Emerging markets flat; RasGas, Ecopetrol price; Argentina outperforms; all eyes on primary

By Aaron Hochman-Zimmerman

New York, July 16 - Emerging market trading was placed on the back shelf as investors focused on the primary market.

Qatar's RasGas and Colombia's Ecopetrol SA led off the primary line up on Thursday by pricing $2.23 billion and $1.5 billion, respectively.

Even with the current rush of issuance, there remained a healthy amount of supply in the pipeline representing every emerging market sector.

On the trading side, Argentina added 2 points to its discount bonds due 2033, almost inexplicably.

However, across most of the secondary market "volumes have been pretty light surprisingly," a strategist said.

"People are getting ready for the summer holidays," he said.

As for the primary, "historically there have never more than five deals in August. There are typically two or none," he said, implying that any issuers who miss the coming week will have to wait until September.

Meanwhile bond funds continued to post new cash inflows.

"Emerging markets bond funds extended their longest inflow streak since a 22-week run that ended in mid-[first quarter 2007]," EPFR Global said in a statement.

From the major markets, volatility shed 0.47 to close the day at 25.42, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets widened by just 2 basis points to a spread of 416 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns was wider by 3 bps with a spread of 429 bps.

The diversified index has a less strict liquidity rule for inclusion.

Energy firms light up primary

RasGas priced $2.23 billion of three-, five-, 10-year senior secured bonds (Aa2/A/A+).

The $500 million three-year tranche matched talk, pricing at Treasuries plus 300 bps. Talk had been cut from Treasuries plus low to mid 300 bps for a yield of 4.30%. The bonds priced at 99.964 with a coupon of 4½% to yield 4.508%.

The $1.115 billion five-year tranche also came in line with talk, in this case pricing at Treasuries plus 312.5 bps. Talk had been revised from Treasuries plus mid 300 bps for a yield of 5¼%. The bonds priced at 99.768 with a 5½% coupon to yield 5.548%.

The $615 million 10-year piece once again matched talk, pricing at Treasuries plus 325 bps. Talk was revised from Treasuries plus mid to high 300 bps for a yield of 6.35%. The bonds priced at 99.696 with a 6¾% coupon to yield 6.788%.

Citigroup, Credit Suisse and HSBC were bookrunners for the deal.

RasGas is a Doha, Qatar-based government-run energy firm.

Ecopetrol brings $1.5 billion

Also in the primary, Ecopetrol priced $1.5 billion of 10-year bonds (Baa2/BB+/BB+) at Treasuries plus 410 bps.

The issue came tighter than talk of Treasuries plus 425 bps. It priced at 99.642 with a 7 5/8% coupon to yield 7.667%.

Barclays Capital and JPMorgan acted as bookrunners for the bonds.

Proceeds will be used to fund the company's investment plan.

Ecopetrol is a Bogota, Colombia-based energy firm.

Emerging Europe's high supply

Hungary issued talk at Treasuries plus 400 bps for its €2 billion five-year bonds. The deal is expected to price Friday.

Citigroup and ING were asked to act as bookrunners for the deal.

Proceeds will be used for general financing purposes.

The preliminary interest in the bonds correlated to a successful forint debt auction on the local market, a strategist said.

"They are less reliant on the IMF at this point," he said, but added: "If the market craps out again then all bets are off.

"As long as the policy-makers remain focused on systemic risk ... then the market will remain bullish," he commented.

Also in emerging Europe, Russia's Novolipetsk Steel announced plans to offer $2 billion in bonds.

Deutsche Bank and Bank of America Merrill Lynch were asked to act as bookrunners for the deal.

Novolipetsk Steel is a Lipetsk, Russia-based steelmaker.

The company has a $2 billion bridge loan coming due, a strategist said.

Management may choose to tap the local debt market if there is sufficient interest, he said.

"It's a lot to tap in the domestic market."

By the close Wednesday, investors were still waiting for final terms from Kazakhstan's KazMunaiGaz which had issued talk at 12% yield for its upcoming five-year, six-month bonds.

The bonds are due in 2015.

JPMorgan and Citigroup will act as bookrunners for the deal.

Korea National Oil lines up offering

From Asia, another deal from South Korea surfaced on the long-term calendar.

Korea National Oil Corp. announced plans to sell a five-year bond (A2//).

Asian Development Bank, Bank of America Merrill Lynch, Barclays Capital, BNP Paribas, Deutsche Bank and Korea Development Bank will act as bookrunners for the deal.

