Emerging markets quiet as Dubai anxiety fades; fund flows still positive; Venezuela takes a hit

By Christine Van Dusen

Atlanta, Dec. 3 - Activity in emerging markets was slow Thursday as Dubai World's financial troubles recessed further into the background, anxiety over Venezuela reared up and investors looked ahead to the holidays and year-end, market sources said.

It's been one week since the United Arab Emirates' development arm announced it would restructure its debt and investors fretted that a new chapter might open in the continuing global economic crisis.

This week, inflows into emerging markets bond funds fell as a result, according to Cameron Brandt, global senior analyst for data service EPFR.

But after Dubai World announced on Wednesday a plan to freeze payment on $26 billion of its debt instead of the full $59 billion, investors' fears calmed a bit and inflows "bounced right back," Brandt said. They finished the week at $229.4 million, down from $833 million the previous week.

"The numbers didn't go completely negative," he said. "Inflows picked up a little bit of ground."

This seems to indicate that "in general, the market has shucked off Dubai," a London-based market source said.

Instead, investors were worried Thursday about another sovereign: Venezuela, which on Wednesday saw its 9.25% bonds due 2027 fall after president Hugo Chavez threatened to privatize more banks and closed a brokerage.

On Thursday, Venezuela was "getting clobbered because people are fearful Chavez may be going ahead and nationalizing the rest of the banking system and local depositors are also inundated with speculation about bank closures and seizures, resulting in a bank run," said Enrique Alvarez, strategist with think tank IDEAglobal. "That's creating wide upsets in the parallel rate and bonds."

The EMBI for Venezuela was off more than 3% for the day, "a continuation of past days where it's been off very, very severely," he said.

The 2027 bonds "were trading a couple of weeks back at between 77.5 and 79 on the bid side. Today that's down to 66.5 after having been at 68.5 yesterday," Alvarez said.

An investment banking source had quoted the 2027 bonds down 2.75 on Wednesday to finish at 69.50.

This was the day's big news, and just about everything else was "quiet across the board," the London-based source said. "Not much is happening."

One issue did price Thursday: Mexico's Grupo Petrotemex SA de CV's $75 million brought add-on to its 9.5% senior notes due 2014.

"But that's just a small upsize," the London source said. "Everything is quiet because we're nearing year-end."

Petrotemex adds $75 million

Petrotemex SA de CV priced a $75 million add-on to its 9½% senior notes due Aug. 19, 2014 at 102.5 to yield 8.832% (/BB/BB+), according to an informed market source.

The petrochemical company's original $200 million of notes were priced on Aug. 12 to yield 9¾%.

The bookrunners for the Rule 144A and Regulation S addition were Banc of America Securities and JP Morgan.

Proceeds will be used for debt repayment.

Petrotemex is based in Monterrey, Mexico, and produces purified terephthalic acid and polyethylene terphthalate.

Nakheel active but steady

A trader said that the bonds of Dubai's Nakheel Development were once again moving around on Thursday, noting that "they were active this morning, and then they settled down" later in the session.

That continued a pattern of recent activity in the euro-denominated paper, which has gyrated on investor fears that the formerly high-flying Middle Eastern nation might have trouble paying its debt obligations.

He did not see too much movement in the bonds' actual prices, with the 3.172% euro-denominated notes slated to come due on Dec. 14 trading in a 59-60 context before finally going out around 58-60.

"The bonds did touch 60," he said, although he added that "they were also up there [on Wednesday]. In fact, Wednesday's session had seen those Dec. 14 notes get as good as a 60-61 range towards the end of the day, versus the 58-60 levels seen on Tuesday.

Those bonds had been trading as high as 110 bid last week before the Nov. 25 Dubai government announcement that its Dubai World development arm, of which Nakheel is a subsidiary, would ask creditors to agree to a standstill on billions of dollars of debt owed, including the $3.52 billion of Nakheel bonds maturing on the 14th.

After that, the paper slid to the 80s by the end of last week, and down into the 50s earlier this week. The bonds bottomed at 52 bid on Tuesday, before recovering to trade around current levels on the news that Dubai World will only seek to restructure $26 billion of its approximately $59 billion of debt. The company plans to meet with its main creditors next week to discuss its request that it be allowed to delay payments.

The trader also saw Nakheel's 2¾% euro-denominated notes due 2011 trading around 44-46, "about where they were [Wednesday], holding that those same levels."

That issue had been trading in the 80s last week before the debt payment-delay announcement, then dropped into the mid-50s by the end of last week and continued to slide before bottoming at around a 40-42 context by Monday and climbing back up to the mid-40s after that.

-Paul Deckelman contributed to this report

© 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.