Slovenia launches tap; Ukrexim prices; Nigeria’s Seplat eyes debut; Venezuela stronger

By Rebecca Melvin

New York, Feb. 28 – Slovenia launched a three-tranche tap of existing notes with order books in excess of €4 billion on Wednesday, and those notes were seen with yield spreads of mid-swaps plus 25 basis points for the 2028 notes, mid-swaps plus 45 bps for the 2035 notes and mid-swaps plus 55 bps for the 2045 notes.

The State Export Import Bank of Ukraine (Ukrexim) priced its Ukrainian hryvnia-denominated, dollar-settled notes at the wide end of price guidance for a 16½% yield.

Ukrexim is a state-run import-export bank based in Kiev, and it priced UAH 4.051 billion of the notes at par.

Also in the primary market is a debut offering from Nigerian oil and gas company Seplat Petroleum Development plc, which is planning a dollar-denominated five- to seven-year deal. Roadshow meetings are scheduled March 1 through March 7 in London and the United States.

There was also a mandate from the Middle East from Islamic Development Bank, which is planning a five-year sukuk of more than $1 billion in size.

But the Jeddah, Saudi Arabia-based lender’s AAA-rated deal will probably come with a z-spread of plus 25 bps, so it is not for everyone, a London-based trader noted.

Also in the Middle East, the Emirate of Sharjah was heard to have mandated banks for an offering of sukuk trust certificates under its Sharjah Sukuk Programme Ltd., and Union National Bank in Abu Dhabi was also heard in the market with a proposed deal. But further details of the deals were not immediately available.

There was still no visible pipeline for Latin America issuance, but there were some rumors of deals, a New York-based source said.

“The appetite to add risk remains, it is a matter of who decides to test the waters first, I assume it will be a low-beta name that opens the flood gates,” a New York-based trader said.

Venezuela and Petroleos de Venezuela SA bonds have been slightly better since PDVSA began trading flat about two weeks ago and after a coupon payment on the PDVSA 6% bonds due 2022 was received last week.

The coupon payment may have improved sentiment toward PDVSA but “we do not think that it implies that PDVSA is returning to current again,” according to Victor Fu of Stifel Nicolaus & Co.

For the most part, the PDVSA and Venezuela sovereign bonds have gained more than a point. Although the PDVSA 2020 bonds have risen by only ¼ point.

“We think this small but broad rally might have been driven by somewhat higher expectations for a regime change from/after the presidential election scheduled on April 22,” Fu, Stifel Nicolaus’ director of emerging market sovereign strategy, wrote in a note on Wednesday.

Meanwhile, outperformance of the Venezuela 3034 bonds and PDVSA 12¾% bonds due 2022 was due to the two bonds’ large accrued interests, in Fu’s view.

Unless the coupons due on PDVSA’s 2026, 2024, 2021 and 2035 notes are delivered to bondholders, the default scenario remains intact, Fu said.

Investors still eye potential regime change in Venezuela. But the opposition coalition tweeted a rejection of the candidacy of Henri Falcon, former governor of Lara State, on Tuesday, and without its support, Falcon’s prospects are slight. There has been an increasing expectation of the implementation of U.S. sanctions launched around Venezuela’s election date and if President Nicolas Maduro prevails in the election, then sanctions are more than likely, Fu wrote.

“U.S. oil sanctions may be the only hope for a regime change – if these sanctions can reduce or damage the Venezuelan military’s rent seeking capacity, the military may be forced to replace Maduro with a more moderate and market-friendly person,” Fu wrote.

As for trading strategy, Stifel’s Fu said there is more upside than downside in a multiyear horizon for both Venezuela and PDVSA bonds. Investors are advised to stick with bonds with maturities beyond four or five years and with high coupon, high accrued interest and relatively fast pull-to-par potential.

Currently Venezuela bonds 2022 and 2034 and PDVSA 12¾% bonds due 2022 and 2035 are deemed fairly valued relative to each other, Fu wrote.

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