Emerging markets: Chile, Indonesia each sell dual-currency mega deals; Ukraine brings tap

By Rebecca Melvin

Concord, N.H., July 23 – Issuers in emerging markets bonds continued to price deals at a steady clip this past week – the third week of the third quarter – despite an unusually large drop in global financial markets on Monday when the CBOE Volatility index shot up to 25.

Markets stabilized following the plunge, with the VIX retracing its spike and last seen at 17 and change, which was below where it started on Monday.

The Republic of Chile accounted for a lion’s share of this week’s issuance, selling five tranches of green, or social bonds, including €1.75 billion in two tranches on Wednesday and $3.75 billion in three tranches one day later.

The Republic of Indonesia also made a splash, with a four-part megadeal this past week, but its issuance was not on nearly as much volume as Chile’s. The sovereign on Wednesday priced $1.65 billion in three parts denominated in dollars and €500 million in one part.

Other sovereign issuers this past week included Ukraine, which priced a $500 million tap of its 6.876% senior notes due May 21, 2029. Those bonds priced at 103.493 for a reoffered yield of 6.3%, or a spread over U.S. Treasuries of 529.8 basis points, according to a syndicate source. They will be consolidated and form a single series with $1.25 billion of the 2029 notes that the sovereign priced on April 27.

Latin America also saw some corporate issuers come to market.

Sao Paulo, Brazil-based oil refiner and marketer MC Brazil Downstream Trading Sarl priced $1.8 billion of 7¼% senior secured notes due June 30, 2031, according to a listing notice on Wednesday.

The notes are guaranteed by MC Brazil Downstream Participacoes SA.

Proceeds, according to a Moody’s Investors Service press release, will be used for general corporate purposes, including to finance the company’s oil refining business, to pay its debt and to fund working capital needs.

For Central & Eastern Europe, EM-focused United Group BV priced a €300 million issue of seven-year senior secured notes (B2/B) at par to yield 4 5/8% on Tuesday, according to market sources.

The yield printed tight to yield talk in the 4¾% area. Initial talk was in the mid-to-high 4% area.

The Amsterdam-based telecom plans to use the proceeds to fund the acquisition of Optima Telekom, as well as to repay certain obligations outstanding under the ERCF and certain other debt, and for general corporate purposes.

United Group operates in Southeast Europe, where it provides telecommunication platforms and media.

For Asia, CCBL (Cayman) 1 Corp. Ltd., a subsidiary of CCB Leasing (International) Corp. Ltd., priced $600 million of 1.8% guaranteed notes due 2026 (A), according to a listing notice on Thursday.

The notes are issued under CCBL’s $5 billion medium-term note program and will be guaranteed by the parent company.

The proceeds will be used for refinancing and general corporate purposes, according to Fitch Ratings.

CCB Leasing is a subsidiary of China Construction Bank and is based in Beijing.

Looking ahead, Aeropuerto Internacional de Tocumen, SA is planning to price a new offering of notes, according to a company news release by the airport, which is located in Panama City.

Market snaps back

Financial markets fully recovered from Monday’s drop, bolstered by positive first-half corporate earnings, according to MarketScreener.com.

Despite a slip at the beginning of the week, indexes remain well oriented, with U.S. markets once again within striking distance of all-time highs. The S&P 500 index was up 1.4% this week, and only within a few points of its record at 4,393 points. The same dynamics can be found with the Dow Jones industrial average, which is up fractionally, and the Nasdaq-100, which stands about 1% higher on the week, according to the weekly market update published by MarketScreener.

Monday’s sudden plunge was attributed to fears about the global increase of Covid-19 Delta variant infections and the impact it could have on economic growth.

Fund flows improve

With yields on U.S. Treasuries dropping, flows for high-yield funds bounced back from the previous week’s outflow and emerging markets bond funds attracted more than $1 billion for the seventh time in the past 10 weeks, according to EPFR’s weekly update.

The shift in focus from the question of transitory inflation to the question of transitory growth hit bank loan funds, which posted their first weekly outflow in over six months, EPFR reported. Viewed as a way to play rising interest rates, this asset class has sat atop EPFR’s weekly Multi Asset Rankings since mid-January.

But EM bond funds in local currencies attracted more money than their hard currency counterparts for the second week as investors sought exposure to the foreign exchange gains and higher yields.

China bond funds continue to soak up fresh investor cash despite concerns that the willingness of Chinese officials to let more issuers default in the name of market forces will, at some point, roil this market.

Chile’s green deals

Chile sold €1.75 billion of green notes on Wednesday due in 5.5 years and 15 years (A1/A/A-), according to market sources and FWP filings with the Securities and Exchange Commission.

The republic sold €1 billion of 0.1% notes due Jan. 26, 2027 at 98.932 to yield 0.296%, or a spread of mid-swaps plus 60 bps. Pricing came tight to price guidance of mid-swaps plus 65 bps to 70 bps and initial talk in the mid-swaps plus 85 bps area.

The €750 million of 1.3% 15-year notes priced at 99.865 to yield 1.31%. Pricing on the spread came out to mid-swaps plus 110 bps, low to guidance of mid-swaps plus 115 bps to 120 bps and initial talk in the mid-swaps plus 130 bps area.

The 2027 notes are callable after Dec. 26, 2026, and the 2036 notes are callable after April 26, 2036 at par plus accrued interest and additional amounts.

The sovereign also sold one tranche of new dollar notes and two taps of previous issues, which were sold on May 7 and Jan. 22, including $1.7 billion 3.1% notes due May 7, 2041 and $1.5 billion of its 3.1% notes due Jan. 22, 2061, respectively.

The $2.25 billion tranche of new 2.55% notes due July 2033 priced at 99.723 to yield 2.577%, or a spread over Treasuries of 130 bps. Price talk was in the 155 bps area over Treasuries, according to a market source.

The $1 billion add-on to its 3.1% notes due 2041 priced at 99.426 plus interest from May 7 to July 27, for a yield spread of Treasuries plus 130 bps. Price talk was in the 160 bps area over Treasuries.

And the $500 million add-on to its 3.1% notes due 2061 priced at 94.989 plus accrued interest from and including July 22 to July 27 for a yield spread of 140 bps over Treasuries. Price talk was in the 170 bps area over Treasuries.

Proceeds from the offering will be used for eligible social expenditures, like the euro issue, under the republic’s sustainable bond framework.

Possible social expenditures may include support for the elderly or people with special needs in vulnerable situations, support for low-income families, support for human rights victims, support for the community through job creation, access to affordable housing, access to education, food security, access to essential health services, and social programs designed to prevent and/or alleviate unemployment derived from socioeconomic crises, including through the potential effect of financing SMEs and micro finances.

Application will be made to the London Stock Exchange for the listing of the notes.

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