Emerging markets debt improves again, but year-end result looks set; market eyes NiQuan Energy deal

By Rebecca Melvin

New York, Dec. 13 – Emerging markets debt improved again on Thursday, amid mixed performance in the broader markets.

The credits hardest hit in recent months have been the ones outperforming, including Argentina, Turkey, South Africa and Mexico, a New York-based market source said. But the positive tone the market is sporting is unlikely to change full-year results for 2018, the source said.

For the year so far, the J.P. Morgan emerging markets’ U.S. dollar-denominated sovereign bond index is down 4.9%, and the source predicted a negative return at about that same level would stand at the close of the year.

No pricing emerged on planned notes for Trinidad & Tobago’s NiQuan Energy Trinidad Ltd., although fixed income-investor meetings were set to wrap up Thursday. However, meetings may continue as the deal is being sold to very specific investors in the Caribbean, which could mean a longer process, a New York-based sellsider, away from the deal, said.

“It’s not the rosiest market,” the source said, but it may get done in “a private placement-esque” way.

Oppenheimer and Republic Bank are bookrunners of the deal, the proceeds of which would go toward facility development of the gas to liquids operator based in Port-of-Spain.

Negotiation of the tender terms for Mexico City Airport bonds continued, with market players watching the tender as a “benchmark of sentiment” going forward to the Mexican credit market.

“It’s not being handled in the cleanest fashion, but it will drive a lot of sentiment going forward,” the market source said regarding negotiations between the government and investors.

The ad hoc group of holders of Mexico City Airport bonds said that “fundamental problems” remain in the government’s tender offer for up to $1.8 billion of the bonds, despite amended terms announced on Tuesday. The bondholders’ group said that absent additional collateral and clarification of cross-defaults, it cannot support the tender as proposed, according to the group’s press release.

The group said that while incremental improvements were made from the Dec. 3 offer, the collateral offered to compensate for the removal of the originally agreed Texcoco collateral is insufficient and that further substitutes from alternative airports or otherwise must be provided.

Additionally, the proposal describes removal of the existing cross-defaults between existing series of the bonds that are inappropriate and “should be clarified if unintentional.”

The group, represented by Hogan Lovells and Houlihan Lokey, also said it believes that any consents provided by bondholders in connection with the tender should be limited to the amount of bonds actually purchased and should not apply to all the bonds held by the bondholder. And, finally the early deadline for the tender should be extended to at least Dec. 21, the group said, in light of the fact that the bondholders were not consulted about the changes that were made in the amended offer.

The amended and restated offer pertains to about one-third of the bonds issued by the Mexico City Airport Trust (Mexcat) in 2016 and 2017, including $1 billion of 4¼% senior secured notes due 2026; $1 billion of 3 7/8% senior secured notes due 2028; $1 billion of 5½% senior secured notes due 2046; and $3 billion of 5½% senior secured notes due 2047.

EM debt tone improves

Improvements in emerging markets debt in December can be chalked up to the softened tone of the U.S. Federal Reserve in terms of expected interest rate hikes next year, and the postponement of additional U.S. tariffs on China imports that had been expected in January.

These developments occurred at a time when EM debt was technically oversold, so there has been a bounce, a New York-based market source said.

But beyond a surprise pact on U.S.-China trade before the end of the year – which is unlikely – emerging market debt is expected to go out at about these levels, representing attractive pricing for investors when 2019 starts.

In the broader markets, U.S. Treasuries slipped, pushing up the yield on the benchmark 10-year Treasury to 2.9%. U.S. stocks were mixed, with the Dow Jones industrial average closing up 70.11 points, or 0.3%, at 24,597.38, but the S&P 500 stock index closing off by 0.53 point to end at 2,650.54, and the Nasdaq Composite Index closing down 27.98 points, or 0.4%, to close at 7,070.33.

© 2015 Prospect News.
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