Indonesia sells $2 billion in two tranches; Cencosud on tap; Brazil rallies on Lula ruling

By Rebecca Melvin

New York, July 12 – New deal action continued in Latin America and Asia on Wednesday, while Central & Eastern Europe, Middle East and Africa Emerging markets were mostly quiet, market sources said.

The Republic of Indonesia followed up a €1 billion issue of notes due 2024 on Tuesday with $2 billion of notes due 2027 and 2047 on Wednesday. The sovereign priced $1 billion of 3.85% 10-year notes at 99.589 to yield 3.9% and $1 billion of 4¾% 30-year notes at 99.209 to yield 4.8%.

In Latin America, Financiera Independencia SAB de CV, Sofom ENR priced a $250 million issue of seven-year notes with an 8¼% coupon, and pricing of Chile-based Cencosud SA’s deal was imminent at a talked yield of 210 basis points over Treasuries.

In contrast, no deals were reported to have marketed or priced in the CEEMEA, sources said. But market players were eyeing the planned Nostrum Oil & Gas plc issue, which was expected to price as early as Thursday.

The quiet tone of CEEMEA was not unexpected given that many regions are on the cusp of summer holidays, and the Middle East came back from the Ramadan holiday month to ongoing geopolitical tensions that are keeping the risk premium for the region high, the source said.

The Middle East’s Gulf Cooperation Countries are divided by a Saudi-led coalition of countries seeking to force Qatar to change its relationship with the Muslim Brotherhood and other groups deemed to have ties to terrorism, and to implement other conditions as a prerequisite to restoring diplomatic and trade relations.

But Topaz Marine SA, an oil and gas services company that is part of a holding company incorporated in Oman, began a roadshow for a $375 million offering of five-year senior notes (expected ratings B3/B-). The credit is seen as both a high-yield and emerging market asset.

Overall, emerging markets were helped by a rally in the broader markets buoyed by Federal Reserve chairman Janet Yellen’s testimony on monetary policies that was more dovish than expected.

Yellen told a Congressional panel that the Fed will need to keep raising its benchmark interest rate gradually over the next few years, but the rate won’t need to rise to levels seen in previous cycles. Her slow-growth economy in which the Fed keeps rates relatively low cheered investors.

Yellen told the House Financial Services Committee gradual increases in the Federal Funds rate will be made as warranted to meet the central bank’s objectives of full employment and stable prices.

In the secondary market in Latin America, Brazil was an outperformer after news that Brazil’s former president Luiz Inacio Lula da Silva was convicted of corruption and money laundering and sentenced to nine years in prison.

Lula was president from 2003 to 2010 and had expressed interest in running for president again in the 2018 election. He was found guilty of receiving $1.1 million in favors from a construction company.

Lula can appeal to the higher court, and if he loses in that appeal, then it really becomes relevant from a political point of view, a New York-based emerging markets analyst said.

Among Brazil issues, “People we marking up on the margins. They feel like it is the first step that they want to see happen. Everyone wants the conviction to be upheld, but he is going to appeal and it will be a long process,” the analyst said.

In other news, Brazil’s senate passed late Tuesday a controversial labor reform bill, which aims to reduce costs for business and allow companies to negotiate contracts with employees. This bill is unpopular with unions, which claim it will reduce job security, but it marks the first overhaul in 70 years and is good news for beleaguered president Michel Temer, who also faces possible suspension in the face of corruption charges but has championed this reform.

© 2015 Prospect News.
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