Emerging markets mostly steady as currencies remain stable; Turkey’s Akbank improves

By Rebecca Melvin

New York, July 26 – Emerging markets debt was little changed on Thursday as currencies were mostly stable.

The U.S. dollar has flattened out recently, but market players are eyeing the potential for resurgent strength against the likes of the Argentine peso, Turkish lira, Brazilian real and Indonesian rupiah. That has kept the market rather muted although firm.

The Argentine peso stood at 27.40 to the dollar at the end of Thursday, which was near its best level of the day. It has strengthened for much of July after a spike to 28.93 to the dollar on June 29.

Meanwhile a robust recovery in Latin American currencies in general has created stability that has attracted capital inflows due to investors seeing the higher interest rates of the Latin domestic markets. The real is up 2.5% this month, and the Mexican peso is up 5.5% after calming statements of the president elect upon his election on July 1.

The spikes in “Argentina and Turkey have been absorbed by the market. We’re in the midst of welcome stability in the EM sovereign debt market,” New York-based emerging markets fixed-income strategist Michael Roche of Seaport Global told Prospect News.

The yield spread for emerging markets sovereign debt spread over Treasuries has dropped back into the range of 350 basis points after surging to 395 bps on June 19, according to the J.P. Morgan emerging markets sovereign bond index.

Among corporate credits, Akbank Turk AS’ 7.2% notes due 2027 was recovering on Thursday, edging up to 84.58, which was up about 40 cents, or 0.5%, on the day, with a yield that was around 12.5%.

“That yield is almost an equity-like return if you were to capture it over the year,” Roche said.

The Turkish banks, which have some $7 billion of subordinated debt outstanding, are due to report earnings over the next couple of weeks, and subordinated debt can have a heightened response to results that are away from consensus, Roche said.

There are 17 Turkish bond issues in all, with an average yield of 11.5%, an average credit rating of single B and an average life of three years, Roche said.

“At this juncture of relative stability, better-than-expected bank results or at least matching consensus” will spur market activity and prices, Roche said.

Elsewhere in primary market action, the Philippines’ Asian Development Bank has priced a £150 million tap of its 1 3/8% notes due 2023 at 99.592, according to a release.

RBC Capital Markets and Nomura International plc, London branch are bookrunners for the offering, which will be consolidated to form one issue with £450 million of existing notes. The original £250 million of 1 3/85 notes due 2023 priced on March 1, with additional notes in the same series priced on June 15 and July 10.

Sands China Ltd. said it plans to offer U.S. dollar-denominated notes under Rule 144A and Regulation S, with Barclays, Goldman Sachs & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Inc. as joint bookrunners of the deal.

The company plans to use proceeds to repay outstanding senior secured term loans under a credit facility and for general corporate purposes, including capital expenditures. Sands China also plans to replace its existing VML revolver with a new unsecured revolver at Sands China.

And China Aoyuan Property Group Ltd. is proposing to issue additional dollar-denominated senior notes that will be consolidated and form a single series with the $250 million of 6.35% notes due Jan. 11, 2020 issued on Jan. 11, 2017.

Pricing for the add-on will be determined through a book-building exercise. China Industrial Securities International, China Merchants Securities (HK), Deutsche Bank and OCBC Bank will act as joint lead managers and joint bookrunners for the Regulation S offering.

© 2015 Prospect News.
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