Emerging Markets: Peru prices $5 billion; Mamoura brings dual tranches; outflows hit EM funds

By Rebecca Melvin

New York, March 5 – The Republic of Peru was a big presence in the emerging markets bonds primary this past week, bringing $5 billion equivalent of notes in two currencies and four tranches.

The Latin America sovereign priced $2.25 billion of new global bonds due 2041 and 2051, a $1.75 billion add on to its 2.783% global bonds due 2031 and €825 million of 1¼% global notes due 2033, according to Prospect News’ data.

Peru’s new $1.25 billion of 3.3% bonds due 2041 priced at 96.316 to yield 3.559%, or a spread of 140 basis points over Treasuries.

Its new $1 billion of 3.55% bonds due 2051 priced at 96.609 to yield 3.739%, or a spread of 145 bps over Treasuries.

The reopened 2031 bonds priced at 100.412 to yield 2.734%, or a spread of 125 bps over Treasuries. The tranche will be consolidated and form a single series with the $2 billion 2.783% bonds, which were issued on April 23, 2020.

The sovereign’s €825 million of 1¼% global notes due March 11, 2033 at 99.734 to yield 1.274%, or a spread over mid-swaps of 115 bps and over Treasuries of 158.6 bps.

The notes will be listed on the Luxembourg Stock Exchange and for trading on the Euro MTF Market.

Abu Dhabi’s Mamoura Diversified Global Holding PJSC, formerly Mubadala Development Co. PJSC, sold $1.1 billion of senior notes in tranches due in six and 13 years.

The notes were issued by MDGH-GMTN (RSC) Ltd., and included a $600 million tranche of 3/8% six-year notes and a $500 million tranche of 1% 13-year notes. The six-year notes were reoffered at 99.953 to yield 0.383%, or a spread of 65 bps over mid-swaps, and the 13-year notes priced at 99.095 to yield 1.075%, or mid-swaps plus 90 bps.

Order books were just over $2 billion for the tranches, which priced tight to initial talk and guidance.

GCC neighbor National Bank of Kuwait SAKP sold $700 million perpetual tier 1 capital securities at par with an initial coupon rate of 3 5/8%.

The notes will reset every six years at the six-year Treasury rate plus 287.5 bps. The notes are callable on the first reset date and every reset date thereafter.

The notes were issued through NBK Tier 1 Ltd. and will be listed on the Irish Stock Exchange.

Moving eastward, India’s Bharti Airtel Ltd. sold $750 million of 3¼% senior notes due 2031. The New Delhi-based mobile telecommunications company sold the notes under Rule 144A and Regulation S.

Asia banks

Asia development banks also featured this past week as active issuers. Korea Development Bank sold $1.2 billion of notes in three tranches, including two tranches of fixed-rate notes due 2024 and 2026 and a tranche of floating-rate notes due 2024.

The KDB priced $400 million of 0.4% notes due March 9, 2024 at 99.827; $500 million of 1% notes due Sept. 9, 2026 at 99.829; and $300 million of floating-rate notes due 2024 at par to yield SOFR plus 25 bps.

The floating-rate notes were to have been green notes, according to an initial announcement.

China Development Bank Financial Leasing Co., Ltd. issued $500 million 1 3/8% notes due 2024 and $500 million 2% notes due 2026 through its CDBL Funding 2 subsidiary.

The notes were issued under the company’s $10 billion medium-term note program and listed on the Stock Exchange of Hong Kong Ltd. on Friday.

Far East Horizon Ltd., the financial leasing unit of Hong Kong’s Sinochem Group, priced $500 million 2 5/8% notes due 2024

The deal was issued under the company’s $4 billion medium-term note and perpetual securities program, and listing was expected to have become effective on Thursday.

EM bond funds post outflows

Emerging markets bond funds posted a “modest” outflow for the week ending March 3, representing the second outflow in the past three weeks, according to a note published on Friday by EPFR.

The data tracker reported that funds with hard-currency mandates experienced their heaviest redemptions since late in the 2020 first quarter, and fixed-income investors also pulled back from frontier markets.

Uncertainty about U.S. 10-year Treasury yields, oil prices, the pace of Europe’s vaccination program and U.S. stimulus spending were cited as reasons keeping investors on edge this past week.

There is growing expectation for inflation to resurrect this year, and investors were placing emphasis on global bonds and bonds with environmental and social mandates and steering clear of Europe, adding to their inflation hedges and seeking more exposure to multi-asset strategies, EPFR said.

Redemptions from Asia Pacific, Europe and Global Bond Funds hit six, 11 and 17-week highs respectively. Singapore bond funds posted a new outflow record. Municipal bond funds chalked up only their third outflow since the beginning of the third quarter of 2020 and convertible bond funds saw their longest run of inflows in over six years come to an end.

Meanwhile bank loan and mortgage-backed bond funds extended their current inflow streaks, and at the country level, China bond funds extended a string of inflows stretching back for more than 10 months. Retail flows to this group have been continuously positive for over 11 months, EPFR said.

Elsewhere, BNP Paribas said in a strategy and economics note published this week that it expects the Federal Reserve to keep reiterating its recent dovish rhetoric, while keeping asset purchases steady but increasing their duration. If it fails to prevent tightening in financial conditions under this scenario, it could step purchases over time. And in Europe, it seems only a matter of time before the European Central Bank accelerates the pace of its asset purchases, BNP said.

“We revise higher our forecast for U.S. yields. We see 10-year yields rising to 2% by year-end. The market’s perception on the prospect of Fed normalization is also likely to see the curve bear-flatten, with the 5-year eventually leading the sell-off,” the BNP team said.

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