Emerging market debt softer on disappointing U.S. GDP numbers; Asian corporates tap market

By Reshmi Basu and Paul Deckelman

New York, April 27 - Emerging market debt eased Friday in response to weaker-than-expected gross domestic product data in the United States.

In the primary market, three Asian corporations tapped the capital markets.

Shanghai-based developer China Properties Group priced a $300 million offering of seven-year senior notes (B1/B+) at par to yield 9 1/8%.

The yield came at the tight end of the 9 1/8% to 9¼% price talk, which had been lowered from previous talk of 9¼% to 9½%.

Merrill Lynch & Co. led the sale of the Rule 144A for life notes.

Proceeds will be used to finance existing projects and potentially to acquire new properties.

In the secondary market, the new issue opened up one point, but eventually eased a tad on flipping, according to a source.

Another market sourced spotted the new 2014 notes at 100½ bid, 101 1/8 offered.

Elsewhere new corporate deals from Indonesia saw strong demand Friday in both the primary and secondary market.

On Friday, shipping company Pt Berlian Laju Tanker sold an upsized offering of $400 million seven-year senior fixed rate notes (/B+/BB-) at par to yield 7½%.

The deal, doubled from $200 million, priced tighter than guidance for a yield in the 7 5/8% area.

Due to strong investor demand, the deal was completed before Monday's scheduled roadshow in New York.

In secondary, the notes were spotted at 100 7/8 bid, 101 3/8 offered.

The notes will be non-callable for five years.

Proceeds from the sale will be used for refinancing and for vessel acquisitions.

Deutsche Bank and JP Morgan were joint lead managers for the Rule 144A and Regulation S deal, which was issued via BLT Finance BV.

Indonesian integrated energy group and coal producer PT Indika Inti Energi (Indika) sold a $250 million offering of five-year bullet bonds with a coupon of 8½%.

Proceeds from the sale will be used for refinancing, to fund expansion and energy production projects, for working capital and for general corporate purposes.

JP Morgan and ING were lead managers for the Regulation S deal, which were issued via Indo Integrated Energy BV.

Meanwhile scarcity valued helped both new deals from Indonesia remain well bid in the secondary market. After pricing, a source noted that each had gained more than 1 point.

In other primary news, Mexico's Desarrolladora Metropolitana SA de CV set price talk for its debut offering of 10-year senior notes (B2) at 10½% to 11%, according to a market source.

The U.S. leg of the roadshow wrapped up in Boston on Friday.

Dresdner Kleinwort is the bookrunner for the Rule 144A and Regulation S transaction.

The deal is non-callable for five years.

The Mexico City-based issuer is involved in home building and construction.

EM softer on GDP numbers

Back to secondary trading, emerging market debt was flat on a spread basis as investors digested disappointing economic growth numbers for the United States.

Friday's data pointed to the slowest economic growth since the beginning of 2003. For the first quarter, GDP increased by an anemic 1.3% as the economy was pressured by the housing slowdown. Furthermore, inflation picked up

"The market's softened a little on the back of the GDP report, but not by much," noted an emerging market analyst.

"Despite the bad headline result, the details inside the report weren't all bad, and there's plenty of room for upward revisions.

"If the GDP report wasn't really that bad, it's difficult for EM investors to get too beared up about the US economy, especially given the still strong technicals and all the cash pouring into EM from high commodities prices," he added.

Mexico's local bonds slip

Mexico's peso-denominated bonds fell after that country's central bank, the Banco de Mexico, announced a surprise quarter-point rise in the key lending rate as means of combating inflation.

That pushed the yield on the government's benchmark 10-year peso bond up by 19 bps to 7.64%. That widening out was seen all along the yield curve, from the three-year peso bond also ballooning out by 19 bps to 7.47%, and the 20-year paper's yield increasing by 18 bps to 7.47%.

At another desk, the 10-year's yield was seen a full 20 bps higher, at 7.65%, and its price was seen down 1½ points at just above 97.25.

Those peso bonds had recently been rallying, with yields over the previous two sessions having fallen to near-record low levels, in line with a general fall in emerging market bond yields to all-time tight levels, as well as reflecting the feeling of Mexican investors that the central bank would continue trying to keep rates low in the wake of recent soft inflation data. Earlier in the week, it was reported that a drop in consumer prices during the first 15 days of April had pushed inflation down to the point where it was within the central bank's targets for the first time in three months.

The central bank's key rate had held steady at 7% for the past year, after having fallen sharply over most of the previous year from a peak level of 9.75%, the level it held in August 2005 before the bankers began cutting rates. Friday's rate boost was the first interest rate hike in nearly two years, since May 2005, and came about when the central bank projected that core inflation was likely to increase somewhat in May due to escalating prices of corn tortillas, a staple of Mexico's diet. Their price has been rising as corn prices had gone up in the wake of increased demand for the grain by the emerging ethanol industry in North America.

Even so, most observers had thought that prices would continue to be reined in, and did not expect a rate boost. The peso firmed gained 0.30% to 10.9206 per dollar, reaching its strongest level since February.

Mexican stocks initially fell on the news, but equities managed a comeback later in the day.

But while the local-denominated bonds were in retreat, Mexico's dollar-denominated global bonds were seen less affected, with the 6 5/8% notes due 2015 at 108.15, down marginally from 108.20 on Thursday, and the yield on the bonds 1 bp higher at 5.28%.

Elsewhere in Latin American trading, the Brazilian 7 7/8% globals due 2015 were also seen lower, at 114.65, off from 114.74 on Thursday, with a yield of 5.51%, a 1 bp rise.

The new dollar-denominated Petroleos de Venezuela 5¼% notes due 2017 were seen off 0.125, at 83.60, and their yield was up 2 bps to 7.63%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.