Risk appetite healthy as Odebrecht, Mriya sell notes; Hungary in demand; Belarus struggles

By Christine Van Dusen

Atlanta, March 25 - Brazil's Odebrecht Finance Ltd. and Ukraine's Mriya Agro Holding plc printed notes on Friday as risk appetite continued to improve, even in the face of continued economic and political strife around the globe.

"The positive sentiment from yesterday continued," according to a report from RBC Capital Markets, "with attention shifting from Japan, Middle East and Europe headlines."

Debt spreads moved sideways, with the JPMorgan Emerging Markets Bond Index Plus spread trading at Treasuries plus 262 basis points, tighter by about 10 bps since the start of the week.

"All markets look pretty strong," a market source said. "Spreads are generally tighter everywhere."

Odebrecht, Mriya do deals

In its new deal, business conglomerate Odebrecht Finance sold $500 million notes due April 5, 2023 at par to yield 6%, or Treasuries plus 254.8 bps, a market source said.

Merrill Lynch and HSBC were the bookrunners for the Rule 144A and Regulation S deal. Proceeds will be used to purchase notes in connection with a tender offer and for general corporate purposes.

The day also saw agriculture producer and trader Mriya Agro Holding price $250 million 10½% notes due March 30, 2016 at 98.876 to yield 11¼%.

The notes priced at the wide end of talk, which was set at the 11% to 11¼% area.

Merrill Lynch, RBS and UBS were the bookrunners for the Rule 144A and Regulation S deal.

The issue faced some challenges in the secondary market at mid-afternoon, a Connecticut-based trader said.

"That has struggled in the last couple of hours," he said. "I think that's more of an indication that it came at a bad time in the week. We saw guys really checking out early today. We had trouble getting people to engage in the market today. So this is really bad timing. Maybe things will be better for it next week."

Hungary stays hot

The new $3.75 billion issue of notes due 2021 and 2041 from the Republic of Hungary, which priced Thursday, continued to get attention on Friday.

"Perfect timing on the deal," a London-based market source said.

The Securities and Exchange Commission-registered deal - via BNP Paribas, Citigroup and Deutsche Bank - included $3 billion 6 3/8% notes due 2021 that came to market at 99.062 to yield 6.504%, or Treasuries plus 310 bps.

The issuance also included $750 million 7 5/8% notes due March 29, 2041, which priced at 98.084 to yield 7.791%, or Treasuries plus 330 bps.

"Hungary offers $3.75 billion for sale and practically has its arm chewed off as the new bonds snap 15 bps tighter," the source said. "But then again, 80% debt-to-GDP doesn't look so bad anymore, given where the G7 countries are."

Demand stabilizes

Hungary's new 2021 notes were seen at 99.70 bid, 99.95 offered early in the European session on Friday before trading at 100.35 bid, 100.60 offered later in the morning. The 2041s opened at 98.75 bid, 99.50 offered, then traded at 99.70 bid, 100.20 offered.

Said a London-based trader: "The new bonds are seeing massive demand. However, we appear to be finding a stabilizing level."

Given the geopolitical climate, it was surprising that the deal did so well, the Connecticut-based trader said.

"I think it's really remarkable," he said. "What's interesting is that it's the first bond from that part of the world that is a 30-year issue. Poland doesn't have a 30-year issue. If there's a downturn, and you're going to short a bond, the 2041s would be the first I would look at."

But, he said, the bonds "went to some very secure hands. It's not speculative money buying the longer-dated issue over the last two days."

Philippines underperforms

At the same time, the recent issue from the Republic of the Philippines didn't fare as well, the Connecticut trader said.

The $1.5 billion issue of 5½% notes due 2026 priced March 31 at 99.495 to yield 5.55%, or Treasuries plus 223.8 bps, via Citigroup, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan and UBS.

"That deal has struggled to retrace back to fixed reoffer," he said. "Philippines generally, because of a lot of local demand, is a bit expensive. The long end is hovering around Z plus 200 bps."

He had expected the deal to have a stronger showing in the market.

"That's really kind of performed poorly; I'm surprised it hasn't done better," he said. "There was small buying yesterday and today. But that deal stands out as an underperformer, particularly versus what we're seeing with Hungary."

The main reason Hungary has fared so much better, he said, is that there are few dollar bonds from the sovereign.

"The diversification aspect appealed to a number of guys," he said. "The only other way they could access it in dollars was the 2020 in Hungary. So portfolio managers were attracted to the diversity aspect."

Argentina warrants see buyers

The Connecticut source also noted some activity on Friday in GDP warrants, particularly for Argentina.

"That's on the back of the higher GDP expectations that Goldman put out on Tuesday or Wednesday," he said.

Meanwhile, Venezuela was up about a point.

"On the back of oil I would've thought that would do better," he said. "But it continues to lack the sponsorship of a lot of guys. They're skeptical of Hugo Chavez, so [they're] not really rushing in to buy that."

Brazil and Colombia bonds tightened a bit on the day.

"Prices did have a little sell-off Friday mid-afternoon as U.S. rates finally weighed on prices," a New York-based market source said. "EM bonds continue to trend higher and tighter in general as global news events have done little to shake out sellers."

In other trading on Friday, South Africa was seeing strong demand, the London-based trader said.

Belarus stays volatile

Belarus remained in focus, following Tuesday's news that the country's national bank had stopped sales of foreign currency to local banks in an effort to protect its reserves. The country also was in talks with Russia about a $3 billion loan.

By Wednesday, Belarus' two-month-old 2018 dollar notes were falling fast, seen trading at 87.5.

"Belarus is still very volatile, up 3 points today on the dollar 18s as they tell the IMF they are 'giving priority' to debt servicing," the London-based market source said.

Said the Connecticut trader: "There was a lot of institutional selling at the beginning of the week before we finally saw some buyers step in and bargain hunters coming in. It seems like some relatively large real money accounts have reduced based on fears that things are going the wrong way, locally, there."

By Friday afternoon, the credit was a bit firmer, another market source said.

"Belarus paper is firmer after a disastrous week," he said. "There's no real reason. It's just that the sell-off was overdone."

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