Emerging markets seen quiet as week winds down; Nakheel bonds retreat as creditors meet

By Paul Deckelman

New York, Dec. 4 - Trading in emerging markets debt was heard by participants to have quieted down Friday as they digested the impact of the latest developments earlier in the week regarding Dubai World's efforts to restructure its debt, as well as the latest moves by Venezuela's leader, Hugo Chavez, to extend his control over that country's economy by moving to nationalize banks.

While the markets were roiled earlier in the week - investors rattled by the Dubai emirate's declaration that it would not guarantee the debt of its big-spending ports and development arm, as well as by Chavez's threats to seize any financial institutions found to have run afoul of his government's financial regulations - by week's end those threats were seen to have receded somewhat.

Dubai World's Nakheel Development bonds, which had stabilized somewhat around mid-week - were seen softer on Friday, even as bondholders conferred among themselves to frame a response to the company's debt restructuring plans.

Meanwhile, Venezuela's paper - which had slid badly earlier in the week on investor fears of a wide-ranging bank takeover as part of Chavez's efforts to build a socialist state - had rebounded by Friday as the fiery leader toned down his threats against the sector. However, late word that the regime had closed three more banks for inspection set the stage for potential further investor angst in the upcoming week.

Elsewhere, Venezuela's continental neighbor, Peru, floated the idea of tapping the global debt markets. Separately, South Africa's state-run transportation company announced its plans to do a benchmark bond issue early next year.

Market quiets down

A New York-based emerging markets bond trader, queried whether anything was going on in his sphere on Friday, succinctly replied "not really, no."

He said that activity in the markets had been "winding down pretty hard," not because of any specific event or development, but just as a step-down from the busier dealings seen earlier in the week.

He characterized the overall tone that he was seeing as "still firm."

He said that he was not seeing "a great deal in terms of [activity] flow" - but what he was seeing indicated that "largely, risk was being added to positions," as investors cautiously crept back in, convinced that the worst of the shocks which had emanated from Dubai just before the U.S. Thanksgiving Day holiday in late November, were past.

Those initial shocks, after the government there announced that Dubai World would ask its creditors for a six-month breather in the paying of its debt obligations - including more than $3 billion of subsidiary Nakheel Development's bonds scheduled to come due and be paid off on Dec. 14 - caused emerging markets investors to in some cases pull out of the market and head for safer ground, as evidenced by the temporary fall-off in capital flows into funds which invest in emerging market debt and equities.

However, with the news earlier in the week that Dubai world was looking to only restructure about $26 billion of its debt, rather than the whole $59 billion owed, helped to calm the markets somewhat by mid-week, and that calming trend was seen having extended into Thursday and Friday's dealings.

"That's just giving a pretty good tone [to the market]," he said, noting that as liquidity diminishes, that would magnify the trend's impact, sending prices higher and causing spread to be "a little bit tighter."

He said that market activity, particularly in the Asian debt sector, has "gotten very quiet the past two days."

He said that market had "somewhat of a pullback around Thanksgiving Day here and the holidays in Asia at the time of the [initial] Dubai news, but we've pretty much claimed back all of the widening since then over the last few trading sessions."

Indonesia, Philippines gain

For instance, he saw Indonesian sovereign debt to be up around a point on the session, and Philippine paper up a little less than that, and he said the former has bounced by perhaps 4 or 5 points from the lows it hit in the immediate aftermath of Dubai, while the latter had rebounded about 2 to 3 points from those recent lows.

"So it's definitely bounced [back] pretty hard," he said.

Among regional investment-grade issues, the trader continued, while there had been some initial spread widening in the immediate aftermath of Dubai's Nov. 25 warning to the financial markets, "we're pretty much back to the tights where we were at the middle of last week, before Dubai."

With the pullback in response to the possible delay in debt payments apparently a pretty much temporary affair," "we're not seeing any [Asian] contagion."

Dubai creditors meet, but bonds still retreat

Dubai World's own issues, meantime, continue to struggle a bit, although they remained above the lows they had hit at the beginning of the week as the full impact of the Dubai problem hit the market.

A trader on Friday said that the Nakheel 2¾% euro-denominated notes due 2011 were trading at around 43-45 on Friday, "about where they had been," while its 3.172% euro-denominated notes scheduled to come due on Dec. 14 - a week from this coming Monday - had fallen to 55-57, down from prior levels around 58-60.

"The '09s softened up, down 2 or 3 points, while the '11s remained the same," he declared.

At another desk, the '09 bonds were seen having breached the 55 level slightly, versus 58 bid on Thursday.

The latest pullback came as creditors and their legal advisors held a conference call to map out a possible unified response to Dubai World's request that the bondholders allow it to slide for six months on debt payments. Some published reports indicated that, alternatively, Dubai World could decide to offer those holders new bonds with a higher interest rate - though the holders would have to accept a lower face amount of the new bonds versus their current securities.

The 3.172% notes had been trading as high as 110 bid before the Nov. 25 Dubai government announcement of the proposed debt standstill, which would affect that $3.52 billion of bonds maturing on the 14th. After that, the paper slid to the 80s by the end of that week, and down into the 50s by the early part of this past week, bottoming at 52 before recovering somewhat back as far as 60-61, before the latest pullback.

The 2¾% 2011 bonds had been trading in the 80s before the debt payment delay announcement, then dropped into the mid-50s by the end of that week and continued to slide before bottoming at around a 40-42 context.

Venezuela bonds seen better

Halfway across the world, Venezuela's bonds were seen having recovered Friday from the lows they had hit at mid-week on investor fears of a widespread bank nationalization campaign. Those fears had driven that paper to four-month lows at mid-week.

However, on Friday, the country's 9¼% notes due 2027 were seen having risen nearly 2 points to about the 68 level, with its yield tightening to 14.29 %. Its 5¾% global notes due 2016 were being quoted a little above 58, for a yield of about 16.62%, likewise an improvement from mid-week.

The bonds firmed as Chavez sought to dispel the fears that his government would embark on a sweeping nationalization of the country's banking sector, following the closing of four banks in late November - accompanied by the arrest of their owner - for alleged financial improprieties.

Chavez said that his government's focus was on a small group of institutions, rather than the whole privately owned banking sector.

Late Friday, three more banks were ordered closed by Caracas. Finance minister Ali Rodriguez said the banks were undergoing a "closed-door" inspection for "rehabilitation."

New-issue developments

On the new-issue front, Peru's finance minister was quoted in media reports indicating that the South American nation my look to the global bond market next year, although he did not offer any kind of a time frame as when to expect a bond sale - or even an official decision on whether there would be such a sale.

Luis Carranza reportedly noted low international interest rates, but said that his ministry would take market conditions into account in determining whether there would be new debt sales.

Carranza also said that Peru would sell debt on the local-currency market next year.

In South Africa, the state-owned transportation company. Transnet Ltd., said it would sell between $500 million and $1 billion of bonds during next year's first quarter. The company's chief executive officer told interviewers that it would bring dollar- or euro-denominated bonds, which would later be switched to the South African currency unit, the rand.

© 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.