Emerging market debt softer as Venezuela sinks on Chavez worries; Road King issues new debt

By Reshmi Basu and Paul Deckelman

New York, May 3 - Emerging market debt saw more pressure Friday as investors continued to deal with the political threats coming out of Venezuela to leave the International Monetary Fund and the World Bank.

In the primary market, Road King Infrastructure Ltd. (Ba2/BB) sold a $350 million offering of notes in two tranches Friday.

One tranche was comprised of $200 million of seven-year senior fixed-rate notes, which priced at par to yield 7 5/8% or Treasuries plus 304 basis points.

The issuer also priced $150 million of five-year floating rate notes at par to yield three-month Libor plus 225 basis points.

The fixed-rate notes are non-callable for four years while the floating-rate notes are non-callable for one year.

Proceeds from the sale will be used for land acquisitions and for property business.

JP Morgan was the bookrunner for the Regulation S deal. DBS Bank was co-lead manager.

Road King is a Hong Kong-based company with businesses in the investment, development, operation and management of toll roads and other infrastructure projects in China.

JSC TransCreditBank sold a $350 million offering of three-year notes (Ba3/BB-) at par to yield 7%.

The deal priced at the tight end of revised guidance, which was lowered to 7% to 7¼% from initial talk of 7¼% to 7½%.

ABN Amro and Standard Bank were lead managers for the Regulation S transaction.

The Moscow-based issuer is the bank for Russian Railways.

EM softer on Venezuela, sliding oil

Back to the secondary trading, emerging market debt saw heavy trading Friday, as political noise out of Venezuela continued to weigh on market sentiment. Sliding oil prices also helped dampen investors' appetite for risk.

One market source noted that emerging market debt was trading like a low beta category, as the market appears "tired and unable to move higher, despite the solid performance of equities."

Friday was another rough day for holders of Venezuelan government bonds, which continued to reel in the wake of comments earlier in the week by that country's outspoken president Hugo Chavez, who threatened to pull his nation out of the International Monetary Fund and other global lending agencies.

The bonds posted sizable losses for a third straight session, with investors spooked by the prospect of a technical default on their issues in the event that Chavez makes good on his threat to sever Venezuela's connection with the IMF - something specifically barred by the indentures on some of those bonds.

After falling nearly 2 points in Thursday's dealings, on top of Wednesday's ½ point retreat, the country's benchmark 9¼% dollar-denominated bonds due 2027 were quoted down another nearly 1¼ points at 119 - their lowest level since last July. The bonds' yield - which had widened out around 6 basis points on Wednesday and another 15 on Thursday - ballooned out another 10 bps to 7.42%.

On the shorter end of the curve, Venezuela's 5¾% bonds due 2016 were quoted as having eased about ¼ point to 93.29, while its yield widened 4 bps to 6.75%.

Overall, Venezuela's dollar-denominated foreign bonds were, on average, seen losing 1.31% value-wise, while the country's average spread against U.S. Treasuries swelled to 249 bps.

A trader in Latin American debt said that "there was still a lot of talk out on whether there could be a technical default, and low dollar price bonds were outperforming high dollar price bonds," as investors apparently took the advice of analysts who said during the week that they should get out of the higher priced bonds and buy lower priced issues - this in order to be in a position to take advantage of any forced buybacks of the bonds that could conceivably be triggered by a technical default.

He said that the country's benchmark issues were "off maybe 15 to 20 cents, and Treasuries" - which gained for the first time in four days on labor statistics showing slower wage growth and job creation in April - "were up big, so net-net, they were a few basis points wider."

After Chavez made his threat to leave the IMF, officials in his government such as finance minister Rodrigo Cabezas sought to reassure investors that Venezuela would not default and pledged to continue paying the interest on the bonds even after a withdrawal from the IMF. Chavez - who says the IMF and other global lending agencies are tools of his opponents in the United States and claims they have hobbled his nation for decades - has not repeated his threat since originally making it - but neither has he backtracked, thus keeping the markets roiling.

Merrill Lynch & Co. on Friday joined Bears Stearns and several other investment banks in recommending that investors cut their holdings in Venezuelan paper, citing concerns about the possible withdrawal from the IMF.

Also adding to investor angst about Venezuela was a fall in world crude oil prices Friday, since the nation is heavily dependent on its black gold to underpin its economy.

Overall, said the trader, "the [Latin American debt] market widened a few basis points, and it underperformed the rising Treasury market.

"There was an inflation number out in Argentina that wasn't that great - but it was nothing major."

Emerging market debt generally was easier and spreads wider, with the widely followed EMBI+ index of emerging market risk versus Treasuries widening by 3 bps, to 166 bps.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.