Petrobras active, under pressure as equity markets continue to swing; Nostrum prices notes

By Rebecca Melvin

New York, Feb. 9 – Some emerging market credits in Latin America were under pressure Friday after a raft of new paper for that region priced on Thursday and stock market volatility continued on the heels of the major U.S. indexes touching correction territory on Thursday when they were down around 10% from their record highs set in January.

U.S. stocks dragged lower initially on Friday but rebounded at the end of the day to close in positive territory but that still left the major U.S. indexes down 5% for the week.

While the emerging market bond space has been resilient for much of the week, “a market dislocation of this magnitude at the center of financial markets, namely U.S. equities, is going to change behavior to more cautious,” a New York-based market source said.

To gauge where the market might be going looking forward, “I would want to see particularly continuation of the prevailing buy the dip behavior.”

On Friday there was a lot of trading in Brazil’s Petroleo Brasileiro SA paper, a New York-based trader said.

Petrobras’ ultra-long dated 6.85% notes due 2115 were trading actively and extending losses from Thursday for much of the day but they recouped a bit near the close when U.S. equities turned around and went positive.

The Petrobras 6.85% notes were crossing in the range of 91.5 and 92.25 early Friday, which was down about 0.5 point to 1 point on the day, following a 3-point to 3.5-point slide on Thursday, according to Trace data. But they ended a bit better at 92.65 as a late print of the day.

A near-dated Petrobras note, its 6 1/8% notes due 2022, fared better, trading around 104.25 and 104.5, after closing out on Thursday at 105.1, which was down only 0.4 point, according to Trace data.

Vale SA was another name in trade early Friday. The Vale 5 5/8% notes due 2042 traded down 2 points, or 1.8%, to 106.28 and they are down from about 112 since the end of January.

High-yield emerging market names were under more pressure than investment-grade names, as they tend to follow stock markets, a market source said.

“[The emerging market bond market] has got a split personality if you will,” the source said, pointing to the fact that the corporate emerging market bond indices are weighted toward investment-grade credits, accounting for 56% of the J.P. Morgan index, while high yield accounts for about 44%.

Despite the swings in the market, the Nostrum Oil & Gas plc notes, which had been on the calendar since Feb. 1, were able to price. The Kazakhstan-based energy company was able to price $400 million of 7% seven-year notes at a reoffered 99.32 to yield 7 1/8% on Friday.

Proceeds will be used to refinance Nostrum’s 2019 eurobonds, issued by subsidiary Zhaikmunai LLP, and for general corporate purposes.

A casualty of the week was First Abu Dhabi Bank, which postponed its planned notes offering due to market conditions. Market players anticipate seeing the dollar-denominated five-year sukuk in the upcoming week.

© 2015 Prospect News.
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