Pemex launches $5 billion deal; EM sees better volumes, buying, spreads; HNA advances deal

By Christine Van Dusen

Atlanta, Jan. 28 – Mexico’s Petroleos Mexicanos SAB de CV (Pemex) brought new notes on a Thursday that saw good volumes, better buyers and tighter spreads, even as the big picture remained iffy.

“This time last week, EM investors were asking themselves the question, ‘when will this market find support?’ We were in a proper death spiral that was pushing for eight days straight,” a London-based trader said. “China growth, oil, with a sprinkling of liquidity fears, kept the buyers at bay and sellers pushing the market lower into no bid. What a difference a week makes.”

Though oil prices remain volatile and China remains a concern, “EM spreads continue to crunch back in,” he said. “Even the market’s favorite underweight, the Middle East, has seen demand.”

Five-year credit default swaps spreads for Turkey, for example, were seen below 270 basis points after testing the 315-bps level, he said.

“That’s tighter on the year now,” he said. “What’s changed? All it took was one or two real EM investors to draw a line in the sand, and remember why we do the credit work, and say, ‘this is value,’ and the rest then follow.”

Latin American bonds put in a positive session on Thursday, with spreads tightening and cash prices moving higher, a New York-based trader said.

Brazil’s five-year credit default swaps spreads finished the day at 473 bps from 477 bps, while Mexico’s narrowed to 194 bps from 200 bps.

“Cash prices were well-bid throughout the day,” he said. “Latin American high yield also trades well today, with both Venezuela and Argentina higher.”

Venezuela, Argentina rise

Venezuela’s 2027s closed at 36 from 35.25, PDVSA’s 2017s finished at 40 from 39.25, and Argentina’s Bonar 2024s closed at 107 from 106.50, a trader said.

“Easily one of the busiest days of the year as the FOMC last night cleared the decks for a continuation of the support for the asset class we’ve witnessed in recent days,” another said. “Some huge moves over the week.”

Turkish credit ‘resilient’

One trader was eyeing Turkey-based Yasar Holding AS, calling it an “attractive high-yield name in Turkey,” he said.

“Investors can take benefit of the carry, potential asset sales and early redemption options,” he said. “Turkish credit has performed fairly resilient amid the recent EM slump, and [we] think that Yasar might benefit from improvements in Turkey’s fundamentals, local consumer sentiment and the ability to pass on inflationary pressure.”

Overall, “Turkey banks are trading well, almost keeping up with the sovereign,” another trader said. “Bank spreads to the sovereign still look attractive and technicals are playing out well, with retail, real-money and the Street looking for bonds, as they never came out in any size. Corporates are also getting well-bid here.”

Middle East spreads narrow

On the week, Bahrain was tighter by 30 bps to 40 bps, while Dubai moved in between 30 bps and 50 bps, a trader said.

International Petroleum Investment Co. (IPIC) narrowed by between 25 bps and 45 bps, he said, and Abu Dhabi National Energy Co. (TAQA) tightened by between 45 bps and 65 bps.

“Very tricky trading environment at the moment,” he said. “There seem to be three brokers for every one market-maker and things change on a dime.”

The market remains a “hostage to oil price moves and headlines, and upcoming bond supply,” he said. “I suspect the relative stability in the market, the FOMC and the United States long weekend out of the way should bring out a couple of issuers.”

Azerbaijan could get bailout

Investors were also watching Azerbaijan, after the sovereign was reportedly meeting with the International Monetary Fund about a possible emergency loan package totaling $4 billion, a strategist said.

“The country has been struggling as a result of the low oil prices, with oil and gas accounting for above 90% of exports,” he said. “The oil price rout also has led to pressure on the [currency], which [was] devalued last in December.”

If the IMF does grant a loan to Azerbaijan, the sovereign’s bonds could benefit, according to a report from Schildershoven Finance BV.

“It would support the country’s reserves,” the report said.

Pemex in focus

For its new deal, Mexico’s Pemex launched a $5 billion three-tranche issue of notes due in 2019, 2021 and 2026, a market source said.

The $750 million notes due in February of 2019 launched at 5½% after being talked in the high-5% area.

The $1.25 billion notes due in February of 2021 launched at 6 3/8% after talk of a yield of 6 5/8% to 6 ¾%.

The $3 billion notes due in June of 2026 launched at 6.9% after talk in the 7 3/8% area.

BBVA, BofA Merrill Lynch, JPMorgan and Santander are the bookrunners for the Rule 144A and Regulation S.

‘Spotty weakness’

The proceeds from the new Pemex deal will be used to finance the company’s investment program and for working capital, the market source said.

“The Pemex curve did see some spotty weakness relating to the new issue announcement but managed to bounce off the lows,” a trader said.

Meanwhile, Pemex was in the news after Mexico’s deputy finance minister said the government would inject capital and “allow the company to further increase debt if the oil producer presents a plan to ensure its long-term sustainability and profitability,” Schildershoven said in its report.

The company needs to “reduce costs, make better investments and accelerate its partnerships with other companies,” the report said. “Investments in the company’s bonds may be interesting for risky investors.”

HNA Group gives guidance

In other deal-related news, China’s HNA Group Co. Ltd. set talk at 9½ for a tap of its 8 1/8% dollar-denominated notes due in 2018, a market source said.

Guotai Junan International and VTB Capital are the bookrunners for the Regulation S deal, which is expected to price this week.

The issuer is a Haikou City-based business conglomerate that focuses on airport services, air transportation, real estate, hotel and catering, travel services, commercial retail, logistics and transportation, financial services and network information technology businesses.

© 2015 Prospect News.
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