban offensive that left Afghanistan under its control ahead of the Aug. 31 deadline of U.S. troop withdrawal from the country. Among other things, the sudden power shift made thousands of Afghans descend upon Hamid Karzai International Airport to flee the country, causing some to make desperate attempts to secure a place among those being evacuated.

The Pentagon said it has moved about 5,200 U.S. troops into Kabul to help with evacuation efforts, and about 9,000 people have been airlifted out of Kabul by cargo aircraft in the last six days.

Market observers say that the next period of global growth is expected to be strong but uneven, and tighter Federal Reserve policy, weaker commodity prices and even slowing of debt issuance in China are stacking up as strong headwinds for emerging markets bonds.

The spread of the Covid-19 delta variant may cause lockdowns and hinder productivity in emerging market economies dependent on income from exports, and a rise in the dollar is particularly harmful for local-currency emerging markets bonds. The coupon payments from local-currency bonds will now be worth less when converted back into dollars.

Baidu brings dual tranches

Baidu sold $300 million of 1 5/8% notes due Feb. 23, 2027 at 99.953 to yield 1.634%, or 83 basis points over U.S. Treasuries, and $700 million of 2 3/8% 10-year notes at 99.523 to yield 2.429%, or 130 bps over Treasuries.

Goldman Sachs (Asia) LLC, BofA Securities, Inc., J.P. Morgan Securities LLC and China International Capital Corp. Hong Kong Securities Ltd. are joint bookrunners for the deal, which is registered with the SEC.

Proceeds from the notes will go toward repaying existing debt and for general corporate purposes. Previously, Baidu had indicated a portion of the proceeds would be used for sustainability purposes.

Baidu is a Beijing-based web services company.

ADB prices $1 billion floaters

Asian Development Bank priced $1 billion of five-year floating-rate notes at 104.136, according to an announcement Thursday.

The notes priced on top of price talk with a floating interest rate of 18 bps over SOFR. Talk was in the SOFR plus 18 bps area, according to a market source.

BMO Capital Markets Corp., Goldman Sachs & Co. LLC and RBC Capital Markets LLC are the bookrunners.

Bank of Montreal, London Branch is acting as the stabilization manager.

The regional development bank is based in Mandaluyong, Philippines.

Posadas inks restructuring

Mexico City-based hotel company, Grupo Posadas, SAB de CV, reached a restructuring agreement with an ad hoc group of holders of its 7 7/8% senior notes due 2022, which together with another group of holders who have expressed their support for the agreement, collectively represent more than a majority of the total principal amount of notes, according to a press release this past week.

The group and the company have agreed to restructuring terms for the notes.

The agreement contemplates the exchange of the existing notes for new senior notes that will be secured by liens on real estate and certain accounts receivable of the company.

The transaction would extend the maturity of the company’s note obligations by 5.5 years to Dec. 30, 2027.

The company thinks that this would result in a sustainable capital structure and allow the company to prioritize the use of cash for operating activities to preserve employment.

To implement the transaction, the ad hoc group has agreed to support the company’s initiation of a prepackaged in-court restructuring proceeding in the United States and has entered into a restructuring support agreement to facilitate the process.

All day-to-day operations of the company, throughout its properties, will continue as normal during the contemplated financial restructuring, including the payment of employee wages and benefits and the meeting of the company's obligations to its clients, suppliers and other business partners.

The company is represented by Cleary Gottlieb Steen & Hamilton LLP, as international legal counsel, Ritch, Mueller y Nicolau, SC and Creel, Garcia-Cuellar, Aiza y Enriquez, SC as Mexican legal counsel and DD3 Capital Partners, as financial advisers.

The ad hoc group is represented by Shearman & Sterling LLP, as international legal counsel and Guerra, Hidalgo y Mendoza, SC and Mijares, Angoitia, Cortes y Fuentes, SC, as Mexican legal counsel.

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