LatAm region eyes Frontera, Chile deals; Srpska prices €168 million 4¾% five-year notes

By Rebecca Melvin

New York, June 22 – This week’s pricing of Frontera Energy Corp.’s $350 million of 9.7% five-year notes was viewed as positive for the troubled Latin America debt market; but given the deal’s “unique” aspects, it was not seen as a strong indicator that other issuers would be able to price in the current market successfully, a New York-based market source said.

“It’s a good sign because it was a tough deal,” the source said of Frontera, a Colombia-focused explorer and producer of crude oil and natural gas, formerly known as Pacific Rubiales, which restructured in 2016.

“Oil prices are better so that is helping the cause,” the source said.

“It’s not a lot of new money,” the source, referring to the fact that the company is tendering for an existing 2021 note yielding 10%. “They essentially paid up to extend for two years.”

“It’s fairly unique, so it’s good that the deal was able to get done. But I’m not sure want it says about the current environment,” the source said.

Given its troubled path, the fact that the market was receptive to it may be positive for other credits in a weaker market, he said.

In addition, Chile is wading into the market with a so-called soft-currency deal that will be on roadshow next week. The sovereign has selected HSBC, Itau and Scotiabank as bookrunners for the proposed offering. The deal is being sold under Rule 144A and Regulation S.

“It will be an interesting test if investors are willing to buy into a soft currency. But it’s a good credit. So it is less a credit risk than a [currency] risk,” the source said.

Elsewhere, Republic of Srpska priced 4¾% five-year notes on the smaller end of talked deal size early Friday, with €168 million ultimately pricing compared to a maximum €200 million deal initially talked and not quite reaching the midpoint of the €150 million to €200 million range later discussed.

Srpska is autonomous entity in Bosnia and Herzegovina.

Slightly stronger tone in the Central & Emerging Europe, Middle East and Africa region in the last couple of days yielded not only the Srpska deal but also one from Bulgarian Energy Holding EAD. The state-owned electricity and gas company priced a €400 million seven-year eurobond at par to yield 3½% on Thursday. In addition, state-owned Lithuanian utility Lietuvos Energija UAB is scheduled to hold roadshow meetings next week ahead of a possible €300 million minimum Regulation S green bond to price subject to market conditions. The bonds were seen having a seven- to 12-year maturity.

Overall emerging markets debt was indicated stronger, showing continuing recovery from a steep sell-off on Tuesday amid heightened trade war fears. However, market activity was diminished heading into the weekend, with not only the recent market volatility taking a toll on trading and new issue vigor but also the FIFA World Cup in Russia stealing attention from markets, sources said.

The market is ending on a positive note, but it could still be described as soft, a source said. “It’s better than before. But we need to see. We need a string of these to continue for a couple of days to say we are on the right path,” the source said, noting another week of outflows from emerging market debt as another sign that is not supportive.

What may have been helping the market on Friday was that Argentina got its loan and was upgraded to MSCI emerging markets, which should help those assets to stabilize.

Brazil was a bright spot in the emerging markets with the Latin America country’s stocks and bonds moving amid relative market calm. But Mexico, which has been quieted by uncertainty regarding its upcoming presidential election and renegotiation of the North American Free Trade Agreement, was pressured by data showing that the Mexican economy shrank 0.6% in April from the previous month as output declined across sectors. The Mexican agricultural sector led declines with a 1.7% drop in April from March.

“I think general tone feels a little better, but it’s too soon to say where things stand,” a market source said.

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