Peru’s Inkia Energy plans $200 million offering of 10-year notes; China’s KWG Group prices add on

By Rebecca Melvin

New York, Nov. 30 – Emerging markets debt, which put in another tough month in November, was getting a slight lift on Friday, the last day of November, as U.S. stocks continued to rally following steep losses last week.

The emerging markets primary was mostly quiet as the window for new issuance in 2018 starts to close. But Nautilus Inkia Holdings LLC started fixed-income investor meetings on Friday for a proposed $200 million offering of 10-year senior unsecured notes.

The Lima, Peru-based power generation and distribution company mandated JPMorgan, Credit Suisse and Scotia Bank to arrange the meetings for the Rule 144A and Regulation S deal.

Proceeds are earmarked to refinance a bridge loan associated with an acquisition, and pricing is expected to occur after the conclusion of investor meetings on Wednesday.

In the Asia region, KWG Group Holdings Ltd. priced a $150 million add on to its 9.85% guaranteed senior notes due 2020 at 101.5. The new notes will be consolidated with $400 million of the notes, which were issued on Nov. 26, forming a deal size of $550 million.

Standard Chartered Bank is bookrunner for the Regulation S offering.

Emerging market debt is making losses for 2018 so far, but many are looking ahead to 2019 when the asset class may look attractive to investors at current valuations and given broader market performance that could boost performance given expectations for a peaking U.S. dollar and U.S. economy. Nevertheless, there are many wildcards, and forecasts coming in from market strategists are measured.

A weak dollar is crucial for emerging markets growth, sources said. But there are a number of factors driving EM debt including the U.S. Federal Reserve’s hiking cycle and quantitative tightening, higher relative yields, U.S. President Donald Trump’s trade disputes and other policies and rhetoric, as well as European financial concerns, such as the Italian budget and Brexit and China’s debt bubble and overvalued currency are going to influence emerging markets.

Meanwhile, questions also surround U.S. stocks, which acted as a buoy in financial markets this past week, but which are increasingly volatile. U.S. listed companies had their best earnings numbers in 20 years in 2018 and have reported more than $1 trillion of share buybacks, however returns on U.S equities are still close to flat for the year and 6% lower than their peak. Understanding what is behind 2018’s returns is an important part of the puzzle for determining what might happen to EM debt in the next 12 to 18 months.

Ashish Jain, head of U.S. macro credit and x-asset trading strategy for BNP Paribas, says that U.S. tax reform and fiscal stimulus created a gap between financial assets and the underlying economy, which had already diverged prior to the 2016 U.S. election due to the Fed’s qualitative easing policies in place since 2008. This gap has now widened, and the Trump administration’s policies are likely to end the low rates, low inflation and low volatility environment, or so-called “Goldilocks era” that has characterized the current market, Jain said.

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