Better risk outlook draws Bovespa, Banco Mercantil do Brasil, Bank of East Asia to market

By Christine Van Dusen

Atlanta, July 9 - The pipeline for new deals from emerging markets issuers stayed open on Friday as concerns about the global economy faded into the background a bit, creating a sense of relative calm and encouraging investors to embrace risk.

Yields on 10-year Treasuries rose for the first time in three weeks, and U.S. equities saw gains. This - along with lessening volatility and no big, bad headlines out of Europe - pushed prices higher and spreads tighter on what was still a fairly slow Friday.

"The market's pretty quiet," an emerging markets strategist said. "We did see a turnaround for sentiment that doesn't seem to have dissipated. So anybody waiting in the wings to come out with an issue decided to jump on that opportunity and place some debt."

Brazilian deals print

New issuers included Brazil-based securities exchange operator BM&FBovespa, with $612 million 5½% notes due 2020 pricing at 99.635 to yield 5.548%, or Treasuries plus 250 basis points. Bank of America Merrill Lynch, Banco Bradesco, JPMorgan and HSBC were the bookrunners for the Rule 144A and Regulation S deal.

Also from Brazil, lender Banco Mercantil do Brasil priced $200 million 9 5/8% notes due 2020 at par. Bank of America Merrill Lynch and Banco Santander were the bookrunners for the Rule 144A and Regulation S deal, which was talked at 9¾%.

Asia gets busy

The day also saw some activity in Asia, with Hong Kong's Bank of East Asia pricing $450 million 6 1/8% tier 2 fixed-rate subordinated notes due 2020 at 99 to yield Treasuries plus 320 bps. Citigroup and JPMorgan were the bookrunners for the Rule 144A and Regulation S offering.

Proceeds will be used to refinance existing debt under the bank's outstanding $550 million 5 5/8% subordinated note program due 2015 or for general funding purposes, according to Standard & Poor's.

And Hong Kong-based trading and supply chain management company Li & Fung mandated Citigroup, HSBC and JPMorgan as bookrunners for a planned $400 million 5¼% notes due 2020, according to a company press release.

The issue is a re-tap of the $400 million 5¼% notes sold in May. Proceeds will be used for business development and acquisitions.

Kipco, Icici underperform

"We had a relatively strong week," a California-based buyside source said. "A lot of the new issuance was well received."

There were some exceptions, though. The $500 million 9 3/8% 10-year notes from Kuwait Projects Co. (Kipco) that priced at 99.204 to yield Treasuries plus 647 bps was trading at 98.75 early Friday. "That one has not done as well as many deals have," a London-based trader said.

And India-based Icici Bank's $500 million notes due 2016 that priced at par to yield 5%, or Treasuries plus 320 bps, got a somewhat ho-hum reception, too.

"It's now at 333 on the bid side, so it's underperforming," the California-based market source said of the Icici notes. "Icici is having a little bit of weakness. But in general the sentiment was relatively positive. It's not like you couldn't bring new deals."

Lower-grade deals next

Most of the issuers who have come to market so far have been higher-grade names, the strategist said. "It's hard to look through and find an issuer that was deep into speculative territory. That's all coming, but just nothing yet."

He thinks the next deals to come to market could be Ukraine's planned eurobonds via JPMorgan, VTB and Morgan Stanley and Russian lender VTB Bank's planned Swiss franc-denominated eurobond with VTB Capital and BNP Paribas.

And Belarus will go on a roadshow starting Monday for a planned issue of eurobonds. RBS, Sberbank, Deutsche Bank and BNP Paribas are the bookrunners for the deal, which is expected to total $500 million and could carry a maturity of three to five years.

Trading quiet, volumes better

In the secondary market, trading was "pretty quiet," the California-based source said.

Volumes grew but were still fairly thin as emerging market bonds finished the week with "further tightening," a New York-based trader said. "Spreads are in a few basis points on the higher-rated credit."

The JPMorgan Emerging Markets Bond Index Plus spread was 311 bps on Friday versus 320 bps on Thursday. And the JPMorgan Emerging Markets Bond Index Global spread was 334 bps on Friday versus 342 bps the day before.

In trading, outperformers included Venezuela, with "prices higher by 1 to 1½ points," the New York trader said. "Venezuela had lagged the rally early in the week and has tried to make up some of that underperformance in the last two days as risk appetite increased."

Argentina's discount bond was about 20 bps tighter, the strategist said, "so risk sentiment seems to be improving."

© 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.