Chile, Petrobras bring 11-year note deals with no new issue premium; LatAm has ‘big day’

By Rebecca Melvin

New York, Jan. 25 – Latin America’s emerging primary market was active on Thursday. Chile priced €830 million of 1.44% 11-year notes to yield 1.449%, or a yield spread of mid-swaps plus 35 basis points, and Brazil’s Petroleo Brasileiro SA (Petrobras) was pricing $2 billion of 11-year notes to yield 5.95%, which was low compared to initial talk in the low to mid 6% range.

Both of the Securities and Exchange Commission-registered deals priced with no new issue premium, suggesting ongoing strength in Latin American emerging market debt.

“[Petrobras] caught a great wind after yesterday’s news out of Brazil,” a New York-based market source said.

The market source was referring to the loss of a highly-anticipated appeal by Luiz Inacio Lula da Silva to overturn his corruption conviction in the sweeping Car Wash corruption probe.

Despite being saddled with the corruption charges, Lula is currently leading polls among potential candidates for the nation’s presidential elections in October. The former president is technically blocked from running for office under the nation’s Clean Record law, which forbids convicted criminals from seeking election. But Lula has denied the charges, and his lawyers say they intend to fight the decision.

The popular leftist politician is deemed a risk for Brazil’s improving economic profile.

It was a big day for Latin America’s emerging market debt market, with five deals getting priced on Thursday, a second New York-based market source said.

In addition to Chile and Petrobras, Brazil’s Natura Cosmeticos SA was pricing $750 million of five-year notes, Argentina’s MSU SA was pricing $600 million of seven-year non-call four bonds, and Agua y Saneamiento Argentinos (AySA) was pricing $500 million of five-year non-call three notes.

Natura Cosmeticos was pricing its non-call three notes around 5½% after initial talk in the area of 5%. The MSU bonds were guided to a price of 7 1/8% yield after initial talk in the mid 7% area, and AySA guided to a yield of 6¾% from initial talk of 6 7/8%, according to a market source. Prospect News was not able to obtain final pricing by its deadline.

Elsewhere, Russian commercial bank Alfa Bank announced plans to issue at least $300 million of notes under Regulation S.

The dollar regained strength on Thursday after a drop on Wednesday that bolstered emerging markets.

U.S. government bond were last up, with longer-dated Treasuries outperforming the shorter-dated notes. The yield on the benchmark Treasury 10-year note fell to 2.647% from 2.654% a day earlier.

After the dollar fell on Wednesday, some market players became more concerned about the risk of rising inflation. The dollar was pushed higher initially – to the highest level since March 15, 2017 – after U.S. Treasury Secretary Steven Mnuchin said that a “weaker dollar is good for trade.”

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