EM weaker to start shortened week; selloff hits South Africa; Papua New Guinea eyes deal

By Rebecca Melvin

New York, Sept. 4 – South Africa’s bonds sold off on Tuesday with spreads pushing out for both sovereign and corporate bonds as the rand slumped amid credit risk worries following the country’s unexpected contraction in second-quarter GDP, according to market sources.

The broader emerging markets debt market was weaker amid weakness in other key currencies, including the Turkish lira and Argentine peso, as the U.S. dollar strengthened.

South Africa’s sovereign curve widened 17 basis points to 22 bps on the session, according to a London-based trader.

Meanwhile, South African electricity public utility Eskom Holdings SOC Ltd., which priced $1.5 billion of 10-year notes in two parts last month, was also finding little support, the trader said. And there were retail sellers of FirstRand Ltd.’s 6¼% 2028 notes, of which $500 million priced in April, as well as Barclays Africa Group Ltd., which also traded in decent size on Monday.

Credit default swaps for South Africa were last at 258 bps to 258 bps.

The rand surged well above 15 per U.S. dollar, representing a better than 3% decline on the day and its weakest level of the year.

The Turkish lira was down more than 0.5% to 6.677 per dollar, which was its weakest level in more than three weeks.

Turkey’s central bank said on Monday it will reshape monetary policy next week after inflation accelerated in August to its fasted pace since 2003.

The Argentine peso, another beset emerging-markets currency, traded weaker again on Tuesday, resuming its downward trajectory despite a brief hiatus on Friday after Argentina’s president, Mauricio Macri, announced on Monday that his administration would raise taxes and cut spending, bringing forward its target of a balanced budget by one year.

In markets overall, CBOE Volatility, commonly referred to as a fear gauge, was up 8% on the day to 13.83 and up 23% for the month.

Nevertheless, Papua New Guinea mandated banks and scheduled fixed-income investor meetings for a planned dollar-denominated benchmark offering of senior unsecured notes (B2/B).

A Papua New Guinea issue has long been talked about. The government had proposed selling an international bond in 2016, which was not forthcoming.

Citigroup and Credit Suisse are bookrunners for the planned Rule 144A and Regulation S Papua New Guinea notes.

Also from Asia, China General Nuclear Power Corp. launched €500 million of green notes to yield a spread of mid-swaps plus 150 bps, according to a syndicate source on Tuesday.

Pricing came at the tight end of revised guidance for a yield spread of mid-swaps plus 150 bps to 155 bps, with initial talk set at mid-swaps plus 155 bps.

Orders for the senior unsecured China General Nuclear Power green notes topped €850 million.

Bank of China, BNP Paribas, Credit Agricole CIB and ICBC are joint global coordinators, lead managers and bookrunners of the Regulation S notes.

Agricultural Bank of China, China Construction Bank (Asia), China Everbright Bank Hong Kong branch, CMB International, DBS Bank Ltd., OCBC Bank and Standard Chartered Bank are also joint lead managers and joint bookrunners.

Proceeds are earmarked to fund eligible green projects.

The Shenzhen, China-based nuclear power producer operates under the authority of the state-owned Assets Supervision and Administration Commission of the State Council.

South Africa sells off

In addition to Barclays Africa Group and FirstRand, the rest of South Africa corporates saw lower pricing and wider spreads on Tuesday. MTN Group Ltd. is now about 110 bps to 130 bps wider on the month, a London-based trader said.

An exception to the overall down trend was Sibanye Gold Ltd. The Sibanye 2022 and 2025 notes were quoted about 35 bps to 40 bps tighter.

“Decent clattering for SOAF Inc. as we kick off September with the first full day of trading,” the trader said, referring to South Africa’s sovereign bond curve.

Meanwhile, Argentina was seeing a weak tone with its currency down again on Tuesday.

Brazil’s top electoral court banned the country’s top presidential candidate Luiz Inacio Lula da Silva from being a candidate in the upcoming election given the fact that he is currently in jail for corruption.

In the new issue market, investment-grade credit Suzano Papel e Celulose SA is on the calendar for a potential $2 billion worth of 2030 and 2049 debt to help fund its acquisition of rival Fibria Celulose.

Suzano is an exporter of pulp products so may actually be aided by a weak real.

There were no new announcements from the Gulf Cooperation Council countries, where several new mandates have materialized in recent sessions. Those deals will likely be firming up as the holiday shortened trading week progresses; financial markets were closed in the United States on Monday in observance of Labor Day.

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