Emerging Markets: EM quiet as rate prospects rattle markets; Romania, Paraguay bring offerings

By Rebecca Melvin

Concord, N.H., Jan. 21 – Emerging markets debt finished out the holiday-shortened week on a quiet note. The U.S. stock and bond markets were closed on Monday in observance of Martin Luther King Jr. Day.

U.S. stock markets dropped through the week, rattled by the prospect of higher interest rates and their effect on valuations. The Nasdaq Composite has entered correction territory and is down 11% so far in 2022.

But while inflation and the Fed’s recent hawkishness are still seen as primary risks facing global financial markets, some economists predict growth and inflation worries will moderate in 2022.

The United States and Europe have been the global growth drivers in this most recent economic rebound and tend to dominate market risk perceptions. Slower growth in these areas should translate into slower growth in world trade and manufacturing, which should allow for supply chain stresses to ease and elevated upstream prices to decline, according to Lazard Asset Management in its emerging markets outlook report published Jan. 5.

In emerging markets debt this week, Romania priced $2.41 billion of notes in two tranches on Wednesday, and Paraguay was pricing new bonds due 2033 on Thursday, according to market sources.

Romania sold $1.35 billion of 3% five-year notes at a spread of Treasuries plus 150 basis points, 10 bps below talk in the Treasuries plus 160 bps area. It also sold $1.06 billion of 3 5/8% notes due March 27, 2032 at Treasuries plus 185 bps, also 10 bps low to talk in the Treasuries plus 195 bps area.

Citigroup, Erste Group, HSBC, ING, JPMorgan, and Societe Generale are bookrunners of the Rule 144A and Regulation S notes, which are expected to be listed on the Luxembourg Stock Exchange.

Paraguay was offering its 2033 bonds the same day as a one-day tender offer for two old bonds.

Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC are dealer managers for the related tender offer.

Moving to the corporate space, Central and Eastern Europe’s JSC Silknet priced $500 million of five-year senior notes (expected ratings: B1//B) at par.

The notes are non-callable for two years, and proceeds are expected to be used mainly to repay dollar-denominated notes due April 2024 and lari-denominated notes due 2022, according to rating agency reports.

The telecommunications company is based in Tbilisi, Georgia.

Chile’s Sociedad de Transmision Austral SA was offering $390 million of senior green notes with a 10-year tenor (Baa2//BBB) in the Thursday market, according to a market source.

The notes due Jan. 26, 2032 are being talk in the low 200 bps area over Treasuries.

Itau Unibanco and Scotiabank are selling the notes for the issuer under Rule 144A and Regulation S.

Proceeds will be used for a debt refinancing associated to a reorganization process, according to Fitch Ratings.

The Osorno, Chile-based company operates in the electric power sector.

QNB Finance Ltd. priced $100 million of 0.82% one-year senior notes guaranteed by Qatar National Bank QPSC at par, according to a notice.

The series 393 notes will be issued under the bank’s $22.5 billion medium-term note program and listed on the London Stock Exchange.

Citigroup Global Markets Ltd. is the dealer for the non-syndicated offering.

Proceeds from the Regulation S notes will be used for general corporate purposes.

The commercial bank’s headquarters are in Doha, Qatar.

Also on Friday, China Evergrande Group was on the radar as it announced its intention to hire more professionals to help it communicate with creditors. The news came on the heels of a threat of potential enforcement actions leveled by an ad-hoc group of holders of the group’s offshore bonds.

The ad-hoc group said there has been no substantive communication between the holders and the company about formulating a viable restructuring plan despite the company’s assurances to the contrary, according to a press release Thursday.

The ad-hoc group said efforts to engage with China Evergrande, including information requests, have generated “little more than vague assurances of intent, lacking in both detail and substance.” Instead, there is a mounting accumulation of hitherto undisclosed liabilities, pledges, asset sales and dispositions and/or government appropriations, the ad-hoc group said in the release.

The creditor group cited the company’s announcements published by the Hong Kong Stock Exchange on Dec. 3, Dec. 22 and Jan. 4 and said steps taken to date could be construed as an attempt to stall enforcement actions and that it has been left with no option but to seriously consider such actions.

It has retained the Harneys law firm to explore its legal rights and protect its interests and said that it will call on the group’s directors to comply with fiduciary duties which require them to act in the best interests of their creditors.

On Friday, the company reasserted its commitment to communicating with creditors and said it is hiring additional advisors, including China International Capital Corp. Ltd. and BOCI Asia Ltd. as financial advisors and Zhong Lun Law Firm LLP as legal advisor, to head up those communications.

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