Primary ends quarter, half on quiet note; secondary active; Naspers, Banorte up on debuts

By Rebecca Melvin and Colin Hanner

New York, June 30 – The emerging primary market was mostly quiet on Friday ahead of the U.S. Fourth of July holiday and as the second quarter and first half of 2017 closed out. But the secondary market was busy as interest rate volatility continued and as oil prices continued to streak upward, market players said.

U.S. financial markets will close early on Monday and remain closed on Tuesday in observance of the U.S. holiday.

India’s state-owned Rural Electrification Corp. priced $450 million of 3.965% 10-year notes at a reoffer of 99.263 to yield 4%, according to a release.

In the pipeline, Kazakhstan’s Nostrum Oil & Gas plc will begin a roadshow on Monday for dollar-denominated benchmark size sale of medium-term notes, a market source said. Meetings will take place in Europe and the United States. The oil and gas exploration and production company’s new issue will be made concurrent with a tender offer for two sets of notes due 2019.

Argentina’s Pampa Energia SA is expected to come to market after July 4 with its peso-denominated five-year notes for up to $500 million equivalent.

Other deals are in the pipeline with expectations for a number coming from Mexico’s issuers, a New York-based sellside source said.

“The levels have been fantastic,” the source said regarding Latin America’s new issue volume in the first half. Mexico’s credit was tamped down by the Trump effect and NAFTA worries, but there has been a resurgence, with note issuance likely to be even stronger in the second half.

Argentina was the big note issuer in the first half of 2017, having brought about a quarter or a little more of total volume, but a window is open for Mexico with positive market conditions and ahead of presidential elections next year, the source said.

“[Issuers] may try to get ahead of the presidential elections next year. The closer we get to 2018 the more chance for volatility. But for right now we are expecting things to be stable,” the sellsider said.

Certain fixed-income players for Latin America were eyeing Friday’s oil markets as another positive. Crude oil for August settled up $1.11, or 2.5%, at $46.04 a barrel on the Nymex. Brent crude gained 50 cents, or 1.1%, to $47.92 a barrel.

The gains represent a seven-session winning streak that has come on the heels of a sharp drop earlier in June when those markets lost more than 4% on oversupply fears.

Back in established issues, there was a burst of activity in the secondary market as the month, the quarter and the first half closed, with some pressure related to rates volatility, but the asset class traded OK overall, a London-based trader said.

Naspers Ltd.’s 4.85% notes due 2027 traded up Friday after the South Africa cable and internet company priced $1 billion of 4.85% 10-year senior notes (Baa3/BBB-/) at par on Thursday at a spread of Treasuries plus 258.3 basis points via subsidiary Myriad International Holdings BV.

The new Naspers traded at high as 100.75 and closed at 100.43 bid, 100.56 offered, the trader said.

The notes came at a spread that was tighter than talk of Treasuries plus 270 bps area.

Proceeds will be used to refinance a Naspers $700 million note that matures in July.

While Naspers struggles to generate positive earnings and free cash flows from its video entertainment and e-commerce units, Gimme Credit analyst Alexandre Dray wrote in a note, “the investment case is supported by the company’s good liquidity position and by the astronomic market value of its 33.6% equity stake in Tencent and to a lower extent its 29% stake in Mail.ru.”

Naspers yield was slightly wide that Gimme Credit’s reoffer estimate of 4¾%, and it reiterated its recommendation to buy the notes.

Both tranches of the $900 million issue of perpetuals from Mexico’s Banco Mercantil del Norte SA – $350 million of 6 7/8% notes non-callable for five years and $650 million of 7 5/8% notes non-callable for 10 years – were trading higher.

The 6 7/8% notes were trading 1 point higher at 101 from their par issuance level, and the 7 5/8% notes were trading at 101.41, nearly 1½ points higher than the price of par at which they came to market.

But Tauron Polska Energia SA’s €500 million of 10-year 2 3/8% senior notes, which came at a reoffer price of 99.438 to yield 2.44% on Thursday, were trading lower on Friday.

A market source quoted the notes at a 100.15 bid, 100.45 offer, about 20 bps off Thursday’s levels.

Though the calendar looked soft at week’s end in emerging markets, with a lower-than-usual volume of issues to come to market next week due to the upcoming July 4 holiday in the United States, a market source said the secondary may not be quiet since news is expected from Qatar over the weekend.

The dispute that began nearly a month ago on June 5 between several Middle Eastern countries, and Qatar could be nearing a tipping point. Qatar has been told to respond by Sunday to a list of demands, which includes curbing relations with Iran and cutting associations with extremist organizations, made by Saudi Arabia, United Arab Emirates, Bahrain and Egypt.

Qatar is working with Kuwait and the United States to negotiate a response, according to media reports.

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