Emerging markets spreads widen amid turbulence; planned Gilex deal pushed to next week

By Rebecca Melvin

New York, March 23 – Spreads in the emerging markets secondary market remained wide on Friday after blowing out on Thursday in tandem with a rout in the broader markets as uncertainty regarding the Trump administration’s trade tariffs combined with already simmering concerns about inflation and rates.

New issuance had slowed this past week, prior to Thursday’s market turbulence, and most deals on the calendar were able to price anyway. But Colombia-focused Gilex Holding Sarl has pushed pricing of its planned offering of U.S. dollar-denominated notes to next week due to market conditions, according to market sources on Friday.

A rout in the broader markets that began on Thursday continued on Friday, leaving the S&P 500 stock index down more than 2% on the day. The index lost 6% for the week and is down 3.2% year to date.

Lower beta names in emerging markets that had been struggling prior to this week bore the brunt of the pain at the end of this week, a London-based trader said. Bahrain, which has a multi-tranche dollar benchmark deal on tap for pricing next week, was an underperformer in terms of spreads on Friday and this past week.

It was one of the worst performers in terms of spreads due to the combination that it is one of those higher beta names and also because of its new issues coming, the trader said. It was a “bit of both.”

Bahrain’s sovereign curve was as much as 56 basis points wider on the week for its short dated 6.274% notes due this year. The belly of the curve was more than 30 bps wider on average, with 10 to 15 bps of the widening occurring on Friday for the 2023, 2024, and 2025 notes, according to a market run.

In contrast Dubai Islamic Bank’s curve was only a couple of points wider on the week, and on Friday, it held in for the most part with the exception of its 6¼% notes due 2165, which blew out 41 bps in disproportion to its overall curve.

The Trump administration’s plan to impose tariffs on tens of billions of dollars of Chinese imports triggered a sharp selloff on Thursday and Treasuries rallied. The move continued on Friday with Treasuries bouncing around but ultimately ending the week at their high marks, despite a trough at midweek in response to the U.S. central bank’s interest rate boost and policy statement.

The yield on the benchmark 10-year Treasury note stood around 2.82% on Friday afternoon, after hitting 2.93% on Wednesday afternoon.

Regarding the heightened volatility, one trader said on Friday, “Four more days of the first quarter, and I’m probably not alone in looking forward to seeing the back of the first three months of the year.”

The source noted not only the trade talk but also the broader macro and geopolitical backdrop, and the shakeup of top White House advisors was having an impact on the markets. Dissenters of President Donald Trump’s policies are being replaced by those who are known to hold views in line with the president’s.

Late Thursday the surprise appointment of former U.S. Ambassador to the U.N. John Bolton as Trump’s National Security Advisor hit the tape. Bolton replaced Lt. Gen. H.R. McMaster, who held the post for 13 months.

Last week, Secretary of State Rex Tillerson was replaced by CIA director Mike Pompeo. And conservative television commentator Larry Kudlow is replacing Gary Cohn as the director of the National Economic Council.

Despite the downdraft in stocks and lift in Treasuries, many deals that had been waiting in the wings priced on Thursday. Abu Dhabi Commercial Bank PJSC priced $750 million of 4% notes due 2023 at 99.65 to yield 4.078%, or a yield spread of mid-swaps plus 130 bps. Pricing was tightened from guidance of mid-swaps plus 130 bps to 135 bps and initial price talk of mid-swaps plus 145 bps. And the deal was bigger than the initially talked $500 million.

Globalworth Real Estate Investments Ltd. priced €550 million 3% notes due 2025 at 99.225 to yield 3.13%. Pricing came inside yield range guidance of 3 1/8% to 3¼%, which was tightened from initial talk in the area of 3 3/8%.

The Ukraine’s agro-industrial MHP SE group priced $550 million of 6.95% notes due 2026. Pricing of the eight-year bullet notes was tightened from initial talk on yield of 7¼% to 7 3/8%. The maturity had been talked at eight to 10 years.

Beijing-based web services company Baidu Inc. priced $1.5 billion in two tranches of notes due in five and 10 years, including $1 billion of 3 7/8% notes due 2023 priced at 99.902 to yield 3.895%, or a yield spread of U.S. Treasuries plus 125 bps, and $500 million of 4 3/8% notes due 2028 priced at 99.432 to yield 4.446%, or a spread of Treasuries plus 160 bps.

For the Latin America region, Sigma Alimentos SA de CV priced $500 million 4 7/8% senior notes due 2028 at 99.336 to yield 4.96%, or a yield spread of U.S. Treasuries plus 212.5 bps.

© 2015 Prospect News.
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