Oil prices, U.S. rates hurt EM performance; Equate struggles; Saudi Arabia sees action

By Christine Van Dusen

Atlanta, Oct. 28 – Oil producers met for technical meetings on a softer Friday for emerging markets assets as U.S. rates undermined performance and the new deal from Kuwait’s Equate Petrochemical Co. KSCC struggled somewhat in trading.

“The participants have noted that oil prices pared some of the gains after the surprise agreement in end-September,” a London-based analyst said. “Markets will therefore focus on whether non-OPEC producers are willing to join in output freezes or cuts. Doubts, however, have also emerged on whether OPEC will actually be able to reduce output to the targeted 32.5 million to 33 million barrels-per-day range.”

Meanwhile, the new issue of notes from Kuwait’s Equate Petrochemical – $2.25 billion senior notes in two tranches – grappled with a market already flooded with paper from Saudi Arabia’s mega-deal.

Equate on Thursday priced $1 billion 3% notes due 2022 at 98.364 to yield 3.338%, or mid-swaps plus 195 basis points. On Friday the notes were trading at 98.31 bid, 98.56 offered.

The $1.25 billion 4¼% notes due 2026 that priced at 98.781 to yield mid-swaps plus 270 bps traded Friday at 98.43 bid, 98.81 offered.

“The book build had some good momentum yesterday going by the updates, and allocations do not sound too lumpy, but I think all of the above points are leading to a disappointing opening for this debut issuer,” a London-based trader said. “A few ‘Percy Panics’ tinned out bonds early doors, but given the $2.25 billion issued, volumes look light. Maybe a nod to the syndicates is due for ensuring bonds went to the right hands for once.”

Citigroup, HSBC, JPMorgan and NBK Capital were the global coordinators and joint bookrunners. Banca IMI, Mizuho Securities, MUFG and SMBC Nikko were also joint bookrunners.

Rates undermine performance

Much of the performance during the week for emerging markets was hurt by a jump in U.S. rates, a trader said.

“While spreads tightened across the board, the 10-years climbed by another 10 bps over the week, supported by solid macro data and an increasing conviction for a Fed rate hike in December,” he said. “Mozambique was the clear underperformer.”

On Tuesday the sovereign announced that it was in debt distress and will be looking to restructure its debt.

Mozambique in April exchanged its $726,524,000 of 10½% notes due 2023 at par for bonds issued by state-owned fishing company Empresa Mocambicana de Atum SA (Ematum). Also causing some trouble was the International Monetary Fund’s discovery of $1.4 billion of undisclosed loans.

In response to this latest news, the sovereign’s bonds have dropped almost 25 points, the analyst said.

Saudi Arabia notes trade

The aforementioned deal from Saudi Arabia saw some activity in trading on Friday, a trader said, as investors “continued to digest” the $17.5 billion deal.

The new $5.5 billion 2 3/8% notes due in 2021 that priced at 99.007 to yield 2.588%, or Treasuries plus 135 bps traded at 99.70 bid, 99.77 offered on Friday.

The $5.5 billion 3¼% notes due in 2026 that priced at 98.679 to yield 3.407%, or Treasuries plus 165 bps, on Friday traded at 98.27 bid, 98.42 offered.

And the $6.5 billion 4½% notes due in 2046 that priced at 98.015 to yield 4.623%, or Treasuries plus 210 bps, traded at 98.35 bid, 98.60 offered on Friday.

Cell C shelves deal

In other news, South Africa’s Cell C (Pty) Ltd. has shelved plans for a $600 million issue of notes due in 2021, a market source said.

Other details were not immediately available on Friday.

The issuer is a telecommunications company based in Randburg, South Africa.

CBW sells bonds

On Thursday, Russia’s Credit Bank of Moscow priced $500 million 5 7/8% notes due Nov. 7, 2021 at par to yield 5 7/8%, a market source said.

The notes were talked at a yield in the high-5% area.

Citigroup, Sberbank and Societe Generale CIB were the bookrunners for the Rule 144A and Regulation S deal.

“The issue has some upside potential in the secondary market,” according to a report from Schildershoven Finance BV.

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