Risk aversion remains as Pemex, Socar, OGX Petroleo, TAM, HSBC advance bond offerings

By Christine Van Dusen

Atlanta, May 25 - Emerging markets investors and issuers remained cautious on Wednesday as debt-saddled Greece's continuing troubles - this time an E.U. official's assertion that the sovereign must take serious steps or go back to the drachma - dinged sentiment and hindered new issuance.

"Global markets remain driven by headline news, a lack of risk appetite and large changes in positioning," according to a report from Barclays Capital Markets. "While positions appear more neutral than in early May in a number of markets, this is not the case for euro peripheral debt, where positions seem to be skewed heavily to the short side."

Prices were heavy across the board and activity was mixed and limited to special situations, a London-based market source said.

"But it still feels like there are spread buyers of longer-end and better-rated credits," he said. "Once again the activity was centered around the morning session with a rather lackluster afternoon session. It remains a technical market. It still feels like any dips and panics are opportunities."

Amid this volatility, a handful of EM issuers took steps toward doing new deals, including Mexico's Petroleos Mexicanos SAB de CV, State Oil Co. of Azerbaijan (Socar), Brazil's OGX Petroleo e Gas Participacoes SA, Brazil's TAM Capital 3 Inc. and HSBC Bank Middle East Ltd.

The JPMorgan Emerging Markets Bond Index Plus spread tightened by 1 basis point to Treasuries plus 282 bps.

OGX, TAM set price talk

For its planned issue of $2 billion notes due 2018, Brazil-based oil and gas exploration company OGX Petroleo e Gas Participacoes set price talk at the 8½% area, a market source said.

The company also changed the call feature for the deal. The notes, formerly described as non-callable for three years, will now be non-callable for four years.

JPMorgan, HSBC, Credit Suisse and Itau are the bookrunners for the Rule 144A and Regulation S deal, which is expected to price on Thursday.

Proceeds will be used to fund production and development and for general corporate purposes.

Also from Brazil, TAM Capital 3 set price talk at 8½% to 8¾% for its planned issue of 10-year notes guaranteed by Sao Paulo-based airline TAM SA and TAM Linhas Aereas SA, a market source said.

BTG Pactual, Santander and BB Securities are the bookrunners for the Rule 144A and Regulation S notes, which include a change-of-control put at 101% with a ratings downgrade and are non-callable for five years.

Pemex launches notes

The day also saw Mexico-based petrochemical company Pemex launch its $1.25 billion offering of notes due June 2041 at Treasuries plus 228 bps, a market source said.

Goldman Sachs, JPMorgan and RBS are the bookrunners for the Rule 144A and Regulation S notes.

Also on Wednesday, Azerbaijan-based oil and gas company Socar announced plans to issue $500 million notes, most likely in June, a market source said.

"That looks good, I think," a London-based trader said.

And HSBC Bank Middle East, which focuses on lending in the United Arab Emirates, is planning a dollar-denominated offering of sukuk notes, a market source said.

HSBC is expected to be a bookrunner for the deal, which is likely to come to the market by the end of the month.

Hungarian bank sees selling

Among recent new issues, better selling was seen Wednesday for the new issue of €500 million 5 7/8% notes due 2016 from Budapest's Hungarian Development Bank plc. The notes came to the market on Tuesday at 99.315 to yield mid-swaps plus 320 bps.

"That saw a frenzy of selling," a market source said.

The notes - via BNP Paribas, ING and Societe Generale - were trading Wednesday morning at 98 bid, 99.50 offered and were later seen at 98.875, a trader said.

"They're proving once again that issuing corporate debt in euros is always a lottery, with bonds quickly trading off 40 cents despite a rumored €1 billion book," he said. "It may have an implicit guarantee, but yesterday's results did not inspire, with revenues down 11%. Still, if you like Hungary, you get paid 80 bps over the sovereign."

Later in the session, another trader reported that the notes were continuing to see solid selling and were trading at 99 bid, 99.25 offered.

Middle East in demand

In other trading on Wednesday, good demand was seen for Mubadala Development Co. PJSC and International Petroleum Investment Co. paper, as well as for the long end of the Qatar curve.

"There are some good bids on BBK, Abu Dhabi National Energy Co.'s long end and Bahrain Mumtalakat Holding Co., Sabic Capital's 2015s and Kipco," a trader said. "It's tricky shorting some of these."

The recent issue of notes from the United Arab Emirates' SIB Sukuk Co. II Ltd. - $400 million 4.715% notes due 2016 that priced at a spread of 270 bps over mid-swaps - had a weaker morning, off 30 cents to 35 cents from Monday.

The notes were seen at 101.50 bid, 101.75 offered in the morning and later traded at 101.53 bid, 101.73 offered.

"That's sagging a little," he said.

DP World's outlook raised

Also from the Middle East, Dubai ports operator DP World was in the news after Standard & Poor's revised its outlook for the company to positive.

"We remain a better seller of the 2017s," a London-based trader said, who noted that they were trading at 104.12 bid, 104.62 offered.

The recent 2.35% sukuk notes due 2016 from Islamic Development Bank, which priced at par, opened Wednesday at 99.58 bid, 99.83 offered and later traded at 99.60 bid, 99.85 offered.

"And Lebanon is quiet with locals on holiday, although the 2019s remain at 100 bid, 100.125 offered and pretty steady," the trader said.

Bahrain opened 5 to 7 bps wider.

"Aside from the 2020 notes, these bonds feel well supported," he said. "The 2020s are at 98.75 bid, 99.25 offered."

Turkey tone defensive

In trading from Turkey, the tone was defensive ahead of the Monetary Policy Committee's meeting, which was expected to lead to an increase in the reserve rate and no change in the benchmark rate.

"The sovereign curve is trading 5 to 8 bps wider on the longer end while corporates have gone silent," a trader said.

Meanwhile, Ukraine struggled. "The sovereign curve has just been drilled," a market source said. "That's proving to be quite volatile."

Looking to Africa, Nigeria was holding steady, with the recent 7½% notes from GTB Capital - which came to the market at 98.981 on May 12 - trading at 101.55 bid, 101.95 offered.

"Africa is quiet but GTB's 2016s are still ticking along, wrapped around a 7% yield," the trader said. "South Africa is a rare beacon of stability in this market."

Russian issuers in focus

Russia's quasi-sovereigns started the day weaker while its banks were a touch softer, he said.

Some market-watchers were keeping an eye out for the upcoming issue of subordinated notes in a Rule 144A and Regulation S deal from OJSC Russian Agricultural Bank via Barclays Capital, JPMorgan and VTB Capital.

"Away from EM, the Markit iTraxx senior financial index trades at 155 [bps] and the subordinated index trades at 260 [bps]," a market source said. "So using the same ratio, and given that a new Russian Agricultural Bank five-year senior deal ought to issue at Libor plus 275 bps, this means a new subordinated deal ought to be Libor plus 400 bps, or 6%."

But it's more likely the notes will come to the market at Libor plus 350 bps, he said.

"This being EM, where subordination is consistently mispriced, people will point to the technically tight VTB Bank 5.01% 2015s and Bank of Moscow 5.967% 2015s, which trade only 50 bps over their senior curves," he said.

© 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.