EM starts off quiet, then picks up; Argentina issue in focus; Chexim active in secondary

By Christine Van Dusen

Atlanta, April 20 – Emerging markets bonds were unusually quiet on Wednesday morning, with spreads widening, before gathering steam amid heavy demand for the new issue of notes from Argentina.

“After a rip-roaring session in EM yesterday it’s not surprising we see a pause this morning,” a trader said. “Spreads, in general, are 3 basis points to 5 bps wider as we fail to match the U.S. Treasury move. When we have long periods of risk-on in EM, buying the risk you want becomes ever-challenging and leads to compromise just to get cash working.”

He expected this pause to “lead to some rationalization of portfolios, and maybe some realization that given the supply tap is now firmly on, there are a few bonds that are trading way too tight, given the credit metrics.”

The focus, in the secondary market, was mostly on Argentina’s gigantic $16.5 billion issue of notes due in three, five, 10 and 30 years, which priced on Tuesday.

“But all seems well in the corporate universe; the water is definitely still warm,” a New York-based trader said. “Dealer support remains strong on most [high-grade and high-yield] issues as the strong client buying has waned over the past week.”

Brazil-based Vale SA managed to hold in well, and Colombia-based Ecopetrol SA’s weakness from Friday and Monday was “erased,” he said. “Mexican high-grade and Cemex SAB de CV were also quiet but firm.”

Cemex is scheduled to release its quarterly earnings results on Thursday, he said, and its longer bonds continued to firm up.

“Chile high-grade remains the gold standard in the Latin American corporate world,” he said. “Most credits are still grinding higher and tighter.”

Lat-Am tightens

At the end of Wednesday’s session, Latin American spreads managed to tighten, with Brazil’s five-year credit default swaps spreads closing at 336 bps from 338 bps after trading as wide as 342 bps.

Mexico’s CDS finished at 149 bps from 153 bps, another trader said.

“Cash prices continue to grind higher, even in the face of weak U.S. Treasuries today,” he said. “Levels did start to get hit a bit later in the day.”

Venezuela’s 2027s closed unchanged at 40.75, while PDVSA’s 2017s stood at 54.75.

Argentina ‘well received’

High-yield names were mixed, with Argentina’s new issue “very well received” and “the market digesting supply seamlessly,” a trader said.

“Good flows for the new issue on the day, with other names quieter,” he said. “But as Argentina settled down, flows in other low-beta names picked up, with mostly buyers springing up. With supply taken down, one has to wonder if this may be the catalyst [that sends] other issuers racing to market, especially as rates slowly to start to back up in the U.S.”

Turkey weakens

Bonds from Turkey were slightly weaker on Wednesday morning, with spreads pushing out between 2 bps and 4 bps, a London-based trader said.

“The [central bank] only cut the overnight lending rate by 50 bps, in line with consensus, but paper feeling slightly better-offered again as accounts haven’t stepped in to buy,” he said. “If anything, a few have sold as a further cut may be on the card.”

The sovereign curve “feels like we are trying to steepen, as we see sellers in the long end for choice,” he said.

Banks and corporates from Turkey remained in demand, with telecommunications companies standing out, he said.

Qatar well-bid

In other trading, bonds from Qatar were well-bid, as were those from Bahrain, a trader said.

“Kazakhstan is trading super-strong, with the long end gapping up a point on the open to new highs,” he said. “The 2024s are also back to reoffer nearly a year later.”

Chexim sees action

Export-Import Bank of China’s (Chexim) new three-tranche issue of $2.25 billion notes due April 26, 2021 and 2026 and €650 million notes due April 26, 2019 saw some activity in trading, a market source said.

The $1.25 billion 2% notes due 2021 priced at 99.504 to yield 2.105%, or Treasuries plus 85 bps, following talk of 85 bps to 90 bps. The notes were seen trading at 90 bps.

The $1 billion 2 7/8% notes due in 2026 priced at 98.961 to yield 2.996%, or Treasuries plus 120 bps. Talk was set at 120 bps to 125 bps. In trading, the notes moved to 123 bps.

And the €650 million 3/8% notes due in 2019 priced at 99.848 to yield 0.426%, or mid-swaps plus 55 bps, following talk of 55 bps to 60 bps. The notes were quoted in the secondary market at par bid, 100.15 offered.

The proceeds will be used for general corporate purposes.

Yunnan Provincial sees orders

The final book for China-based Yunnan Provincial Investment Group Co. Ltd.’s new $300 million issue of 3% notes due 2019 that priced Tuesday at 99.815 to yield Treasuries plus 215 bps was $2.4 billion from 126 orders, a market source said.

Bank of China, Citigroup, Guotai Junan International, HSBC were the joint global coordinators for the Regulation S deal. Bank of China, CCB International, China Merchants Securities, Citigroup, Citic CLSA Securities, Guotai Junan International and HSBC were the joint lead managers and bookrunners.

Asian investors picked up 88%, Europe 11% and others 1%. Asset managers and insurers bought 43%, banks 20%, sovereign wealth funds 18%, others 15% and private banks 4%.

In trading, the notes were seen between 99.83 and 99.93.

Georgian Oil trades

The new issue of notes from Georgian Oil and Gas Corp. – $250 million 6¾% notes due in 2021 that priced Tuesday at 98.96 to yield 7% – traded Wednesday at 100.10 bid, 100.85 offered, a trader said.

“Seeing some small profit-taking,” he said.

The notes were talked at a yield in the low-to-mid-7% area.

JPMorgan and Barclays were the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used to purchase previous notes and to build a combined cycle power plant and underground gas storage facility.

ADB sells notes, releases book

The new $3.5 billion issue of notes due in 2018 and 2026 from Philippines-based Asian Development Bank “achieved wide primary market distribution,” according to an announcement from the regional development bank.

The bank sold $2.5 billion of 0.875% two-year notes at 99.830 to yield 20 bps over Treasuries. About 31% were placed in Asia; 42% in Europe, the Middle East, and Africa; and 27% in the Americas. By investor type, 70% of the bonds went to central banks and official institutions, 15% to banks, and 15% to fund managers and others.

A $1 billion tranche of 2% 10-year notes priced at 99.335 to yield 27.95 bps over Treasuries. About 29% went to Asia; 48% to Europe, the Middle East and Africa; and 23% to the Americas. About 32% of the bonds went to central banks and official institutions, 33% to banks and 35% to fund managers and others.

BofA Merrill Lynch, BNP Paribas Securities Corp., Goldman Sachs & Co. and Mizuho Securities USA Inc. were the lead managers.

ADB says it plans to raise around $20 billion from the capital markets this year.

© 2015 Prospect News.
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