Emerging market volumes rise on investors' cautious optimism; CAF prices; Kipco whispers

By Christine Van Dusen

Atlanta, July 7 - The tone for emerging market debt was a touch stronger on Wednesday as investors digested recent negative economic news out of the United States and as investors were comforted by the developing plans for stress-testing Europe's banks.

But any optimism was somewhat guarded, keeping risk aversion alive, and the pace of new issuance remained slow.

Overall, though, the tone was "a little bit better today," a New York-based market source said. "There's a pretty good feeling today. Hopefully we'll see a little more progress in the week."

Investors are becoming "more comfortable with the situation" in Europe and the United States, said Enrique Alvarez, debt strategist with think tank IDEAglobal.

"We're getting some breathing room in the U.S. and looking at the European stress tests, so we're at least becoming a little more comfortable with the situation there," he said. "There's not more pressure there and not a lot of overwhelmingly negative data on the U.S. side. That's allowing the risk-on trade to seep back."

LatAm wakes up

As a result, activity in Latin America perked up a little bit on Wednesday, with Venezuelan bank Corporacion Andina de Fomento pricing $600 million 3¾% notes due Jan. 15, 2016 at 99.396 to yield 3.873%, or mid-swaps plus 210 basis points, an informed market source said.

Credit Suisse and HSBC were the bookrunners for Securities and Exchange Commission-registered notes, which were sold off the shelf and are non-callable.

"CAF was a stand-out," the New York-based source said.

Also from Latin America, Colombia is planning a $500 million bond issue as part of a larger plan to raise $2 billion in debt. There also were whispers that lender Bancocolombia is planning to issue as much as $636.84 million in 10-year notes.

Also taking a step toward the market on Wednesday was Peru's Corporacion Financiera de Desarollo (Cofide) with a planned issue of $250 million dollar-denominated bonds.

And Brazil's Banco Mercantil set price talk for its planned issue of 10-year notes via Bank of America Merrill Lynch and Banco Santander at 9¾%, a market source said.

"There are a lot of corporate names getting tossed about," Alvarez said.

Kipco, KEB move forward

Wednesday also saw Kuwait City-based investment firm Kuwait Projects Co. (Kipco)'s planned dollar-denominated benchmark-sized issue of notes due 2020 whispered to yield 9½%. BNP Paribas, Citi and HSBC are the bookrunners for the Regulation S deal, which is expected to price sometime this week.

And Seoul-based Korea Exchange Bank is planning a dollar-denominated issue of senior unsecured fixed-rate notes due 2016, a market source said.

"We've got a couple of things buzzing along and may see a little bit out of the Asia side of things," the New York-based source said.

In general, though, the new issuance pipeline "does not seem wide open," Alvarez said. "Investors are going to be careful and selective at this stage."

There's appetite out there, he said, but issuers are going to have to accept "such tight spreads that it's going to make the overall execution a little more challenging than usual."

Sources say the Ukraine is dealing with this very problem and is considering canceling its planned eurobond via JPMorgan, VTB and Morgan Stanley if investors require too high of a yield.

Still, if the global equity markets see a sustained period of stabilization, the overall picture should improve and new issuance likely will "start to creep back in," an economic strategist said. "We need more than one or two days on the upside to get people excited again."

Trading improves

In terms of trading, volumes were stronger on Wednesday, particularly given the time of year and the fact that many in the market are still on vacation, the trader said.

A "mix of sovereign and corporate new issues" is being met with "what seems to be plenty of recently sidelined cash," he said.

Most names were "slightly better" on the day, Alvarez said. But Venezuela, for one, was "not reflecting that."

Argentina was a bit firmer, up nearly 1%. And the 2033 discount bond was up too, "the highest since the announcement of the completion of the debt swap," he said. "That's a strong point and in line with the risk-taking going on."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.