Credito Real notes offering possible Jan. 28 week; secondary remains strong; funds see inflows

By Rebecca Melvin

New York, Jan. 25 – Mexico’s Credito Real SAB de CV Sofom ER’s proposed offering of new intermediate duration notes is still in the offing but has been postponed slightly as the use of proceeds has changed, a syndicate source said on Friday.

Credito Real’s planned tender for up to $313 million of its $625 million outstanding of 7¼% senior notes due 2023 has been canceled so that is coming out of the use of proceeds. But once new documentation is drawn up with adjusted use of proceeds, the deal will proceed, the source said.

“We won’t be pricing today, but possibly next week,” the source said,

Credito Real, a consumer finance provider, selected Barclays, Citigroup, Goldman Sachs and Morgan Stanley as joint bookrunners of the planned Rule 144A and Regulation S deal. And the banks arranged fixed-income investor meetings, which concluded this week.

In secondary market dealings, pricing is still strong as has been the trend for much of the past two weeks, and emerging markets debt has seen a rise in flows to funds with hard-currency emerging markets mandates.

J.P. Morgan Emerging Markets Bond Index has tightened down to 370 basis points from 420 bps at the end of last year. On Friday, spreads were mostly tighter again, although only mildly so, with many bonds in the Middle East & Africa region tighter by a few basis points on the day.

For the week ending Jan. 23, the hard currency emerging markets bond funds tracked by EPFR Global posted their biggest inflow since the third week of July 2016, when yield hunger and concerns about political trends in Europe saw all emerging markets bond funds set new inflow records twice in less than a month, EPFR reported in its weekly note, the EPFR Global Navigator.

Latin America captured a lot of attention in the emerging markets debt market this past week, which got off to a slow start given U.S. financial markets were closed on Monday in observance of Martin Luther King Day.

On Wednesday, Colombia priced two tranches of notes that attracted record demand and traded higher in the aftermarket. Colombia’s Termocandelaria Power Ltd. also priced a deal – $410 million of 7 7/8% 2029 notes – and those also traded higher and tightened up, and Venezuela bonds jumped 1.5 points to 3 points as markets anticipated growing pressure on president Nicolas Maduro that might result in him being removed from power.

The region of Central & Eastern Europe remained tepid however. Although Turkey returned to the global bond market for the second time this month for a euro deal – €1.25 billion of 4 4/8% notes due 2025 that priced with a 4¾% yield.

“I’m surprised we haven’t seen more. It’s definitely issuer driven. They are either scared of the volatility we saw last year and don’t want to get caught in that by doing a trade or they think conditions are going to get even better,” a London-based source said regarding the lack of a primary calendar for that region.

The strength in the emerging markets secondary market, with bonds moving tighter, seems to be driven by expectations that the U.S. Federal Reserve is going to go slower and remain responsive to economic conditions as it moves ahead on its path to normalizing rates in 2019.

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