Emerging market debt ends week on slight profit taking; corporates tap market

By Reshmi Basu and Paul A. Harris

New York, July 15 - Emerging market debt was a smidgeon lower Friday, as investors chose to cash in following a strong week of gains.

The primary market continued to roar Friday as a flurry of corporates tapped the capital markets.

Brazilian cement company Camargo Correa Cimentos SA, (B1/BB-) priced $150 million of 10-year notes at par to yield 8 7/8%.

The issue came at the low end of price guidance for a yield in the 9% area.

Morgan Stanley was the bookrunner for the Rule 144A/Regulation S offering of senior unsecured notes.

Also, Bertin Ltda. priced an upsized offering of $120 million in three-year notes (B+/B1) at 99.676 to yield 8 5/8%.

The deal, increased from $100 million, came at the tight end of price guidance. Guidance had been set at 8 5/8% to 8 7/8%.

Standard Bank was the bookrunner for the Regulation S transaction. Bradesco and BB Securities acted as co-lead managers.

The Sao Paolo-based company operates mainly in cattle slaughter, meatpacking and bovine skin processing.

Out of Europe, Russian natural gas giant OAO Gazprom priced $646.5 million of amortizing notes due July 2013 at par to yield 5 5/8% via Deutsche Bank.

The deal came inside of price guidance of 5.70%.

And Central European Distribution Corp. priced an upsized €325 million issue of seven-year senior secured notes (B2/B-) at par on Friday to yield 8%, according to a market source.

Price talk was 8% to 8¼%, having been inwardly revised from the 8¼% area.

ING ran the books for the Rule 144A/Regulation S issue.

The issue was upsized from €310 million.

CEDC is a U.S.-based alcoholic beverage distributor in Poland, with headquarters in Bala Cynwyd, Pa., and Warsaw.

Out of Asia, GT 2005 Bonds BV, a financing arm of Indonesian tire-maker PT Gajah Tunggal Tbk, priced an upsized $325 million issue of five-year senior fixed-rate notes (B2/B) at 99.522 to yield 10 3/8%.

The yield came on top of the 10 3/8% area price talk.

Credit Suisse First Boston and UBS Investment Bank ran the books for the Regulation S only issue.

The issue was increased from $250 million.

There was $550 million in the book, according to a market source. The 10 3/8% yield made it the highest yielding Indonesian corporate, added the source.

"The high yield puts the issue in a different bracket when compared to other issues out of Indonesia," said a trader.

"Hynix was an outlier to the Korean high-yield corporates.

"Gajah Tunggal is an outlier to the rest of Indonesia. I think it attracted a bid more because of that than anything else," he said.

Looking for value

Meanwhile investors are having a hard time finding value in a market where spreads continue to grind tighter, said an investor.

"All of the deals that came in the past few days are doing extremely well.

"But I don't always think that fundamentals warrant that," noted the investor. "There's a lot of liquidity out there. And everyone is scrambling to get vested."

Looking ahead, the investor's strategy is to stay invested, given the belief that the market will remain stable or even tighten over the next three to six months.

"We've been looking for something that will drive spreads wider. Not something from within the asset class but maybe something from the external environment.

"Despite GM, U.S credit problems, Treasuries volatility, London attacks, nothing seems to be able to shake this market," said the investor.

Even as U.S. Treasuries mark a new territory above 4.15%, emerging market debt appears unfazed. The yield on the 10-year note stood at 4.17% at Friday's close, a little lower than 4.18% late Thursday.

"I think anything below 4.15%, EM is comfortable with that," remarked the investor. "I think 4% was unexpectedly low. If you need to move that range out a little bit, EM can weather that. That's how the market is trading now."

Quiet session for EM

During the session, emerging market debt saw little movement during a sluggish session.

The Brazil C bond was down a tad lower at 102.312 bid, down 0.001. The bond due 2040 fell a half a point to 118.60 bid. The Ecuador bond due 2030 was up ¼ of a point to 87¼ bid. The Russia bond due 2030 was down 0.188 to 110 7/8 bid.

Philippines bounces back

The investor quoted above will continue to monitor political events in Brazil and the Philippines for new developments.

Philippines president Gloria Macapagal-Arroyo has been dogged by allegations that she rigged last year's close presidential elections. But fiscal news, such as June's budget surplus, has been outweighing political noise, especially given that there have not been any new headlines.

"It's all out there. It's just something that is going to continue to linger over the summer. Maybe it's just something fun to read with your morning coffee.

"Look at the Philippines... they sold off and now they are back," said the investor.

A trader added that volatility and activity have dropped off quite a bit for the country's sovereign issues. He added that there was a sizable spread movement during the week.

By Friday's close, the spread had tightened 35 basis points on the week in the bonds due 2015 and the bonds due 2030.

"The main drivers of the tightening have been just the fact that Armageddon didn't happen, and that [Arroyo] has made what have been viewed as pretty good appointments [i.e. the new finance minister]."

Arroyo named Margarito "Gary" Teves, a bank president and former congressman, as finance minister on Tuesday, which has been seen as a market-friendly move.

"And also economic data has been supportive as well.

"That has taken some of the steam out of the shorts. And there has been quite a lot of hedge fund activity on the buyside as well," remarked the trader.

The trader added the Philippines bonds were wrapped around a spread of 500 basis points again.

"The flows are going to be increasingly balanced. From here it will have a lot to do with what happens with rates and what happens in emerging markets in general.

"The story has played out for now. We will just have to watch what happens with the impeachment process, and how quickly she can manage to get the debt reforms back on track," noted the trader.

© 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.