Emerging Markets: Peru brings sustainable bonds; Teva on tap; Modern Land skips payment

By Rebecca Melvin

Concord, N.H., Oct. 29 – Several notable emerging markets bond deals priced this past week, concluding a nerve-wracked October. The issuance came amid a snap back in outflows from EPFR-tracked emerging markets bond funds and an averted default by China Evergrande Group, which managed another interest payment on one of its outstanding bonds before the grace period expired.

For the week ended Oct. 27, flows turned positive for EPFR-tracked emerging markets bond funds, following a five-week streak of outflows., according to a weekly EPFR update posted on Friday.

Meanwhile, China Evergrande made a $45 million interest payment on $951 million of bonds right before the grace period expired, according to an article published by the Wall Street Journal on Friday. The payment was due Sept. 29.

Despite market worries, Republic of Peru priced its first sustainable bonds including $2.25 billion of 3% notes maturing in 2034 and $1 billion of 3.6% notes maturing in 2072, according to Prospect News’ data.

The proceeds of the sustainable bonds (expected rating: //BBB) will be used to fund 2021 budget expenditures and pre-finance 2022 budget expenditures that may qualify as eligible green and social categories.

The sovereign also priced a $750 million reopening of its 3.55% dollar-denominated global bonds due 2051. In all, Peru sold $4 billion of bonds.

In addition, Lima-based mining group Minsur SA sold a benchmark-sized $500 million of 4½% senior notes with a 10-year tenor (BB+/BBB-) on Monday, a carryover from last week’s issuance in that sector.

The yield on the split-rated notes was 4¾%. Initial price talked expected in the low 5% area.

BofA Securities Inc. and Santander led the Rule 144A and Regulation S sale.

The Latin America region also saw Colombia’s Ecopetrol SA price $2 billion of notes (expected: Baa3/BB+/BB+) in two tranches. There was $1.25 billion of 4 5/8% notes due Nov. 2, 2031 yielding a spread of 307.3 basis points to Treasuries and $750 million of 5 7/8% notes due Nov. 2, 2051 yielding spread of 391.8 bps to Treasuries.

Citigroup, J.P. Morgan, Santander and Scotia were joint bookrunners for the Bogota, Colombia-based petroleum company’s deal.

Also pricing on Wednesday was Kazakhstan’s Sovereign Wealth Fund “Samruk-Kazyna” JSC. It priced $500 million 2% notes due 2026, which was sold via Citigroup, MUFG, UBS and VTB Capital plc.

Meanwhile, Indonesia’s PT Indofood Sukses Makmur Tbk. issued $1 billion of senior notes in two tranches (Baa3//BBB-), and Philippines’ Globe Telecom, Inc. priced $600 million of perpetual non-call five-year senior capital securities.

Indofood’s deal included $600 million of 3.541% senior bonds due 2032 and $400 million of 4.805% senior bonds due 2052.

Deutsche Bank, UBS, BNI, DBS Bank, Mandiri, Mizuho, Natixis, Oversea-Chinese Banking and SMBC Nikko were the joint lead managers and joint bookrunners for the offering.

The Globe Telecom’s securities have an initial distribution rate of 4.2%. The final order book was oversubscribed by more than three times, and as a result Globe upsized the deal to $600 million and tightened final pricing by 30 bps from initial price guidance of 4½%.

Looking ahead, Teva Pharmaceutical Industries Ltd. is not hesitating ahead of the Federal Reserve Open Market Committee meeting scheduled next week and said it expected to price the $4 billion equivalent four-part offering of sustainability-linked senior notes (Ba2/BB-/BB-) on Tuesday.

Not only are there questions regarding the extent and timing of planned tapering of the Federal Reserve’s bond buying stimulus, but elevated inflation has raised uncertainty over the possibility of a possible rate increase sooner rather than later.

The Teva deal will include two euro-denominated notes and two U.S. dollar-denominated notes. The euro notes will come with maturities in 2027 and 2030, and the dollar notes will be due in 2027 and 2029.

For the longer-dated 2030 euro notes and 2029 dollar notes, there will be a coupon step-up in 2026 if Teva fails to meet its sustainability targets. The rate will step up 12.5 bps separately based on each of the following sustainable targets: a regulatory submissions target, a product volume target or an emission reduction target.

For the two series due 2027, a separate premium would be paid at maturity or redemption of 0.15% of the principal amount for each of the same three targets.

Proceeds are earmarked to fund a tender offer for up to $3.5 billion of notes, with any remaining proceeds going to general corporate purposes.

BofA, BNP Paribas, HSBCc and J.P. Morgan are leading the sale as active joint bookrunners for the Tel Aviv-based pharmaceutical company’s notes.

Modern Land misses payment

This past week, Beijing-based property developer Modern Land (China) Co., Ltd. followed Fantasia Holdings Group Co., Ltd. into default. The company did not repay its 12.85% senior notes on their maturity date Oct. 25.

The company explained that the repayment was not met because of unexpected liquidity issues stemming from adverse factors in the macro economy, real estate industry and because of the Covid-19 pandemic.

The company terminated its consent solicitation relating to the 12.85% notes on Oct. 20. The consent solicitation would have extended the notes’ maturity date to Jan. 25, 2022, among other things.

Fantasia, a fellow China property development company based in Shenzhen, China, failed to make payment for the outstanding principal amount for its $205,656,000 of notes due on Oct. 4. The board and management of the company will assess the potential impact on the financial condition and cash position of the group under the circumstances, the company said.

The missed payments feed concerns about potential contagion from China property developer heavyweight China Evergrande, which made liquidity issues a front burner issue in September and October when it missed interest payments on its dollar-denominated debt.

The company made two payments of interest shortly before expiry of the grace periods and narrowly averted default. But with about $305 billion of debt, including about $89 billion of interest-bearing debt, China Evergrande is undoubtedly the most worrisome player in the sector and of such scale that there are concerns its problems could spill over to the broader markets.

© 2015 Prospect News.
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