New Bahrain oil notes trade up; Banco do Brasil edges up; Azul prices; Venezuela weaker

By Rebecca Melvin

New York, Oct. 19 – Bahrain’s Nogaholding 7½% notes due 2027 traded up on Thursday after the sovereign priced $1 billion of the notes tighter than initial talk and at a spread of 516.2 basis points over U.S. Treasuries.

The new Nogaholding notes were seen at 101.85 bid, 101.95 offered near the end of the session in London, a trader said.

Elsewhere, Belarus supermarket operator Eurotorg LLC priced $350 million of 8¾% five-year eurobonds at par with a yield spread of mid-swaps plus 668 bps.

The bonds were the first-ever placed by a Belarusian corporate issuer in the international capital markets. The order book was several times oversubscribed with investors from Asia, Europe, the United States and Russia.

The Minsk-based company was able to build on the opportunity established by Belarus’ sovereign bond issue last summer, according to Eurotorg chief executive officer Andrei Zubkou in a news release.

Zubkou added that he believes the deal opens the market for more high-quality Belarusian issuers and will contribute to the country’s economy and investment environment.

In Latin America, Banco do Brasil’s new 4 5/8% notes due 2025 traded up to about 100.45 to 100.55 by the market close after the bank’s Grand Cayman branch priced $1 billion of the notes at 99.551 for an initial yield of 4¾%. The bonds traded up to at least 100.6 on Thursday, according to a New York-based trader.

Pricing of the Banco do Brasil deal came at the bottom of talk, which was guided to 4¾% plus or minus 10 bps from initial price talk in the 5% area.

Also in Latin America, Azul SA priced $400 million of 5 7/8% seven-year notes at 99.294 for an initial yield of 6%, according to a market source.

Pricing for the Brazilian airline issue came below guidance for a yield in the 6 1/8% area, which was revised down from initial talk in the mid-6% range.

The notes were issued by Azul Investments LLP and are guaranteed by Azul and Azul Linhas Brasileiras SA.

The Latin America emerging markets remained strong despite an abundance of new paper.

Markets are holding up well, a market source said. Earnings blackout will kick in at some point, and the flows will slow down and allow the markets to digest, the source said.

Investors remain “pretty constructive” on Brazil, which was downgraded to BB even as most large Latin American remain investment grade, the source said. Brazil was downgraded amid concerns about economic and political crises threatening the country during the administration of President Dilma Rousseff.

Argentina is an exception, which is a low single B, leaving Brazil almost unique regarding credit standing, with no direct comparisons in Latin America, the source said.

There is some uncertainty regarding Brazil’s general elections next year but overall there is enthusiasm for the space.

The Venezuela and the Petroleos de Venezuela SA bonds were very weak on Thursday, dragging lower since Monday when the results of state governor elections showed unexpected support for the socialist ruling party and President Nicolas Maduro. But investors are not focused so much on the elections right now as on coupon payments that were due last week and still have not been paid.

“The issue is the coupon payments that have not been paid yet. The elections are on the back burner right now,” a New York-based trader said.

These bonds are not in default but remain in the window of a 30-day grace period. The Venezuelan central bank is saying that it is only having trouble delivering the money, not that it cannot make the payments, the trader said.

Previously when coupon payments were late, they were paid within a few days, and now the delay has been a week and it raises questions whether this might be the default that everyone has anticipated.

Given the results of Sunday’s elections, which went 18-5 in favor of the government, some feel it is in Maduro’s interest to maintain the status quo and continue to make payments. The sentiment is leaning toward the Venezuelan government coming through with the payments.

Nevertheless, the market remains under severe pressure. The Venezuela bonds due 2027 were quoted at 37½ bid, 38½ offered, which was down another 0.75 point to a point on Thursday.

Longer term, market players expect this situation will continue to ride for a while. The potential for regime change in the near term is low right now, the trader said. “It is difficult to see a change of regime in the near future.”

Looking ahead, the only thing to be done in terms of the opposition is for those parties to regain the people’s support, the trader said. They are in disarray right now as many condemn participation in the elections in the first place given the expectation that the results would not be accurate or fair. And the end result is the same: Because the five opposition candidates who received enough votes to win the elections refused to take their oaths of office before the pro-government assembly on Wednesday, they may be replaced by pro-government candidates.

The state governors’ election is not expected to jeopardize the 2018 presidential elections, however.

“On the contrary, since he won the state elections, why wouldn’t he call the elections because maybe he will win,” the trader said regarding Maduro, whose administration is described as a dictatorship.

© 2015 Prospect News.
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