The bonds are expected in the third quarter.

Korea National Oil is an Anyang, South Korea-based energy firm.

Serbia joins Nabucco side

Officials in Russia were reportedly surprised to see Bulgaria's support for the proposed Nabucco pipeline.

The pipeline would bypass Russia as it runs from Caspian gas producers through Turkey and into central Europe.

Bulgaria was expected to act as a conduit for the Russian-favored South Stream pipeline. South Stream would bypass Turkey as it traveled underneath the Black Sea.

Bulgaria signed agreements with Turkey as well as Austria, Hungary and Romania on Monday to support the favored plan of the European Union.

Furthermore, on Thursday Serbia also backed Nabucco and concurrently was granted visa-free travel to nearly every E.U. nation, effective Jan.1, 2010.

The diversification of fuel supply lines is largely aimed at avoiding dependency on Ukraine as Kiev's financial trouble and ongoing disputes have prompted Russia to cut off gas west of its borders.

If completed, the Nabucco pipeline is scheduled to be operational in 2014.

The Russian government bonds due 2030 added 0.45 point to 98.45 bid, 98 5/8 offered.

The Turkish sovereigns due 2030 continued to do well as they added 3/8 point to 154 3/8 bid, 154 7/8 offered.

Despite the pipeline successes for Ankara, the Turkish bonds were "probably not" up on the news, a strategist said, but "they could be overvalued."

LatAm high grade tighter

Latin America "feels firmer," a strategist said, as volume was less than "decent" and "high yield is still grinding tighter" despite the new supply.

Chile's Celulosa Arauco y Constitucion SA will hold a U.S. roadshow for dollar-denominated 10-year bonds (Baa2/BBB/BBB+).

The roadshow will be held on July 17 on the west coast, July 20 in Boston and on July 21 in New York.

JPMorgan was mandated to act as the active bookrunner, while BBVA and Santander Investments will act as passive bookrunners for the deal.

Arauco is a Santiago, Chile-based logging company.

A strategist had not seen an amount for Arauco's upcoming deal, but said knows the firm as a "good company" and expects to see strong interest for a likely benchmark issue.

In trading, Argentina took the lead as it seemed to post a recovery without any clear impetus.

"The crisis is over," another strategist joked.

The 8.28% Argentine discount bonds due 2033 added 2 points to 54 bid.

Meanwhile, Fitch revised the outlook to positive for Uruguay's BB minus rating on Thursday, but investors were seemingly uninterested.

The 9¼% Uruguayan bonds due 2017 were lower by ¼ point to 113½ bid, 113¾ offered.

Also, Brazil 11% sovereigns due 2040 were quoted at 130¾ bid, 131.2 offered.

Constructive Asia

Asia traded with a "pretty constructive tone" on Thursday as supply flooded every sector of the emerging markets.

Sri Lanka prepared to start its three-date roadshow from Friday to Tuesday, while Korea National Oil Corp. was expected to begin a roadshow in the near future, a trader said.

"There's been so much new supply," he said, particularly from South Korea, but demand is strong enough to handle the new paper.

"It's not having much of an impact," he said.

The new 5½% bonds due 2014 which Korea Electric Power Corp. priced on Monday have tightened 25 bps to 330 bps bid, the trader said.

Kepco priced $500 million of five-year bonds at Treasuries plus 355 bps on Monday.

"It's helped the rest of the Korean corporate market," the trader said and the pattern seems to remain on track.

"As long as the backdrop stays firm it will do," he said.

The firmness was also bolstered by the "migration" of bonds from the United States to Asia where they are less likely to be traded away.

The South Korean sovereign bonds due 2014 were seen at 365 bps bid, 355 bps offered.

Indonesia "was still outperforming" on the sovereign side, he said.

Volume has been slow, but "pretty reasonable," the trader said.

Also in Indonesia, the national oil company, PT Pertamina plans to issue dollar-denominated bonds in the third quarter, according to the Jakarta Post.

"We are still calculating the value of the bonds," vice president director Omar Anwar was quoted as saying, but "we will issue the bond in U.S. dollars because most of Pertamina's transactions are in U.S. dollars."

The Indonesian sovereign bonds due 2019 tacked on ¾ point to 131½ bid, 132½ offered.

Elsewhere, the Philippines "traded a bit better, then faded overnight," he said.

The new 6½% bonds due 2020 which priced on Monday at 99.065 were seen ½ point lower from Wednesday's close at 99¾ bid, 100¾ offered.

© 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.