Emerging markets new issue pipeline robust; secondary market firm; PDVSA maturity eyed

By Rebecca Melvin

New York, Oct. 24 – More new deals joined the emerging markets calendar on Tuesday, with more expected on the way as issuers eye favorable market conditions and an opportunities to pre-fund their capital needs and reprice debt curves, a New York-based market source said.

New issuers included lenders such as Poland’s Bank Gospodarstwa Krajowego, which is coming with a €750 million deal of 10.5-year notes (expected rating: //A-) at a yield of mid-swaps plus 68 basis points, and the Export-Import Bank of Korea, which was pricing $2.08 billion of notes (expected ratings: Aa2/AA/AA-) in three tranches on Tuesday.

And the Philippines-based Asian Development Bank plans to price a 10-year benchmark offering of dollar-denominated notes under Regulation S via J.P. Morgan Securities plc as stabilization coordinator and Citigroup, Daiwa and HSBC as stabilization managers.

Later this week, Russian gold mining company Petropavlovsk plc plans to start a roadshow for a U.S. dollar-denominated benchmark offering of five- to seven-year notes. Citigroup, JPMorgan, Sberbank CIB and VTB Capital have been mandated to begin a series of fixed income investor meetings starting Thursday.

The offering of Rule 144A and Regulation S notes is Petropavlosk’s inaugural dollar benchmark.

“This market is very hot. We are seeing issuers that we would not have imagined able to fund at such low rates and good prices,” a market source said.

For the Asia region, Singapore-based aircraft lessor Avation plc announced plans to sell $200 million of five-year notes (expected ratings: B/B+) via joint bookrunners JPMorgan and R.W. Pressprich. The proceeds will be used to purchase new aircraft, including an A330-300 to be leased to EVA Air and a 777-300ER to be leased to Philippine Airlines.

Although there was a pause in Latin America new issuance on Tuesday, the pipeline for the region is “very full,” with many deals on roadshows, including deals from Banco Nacional de Costa Rica and Chile’s Celulosa Arauco y Constitucion SA.

“So I expect the market to be very active for the rest of the week and into next week,” a market source said.

Meanwhile, the secondary market was holding up well, and market strength is expected to continue even as market participants watch what is happening politically with such things including tax reform in the United States.

The outcome of tax reform will affect rates and will be a key driver that will affect sentiment,” a market source said.

Other factors include whether and when equities pull back and any changes in the geopolitical arena. But for now, it is holding up well, the source said regarding secondary market valuations.

There remains a little bit of anxiety regarding payments due from Venezuela and Petroleos de Venezuela SA, but on Tuesday pricing of those bonds was fairly strong.

There is a grace period ticking down on several series of bonds, but still optimism that the large upcoming maturity, a PDVSA 8˝% bond due Nov. 2, 2017, is likely to be paid. The 2017 notes were seen at 93 bid on Tuesday.

The implied risk is there. “If you buy now, you could get $7 on your money in less than two weeks,” a source said, adding that the question is will they be able to pay.

© 2015 Prospect News.
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