Emerging Markets: Republic of Angola, Freeport Indonesia, Peru’s Mivivienda bring deals

By Rebecca Melvin

Concord, N.H., April 8 – In a week jarred by comments about how quickly higher rates and tighter monetary policy may be ushered in by the U.S. Federal Reserve, emerging markets bonds saw a reversal of fund outflows, a new benchmark from Angola, and enjoyed a smattering of other interesting deals come to market.

Angola issued $1.75 billion of new 10-year bonds with a coupon of 8¾%, according to an Angola Ministry of Finance press release Friday.

Elsewhere, PT Freeport Indonesia sold $3 billion of senior notes in three parts; Peru’s Fondo Mivivienda SA sold $600 million of 4 5/8% notes due 2027 at 99.652 to yield 4.704%; First Abu Dhabi Bank PJSC priced €500 million of 1 5/8% five-year green notes at 99.691 to yield 1.69%; and Korea’s Shinhan Bank sold $500 million of 4 3/8% subordinated tier 2 climate notes with a 10-year tenor.

The primary market activity was against a backdrop of investor angst after Federal Reserve governor Lael Brainard said Tuesday that the Fed needs to act quickly and aggressively to drive down inflation, which has hit a run rate of almost 8%, compared to the Fed’s 2% inflation target.

In a speech written for a Minneapolis Fed discussion, Brainard said policy tightening will include a speedy reduction in the balance sheet and a steady pace of interest rate increases. She indicated that the rate hikes could come in increments that exceed the traditional 25 basis points bump-ups that markets are used to and which was seen in March, marking the first increase in the Fed funds rate in more than three years.

Meanwhile, the Fed has been saying it is on target this year to reduce its balance sheet, which has climbed to nearly $9 trillion in assets.

The remarks sparked U.S. bond fund outflows, but inflows in EM bond funds, according to EPFR’s Global Navigator update Friday.

It was the first EM bond inflow since the first week of the year and came despite another week of redemptions from China bonds funds and fears of Russian bond defaults, according to the update.

Funds with hard currency mandates attracted more than 15 times the amount that flowed into funds with local currency mandates.

U.S. bond funds posted their biggest daily outflow in more than two years and financial sector funds recorded their second-largest weekly outflow since EPFR started tracking them in the fourth quarter of 2000.

DTEK

Also, this week evidence mounted regarding Russia war crimes. Among headlines that underscore problems the world faces as it looks on in sorrow and revulsion at the situation in Ukraine included DTEK Energy BV’s interest payment scheme. The Ukraine energy company obtained approval from holders of its outstanding 7%/7½% senior secured PIK toggle notes due 2027 (ISIN: XS2342930521) to adjust interest payments and waive any potential defaults related to the interest payments after initiating an April 1 consent solicitation, according to an announcement Friday.

The company was given the greenlight after saying a force majeure situation has resulted following Russia’s invasion. Under the plan, DTEK will pay 3.5% interest in the form of cash interest, 4% interest in the form of PIK interest, and interest overdue to the March 31 interest coupon payment date, calculated at a rate of 8.5% per annum in the form of PIK interest. It plans to handle the June 30 interest coupon payment date in a similar manner.

To implement the interest payment plan, the company also obtained holder consents to waive any default that may have occurred as a result of the changes. All notes blocked with respect to the consent solicitation will be unblocked as soon as practicable, the company said.

When the consent bid was announced, the company said the group had experienced a number of significant challenges and disruptions, including, lower domestic demand for electricity, lower domestic pricing for electricity, the cessation of all electricity exports from the invasion in February until March 28, when exports resumed to Poland only in an amount of up to 200 MW per day, significantly reduced payment collections, an increase in critical repairs and mandatory fixed costs as a result of damage sustained, and shortages of personnel and logistical support.

In particular, on Feb. 28, the price fixed for the day-ahead market was set at UAH 2,224 per MWh, and subsequently the price for electricity in the bilateral market decreased significantly to between UAH 1,800 to UAH 2,000 per MWh. On Feb. 25, the group lost control of the Lukhanskaya thermal power plant; operations at Zaporiz'ka TPP were reduced significantly as coal stock could not be delivered to it due to damage to and disruptions affecting the connecting railway infrastructure; only 1 unit at the TPP is currently operational; during March, the group was only able to operate on average between 9 and 13 units of its TPPs, with a total capacity of only approximately 1,500 MW, and, accordingly, its electricity production fell by approximately 30% compared to March 2021; and the group recorded negative operating cash flow for March 2022, and expects to record negative operating cash flow at least during the second quarter.

Angola coupon set at 8¾%

The African sovereign priced its $1.75 billion 10-year notes a quarter percentage point below initial price talk in the 9% area. Citi and Deutsche Bank were managers for the Regulation S and Rule 144A offering.

The transaction represents Angola’s successful return to the international capital markets after more than two years and amounts to the largest-ever issuance of eurobonds for the African sovereign.

Order books peaked at more than $4 billion from more than 190 investors, which was 2.3-times oversubscribed.

Meanwhile, the partial repurchase of $636 million of its 2025 eurobonds through a tender offer “allows Angola to limit refinancing risks, prolong the maturity of its debt and reduce its average cost, thus mitigating greater pressures on treasury,” according to the Ministry’s release.

Freeport Indonesia prices

Also this past week, Freeport Indonesia sold $3 billion of senior notes in three parts, including $750 million of 4.763% five-year senior notes, $1.5 billion of 5.315% 10-year senior notes and $750 million of 6.2% 30-year senior notes.

Citigroup Global Markets Inc. and J.P. Morgan Securities plc are the joint global coordinators for the offer.

HSBC, Mandiri Securities Pte. Ltd., Mizuho Securities Asia Ltd. and SMBC Nikko Securities (Hong Kong) Ltd. are the joint bookrunners for the Rule 144A and Regulation S notes.

Proceeds will be used to finance smelter projects, refinancing and for general corporate purposes.

The issuer operates one of the world’s largest copper and gold mines at the Grasberg minerals district in Papua, Indonesia.

Mivivienda, banks issue

Mivivienda sold $600 million of 4 5/8% notes due 2027 at 99.652 to yield 4.704% (Baa1/BBB), according to a pricing supplement.

The notes priced at a spread of 200 bps over the benchmark Treasury. Talk had the notes coming in the Treasuries plus 225 bps area.

Until one month before the maturity date, the notes can be redeemed with a Treasuries plus 30 bps make-whole premium. Joint bookrunners for the Rule 144A and Regulation S issue are BofA Securities, Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC.

Proceeds were used to fund a tender offer.

Mivivienda is a for-profit mortgage financing institution owned by the Republic of Peru and based in Lima.

First Abu Dhabi Bank priced €500 million of 1 5/8% five-year green notes at 99.691 to yield 1.69% (Aa3/AA-/AA-), according to a prospectus.

Barclays, Deutsche Bank AG, London Branch, First Abu Dhabi Bank and Standard Chartered Bank acted as managers for the Regulation S sale.

Proceeds will be used to finance or refinance eligible projects within the bank’s sustainable finance framework. The bank said it expects funds to be allocated to eligible projects within the Middle East, though they may be used globally without geographical restriction.

Korea’s Shinhan Bank sold $500 million of 4 3/8% subordinated tier 2 climate notes with a 10-year tenor on Wednesday.

The bonds priced at a spread of Treasuries plus 185 basis points, low to talk in the 225 bps area.

BNP Paribas, Credit Agricole CIB, Citigroup Global Markets Inc., Credit Suisse, HSBC Ltd., J.P. Morgan Securities and Shinhan Bank are listed as bookrunners.

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