CAF, RZD advance deals; Turkey tightens; Lat-Am weakens; Pemex sees activity in secondary

By Christine Van Dusen

Atlanta, Sept. 19 – Venezuela’s Corporacion Andina de Fomento (CAF) and Russia’s RZD Capital plc advanced new deals on a Monday that saw emerging markets investors focused on central bank actions, oil prices, Turkey and recent deals.

“With EM credit having been complacent for most of August on the back of the benevolent rates environment, markets are now inevitably focused on central bank actions,” a London-based analyst said. “While markets dismiss the thought of a Fed rate hike on Wednesday, there is undoubtedly an element of uncertainty when it comes to timing and pace.”

Meanwhile, oil prices “have seen a slight uplift from concerns about clashes in Libya that might halt its return to oil markets,” he said. “Moreover, Venezuelan President Maduro said that OPEC was ‘very close’ to an agreement on oil price stabilization measures.”

Oil producers inside and outside of OPEC are expected to meet during the International Energy Forum in Algiers from Sept. 26 to 28.

Against this backdrop there was “selective buying” of Middle Eastern assets on Monday morning, a trader said.

“Big week for the Fed and Bank of Japan, so expect more of the same volatility on headlines this week,” he said. “These could also keep the issuance at a minimum as well.”

Investors were keeping an eye on the new deal from Mexico-based Petroleos Mexicanos SAB de CV (Pemex), which last week priced $4 billion in two tranches.

The state-owned oil company priced $2 billion of seven-year notes at par to yield 4 5/8% and $2 billion of 31-year notes at par to yield 6¼%.

Pemex deal a ‘saving grace’

Pemex plans to use the proceeds to fund its concurrent tender and exchange offers and to finance its investment program.

“The $4 billion dual-tranche Pemex was the saving grace,” a trader said. “First new deal I have seen in a while that actually printed at the initial price guidance. I’m sure the likes of Saudi Arabia are watching how readily the market is absorbing these transactions.”

Turkey in focus

In trading, bonds from Turkey opened Monday about 2 basis points to 3 bps tighter as locals added on the long end of the curve, a London-based trader said. This came as Moody’s Investors Service was set to complete its review for a downgrade of the sovereign.

“We see a decent chance for Turkey to remain on investment grade,” another trader said. “Yet, it is a close call, and a downgrade would potentially have wide-reaching consequences for Turkish credit.”

But current spread levels already reflect a rating in the BB, or Ba, area, he said, “which reinforces our view that the upside for Turkish credit from a rating affirmation outweighs the downside from a downgrade.”

Bank and corporate bonds from Turkey have already retraced much of the widening they experienced after the coup attempt, he said.

“We expect a tightening of circa 20 bps to 40 bps in the case of an affirmation, assuming that Turkey bonds recover half of the initial widening versus peers,” he said. “On a downgrade, we see better liquidity in sovereign bonds in addition to the already tight levels of banks and corporates.”

Lat-Am ‘subdued’

Trading of Latin American bonds was slow on Monday, with inquiries and volumes “subdued,” a New York-based trader said.

“We try to grind a little higher following positive moves in Europe and Asia equities, and oil as well,” he said. “Many credits are unchanged. A few have managed small gains.”

Mexico-based Cemex SAB de CV, which “seemed to have found its life raft on Friday, teeters close to Friday’s close and still feels vulnerable, but to a lesser degree, along with other credits in Mexico,” he said.

High-grade names from Chile have also weakened, though they’ve stabilized, he said.

“Colombia banks, believe it or not, have fared the best as we moved lower, with little selling seen,” he said.

CAF plans issuance

Venezuela’s CAF is looking to issue notes, according to a company filing.

Barclays, Citigroup, HSBC and BofA Merrill Lynch are the bookrunners for the Securities and Exchange Commission-registered deal.

The proceeds will be used for general corporate purposes.

CAF is a lender based in Caracas.

RZD to print notes

Russia’s RZD Capital is planning to issue new notes as part of a tender offer for its outstanding $1.5 billion 5.379% notes due in 2017 and its CHF 525 million 2.177% notes due in 2018, according to a company announcement.

JPMorgan and VTB Capital are the joint dealer managers for the tender offer.

The notes were issued to finance loans to Russian Railways JSC, a state-owned railway company based in Moscow.

The borrower is OAO Russian Railways Co., a railway company based in Moscow.

Industrial Bank trades

China-based Industrial Bank’s two-tranche issue of $1 billion notes due Sept. 21, 2019 and 2021 that priced last week in a Regulation S deal has seen some activity in trading, a market source said.

The deal included $700 million 2% notes due 2019 that priced at 99.875 to yield Treasuries plus 113 bps, which later were seen trading at 99.85 bid, par reoffered.

The $300 million 2 3/8% notes due 2021 that priced at 99.644 to yield Treasuries plus 125 bps traded at 99.45 bid, 99.65 offered.

Citigroup, Standard Chartered Bank, BofA Merrill Lynch, BOC International, HSBC, Goldman Sachs, Bocom, Shanghai Pudong Development Bank, Agricultural Bank of China and China Construction Bank were the bookrunners for the deal.

The proceeds will be used for working capital and for funding the bank’s expansion strategies.

The lender is based in Fuzhou, in the Fujian Province.

© 2015 Prospect News.
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