EM suffers through ‘ugly session’; China Development gives guidance; Egypt, Ghana on deck

By Christine Van Dusen

Atlanta, Sept. 29 – Most emerging markets bonds remained weak on Tuesday, with Asian credits widening by as much as 15 basis points, even as the selloff in stocks slowed slightly.

Contributing to the tumult for emerging markets assets are bonds feeling the effects of losses for Volkswagen, Glencore and Agricultural Bank of China.

Qatar, for one, is suffering as a result of Glencore’s debt crisis and Volkswagen’s scandal, losing about $12 billion from the sovereign wealth fund.

And “Saudi Arabia has withdrawn an estimated $50 billion to $70 billion from global asset managers in order to fund its deficits and reduce exposure to volatility in equity markets,” a London-based trader said.

For Asian assets, sellers far outpaced buyers on Tuesday morning, with recent issues moving wider, another trader said.

“Commodity-related names were unloved,” he said, noting that China-based Cnooc Ltd.’s curve was as much as 18 bps wider.

In the afternoon, “market sentiment remained morbid,” another trader said. “Ugly session indeed.”

India saw its bonds move 20 bps wider, then recover a bit after the central bank unexpectedly cut rates by 50 bps.

Against this backdrop, some issuers still managed to advance deals. China Development Bank set initial talk for a dollar-denominated issue of notes due in five years at Treasuries plus 110 bps to 120 bps, a market source said.

The issuer is also expected to print a euro-denominated tranche of benchmark-sized notes.

Barclays, BNP Paribas, Bank of China, Deutsche Bank, HSBC, JPMorgan, Societe Generale and Standard Chartered are the bookrunners for the Regulation S deal.

The proceeds will be used for working capital and general corporate purposes.

Ghana, Egypt to issue notes

Ghana is expected to move forward this week with its $1.5 billion issue of amortizing bonds with an average maturity of 10 years, a deal that is partially guaranteed by the World Bank’s International Development Association.

And Egypt is looking to issue notes before the end of the year, a market source said.

Other details were not immediately available on Tuesday.

Turkey widens, Pakistan mixed

From Turkey, sovereign bonds moved about 5 bps wider with some two-way activity while banks were soft and saw some demand, a trader said.

“Demand continues to focus on the short end,” he said.

Looking to Pakistan, the new 8¼% notes due 2025 that recently priced at par via Citigroup, Deutsche Bank and Standard Chartered in a Rule 144A and Regulation S deal saw mixed flows on Tuesday, another trader said.

Lat-Am still under pressure

The tone for Latin American assets was slightly better on Tuesday, but bonds remained under pressure, a New York-based trader said.

“After Fitch’s comments regarding Brazil yesterday, the market is going to have to come to terms with the high probability that Brazil will lose its investment grade status by all of the rating agencies before year end, and possibly well before that,” he said.

The sovereign’s curve was trading at “extreme levels of distress,” he said, “and yet it remains extraordinarily steep.”

Five-year credit default swaps spreads were flat for Brazil, he said, and sellers were numerous.

Pemex suffers

Mexico-based Petroleos Mexicanos SAB de CV took a beating in trading on Tuesday, another trader said.

“The spread against Mexico is completely unprecedented,” he said.

Colombia’s bonds saw sellers, with the new 2026 notes trading as low as 96.1 on Tuesday, he said.

“Chile remains bidless,” he said. “The Chile ‘42 is already trading at record wides.”

Petrobras gets attention

Meanwhile, Brazil-based Petroleo Brasileiro SA traded at Monday’s levels or lower, another trader said.

Most of the inquiries focused on the company’s 2019s or 2020s, and the spread between the corporate's bonds and the sovereign widened, he said.

Chinese bank on roadshow

Agricultural Bank of China Ltd. began a roadshow on Tuesday for a possible issue of dollar-denominated green bonds, a market source said.

Agricultural Bank of China Ltd., Hong Kong Branch, ABCI Capital Ltd. and Standard Chartered Bank (Hong Kong) Ltd. are the arrangers.

The bank may issue notes under the program within 12 months of July 17.

Based in Beijing, the commercial bank has branches in mainland China, Hong Kong and Singapore.

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