Emerging market debt widens on technicals; multiple issuers tap market

By Reshmi Basu and Paul A. Harris

New York, Oct. 20 - Emerging market debt was slightly wider Friday as investors turned their attention to a flurry of new deals in the primary market.

Overall, a trader described the session as "relatively quiet" with few players taking part. One source noted that spreads kicked out somewhat as the market digested the recent heavy spate of new issuance.

During the session, the Brazilian bellwether bond due 2040 shed 0.25 to 130.70 bid, 130.75 offered. The Argentinean discount bond due 2033 gave up 0.35 to 99.50 bid, 99.65 offered. And the Turkish bond due 2030 lost 0.25 to 150.125 bid, 150.375 offered.

While the market gave up gains on Friday, overall the asset class has been very bullish as it prices in a goldilocks scenario, the right mix of inflation and growth. And many now say that the momentum will continue to year end.

"I usually tend to be skeptical about these rallies, but it's difficult to fight this rally right now," noted an emerging market analyst.

"Global growth is solid, not spectacular, but strong enough to keep the demand for EM exports alive.

"Global monetary policy is not as accommodative as it once was, and it could still get a little more restrictive in the next six months, but the probability of a significant change in the monetary outlook in the near-term seems very low.

He warned that issuance will make it difficult for spreads to tighten a lot more from here, but the supportive external conditions will help the market soak up the flow of deals without having spreads back up in response.

As the analyst put it, the market is "crazy."

Primary picks up

While the secondary saw little activity Friday, the primary market continued to serve up some action as Friday wrapped up a busy week with several additional corporates tapping the market.

Out of the Philippines, Rizal Commercial Banking Corp. (RCBC) placed an issue of $100 million in perpetual hybrid tier 1 notes (B3//B-) at 99.221 for a 10% yield to call via Citigroup and Credit Suisse.

Korea Development Bank sold a €150 million offering of two-year notes (A3/A) at par to yield three-month Euribor plus 12 basis points, according to a market source.

Citigroup ran the deal, which priced off the issuer's euro medium-term note program.

Seoul-based KDB is Korea's largest overseas borrower.

Moving to Russia, OAO Gazprom, the world's largest gas-producing company, sold a €780 million offering of bonds due February 2014 (Baa1/BBB-/BBB-) at par to yield 5.03%.

Citigroup, Dresdner Kleinwort, Goldman Sachs and Morgan Stanley were joint bookrunners for the Rule 144A/Regulation S deal, which was issued via Gaz Capital SA.

Next OJSC Bank Zenit sold a $200 million offering of three-year loan participation notes (B1//B) at par to yield 8¾% via Citigroup.

And Kazanorgsintez SA sold $200 million in five-year notes at par to yield 9¼%.

ABN Amro was the bookrunner for the Regulation S sale.

The issuer's principal activity is manufacturing polyethylene and polyethylene pipes.

Turning to Brazil, Sao Paulo-based water and sewage service provider Companhia de Saneamento Básico do Estado de São Paulo (Sabesp) (BB-) placed a $140 million offering of 10-year bonds at 99.136 to yield 7 5/8%.

The deal came at the low end price guidance for a yield in the 7¾% area.

Proceeds from the sale will be used for the issuer's tender offer for its 12% notes due 2008.

Deutsche Bank Securities led the Rule 144A/Regulation deal.

And Empresa Brasileira de Aeronáutica SA (Embraer) via its subsidiary, Embraer Overseas Ltd., sold a $400 million offering in guaranteed notes due 2017 (Baa3/BBB-) at 99.289 to yield 6.466%. JP Morgan and Citigroup were bookrunners for the Rule 144A/Regulation S sale. Barclays Capital was co-manager.

© 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.