Emerging Markets: Romania prices bonds; fund outflows persist as investors trim China exposure

By Rebecca Melvin

Concord, N.H., May 20 – Romania sold $1.75 billion of bonds in two parts on Wednesday at higher new issue premiums than those of its bonds priced five months ago, according to Prospect News’ data.

The Romania transaction included a $1 billion tranche of 5.5-year bonds that priced with a 5¼% coupon and 240 basis points spread over Treasuries and a $750 million tranche of 12-year notes that priced with a 6% coupon and 310 bps spread over Treasuries.

By contrast, the Eastern European sovereign priced on Jan. 19 $1.35 billion of five-year notes with a 3% coupon and 150 bps spread over Treasuries and a $1.06 billion tranche of 10-year notes with a 3 5/8% coupon and 185 bps spread over Treasuries.

Bookrunners of the new Romania notes were Citigroup, Erste Group, JPMorgan, Raiffeisen Bank International and Societe Generale.

EPFR-tracked bonds funds recorded outflows going into the second half of May this past week. Emerging Markets bond funds recorded their biggest weekly outflow in more than eight quarters. Meanwhile, investors pulled $6 billion out of high-yield bond funds, and equity funds extended their longest run of outflows since the third quarter of 2019 for the week ending May 18.

Slowing global growth, inflation readings at multi-decade highs and tighter monetary policy in the United States, as well as the Russian war in Ukraine, which moves into its 13th week, and ongoing Covid-19 lockdowns in China are cited as reasons causing investors to move to the sidelines.

Year-to-date outflows from EPFR-tracked bond funds hit $190 billion during the third week of May. All of the major geographic and asset class groups posted outflows that ranged from $59 million for Asia Pacific bond funds to $6 billion from emerging markets bond funds.

More than half of the emerging markets bond fund outflow is made up of another record-setting outflow from China bond funds. “That group attracted some $36 billion in 2020 and 2021, but the credit woes of China’s real estate sector and the shift of the U.S. Federal Reserve to a tightening bias has chased over $12 billion out of the group so far this year. Managers of global emerging markets (GEM) bond funds have been trimming their exposure to China, but that adjustment has taken a back seat to the more pressing questions posed by Russia’s attack on Ukraine,” EPFR’s Cameron Brandt wrote in the latest tracker update published on Friday.

The hostile investment climate has taken a toll on equity and bond funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates as well. In 2021, these groups posted inflows every week of the year on their way to new full-year inflow records. So far this year, SRI/ESG bond funds have racked up 10 weekly outflows.

Despite the toll, China’s Industrial Bank Co., Ltd., through its Hong Kong Branch, issued $650 million of 3¼% green senior notes due 2025 (Baa2), according to a pricing supplement.

The Regulation S notes priced at 99.816 last week, but were issued this past week.

Proceeds will be used for the financing or refinancing of eligible green assets. Under the bank’s green bond framework, this applies to wind and solar power generation projects in the renewable energy section and electrified rail and metro projects in the low carbon and low emission transportation category.

Korea Expressway Corp. has priced $500 million of 3 5/8% senior notes due May 18, 2025 (expected rating: A2/AA), according to a listing notice.

The notes were issued on Wednesday and will be listed on the Singapore exchange on Thursday.

Proceeds will be used for general corporate purposes, including repayment of maturing debt, according to Moody’s Investors Service.

The expressway construction and maintenance company is based in Gimcheon, South Korea.

In local-currency bonds, which are forecast to return more than hard-currency emerging markets bonds in 2022, Chongqing Longhu Development Co. Ltd., an indirect subsidiary of Longfor Group Holdings Ltd., priced RMB 500 million of 4% six-year bonds, according to an announcement on Friday.

The notes, which are not guaranteed, were talked at a 3% to 4% coupon. The rate was expected to have been set on May 17.

They have a coupon reset date at the end of the third year, at which time investors will have a put option.

The issue represents the company’s second tranche of domestic corporate bonds for 2022.

Longfor is a Beijing investment holding company.

And Maanshan Iron & Steel Co. Ltd.’s board of directors approved issuance of up to RMB 10 billion of corporate bonds maturing in three years, according to a company announcement.

The bonds will be issued at par, and other terms will be determined by book-building according to market conditions.

The board also approved the issuance of short-term financing bonds for one year or less in an amount not to exceed RMB 10 billion.

Proceeds of both sets of bonds will be used for repaying interest-bearing debts and replenishing working capital.

Shareholders of the company are slated to vote on the proposed issuance at the annual general meeting scheduled on June 23. The board approved the issuance at its March 30 meeting.

The steel producer is based in Maanshan, Anhui, China.

In other emerging markets bond news, Petropavlovsk plc, a Russian gold producer, defaulted on the coupon payment due on May 14 in the amount of $12.36 million for its 8 1/8% guaranteed notes due 2022 issued by Petropavlovsk 2016 Ltd., according to a press release.

This is a result of the inability of the group to extract cash from its Russian subsidiaries in the current environment and the previously announced acceleration of the term loan between the company and UMMC-Invest (formerly with Gazprombank).

There is $304 million outstanding on the notes.

The board has assessed that it will be challenging to refinance the notes in the present circumstances.

The company is exploring options, including the sale of the company’s entire interests in its operating subsidiaries as soon as practically possible.

In addition, Petropavlovsk announced its Gazprombank revolver has been assigned to a new creditor, Nordic LLC.

The company is considering the implications of the assignment with its advisers, according to a press release.

As previously reported, the company received notice from Gazprombank last month requiring repayment of around $87.1 million due under the revolver.

Due to sanctions in March, the group has not made payments on the revolving credit facility.

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