Pemex first out of gate with new notes amid better conditions for EM issuers; demand rises

By Christine Van Dusen

Atlanta, Oct. 12 - Mexico's Petroleos Mexicanos SAB de CV (Pemex) priced a reopening of its 2034 notes on a Wednesday marked by improved risk appetite, solid demand and spread tightening for emerging markets assets.

"With macro guys being stopped out of their bearish euro positions today, we are seeing a massive bid for EM risk," a London-based trader said.

Said another trader: "Only eight days ago you couldn't give a lot of these bonds away. The reverse was true today, with many bonds very tricky to offer and short."

Subordinated bonds that had previously fallen out of favor - like Russian Agricultural Bank's 2021s - were suddenly in demand. Those notes had recently traded at 82 and were 10 points better bid on Wednesday.

"The bears are licking their wounds today on a very solid tone," he said. "So as crazy as last Tuesday was, selling-wise, today was the complete opposite. A lot of the value has been eroded from the market. And while we can certainly grind higher in the near term as dealer inventory doesn't feel massive, medium-term the supply is going to be key for spreads."

Bonds from the Middle East didn't fare as well as other names from emerging markets, a trader said. "However, it's all solid," he said.

Abu Dhabi and Qatar moved 7 basis points to 15 bps tighter in the morning, he said, while Dubai and Dubai Water and Electricity Authority were about 20 bps tighter.

"The week-on-week moves are looking pretty impressive given the move in rates and the fact that a little over a week ago the S&P futures was 120 points lower," he said.

Demand was starting to increase for Abu Dhabi National Energy Co. and Dolphin Energy, which was seen trading at 107.

"Lebanon and the sukuks are holding steady," he said. "But again, they never really sold off over the past softness, outside of Dubai and Emaar Properties."

Dubai Holdings, Qtel perform

In other trading, Dubai Holdings attracted some investor interest as its 2014s traded at 78.5 bid, 79.5 offered.

"Overall it's a solid morning," he said. "Further stability and tightening will see supply come."

And Qatar's Qtel International saw its 2016s trading at 100.12 bid, 100.62 offered.

"The 2016s are the big outperformer on the month," a trader said. "It's at the five-year sweet spot for locals and trading near par. The long end has been in demand the past few sessions."

Kipco bounces back

Kuwait's Kipco saw buyers, with its 2016s bouncing back 125 bps on the week, and retail investors were interested in Sabic Capital.

And Kazakhstan's BTA Bank saw its 2018s trading up at 47, another trader said, before finishing the day at 50.

"That's up from 40 a week ago as the buoyant mood even starts to spread to high-beta names," he said.

Ukraine sees massive buying

Looking to Ukraine, sovereign and quasi-sovereign bonds were firmer.

"Massive buying is going through, more than reversing yesterday's losses," a trader said, noting a "very strong performance today. Even the relatively illiquid corporates are closing the day a couple of points higher."

Said another trader: "Ukraine snaps back, jumping 3.5 points in the long end, even as trade balance data highlights the reason why people worry about it."

KazMunaiGaz's 2021s were trading at between 101.5 and 102.5.

Turkey sovereign weaker

Turkey was slightly weaker at the open.

"The long-end sovereigns got hit several times on the Street," he said, noting that Turkey's 2021s were trading between 103.25 and 104 on Wednesday morning.

Corporates, however, saw some interest from retail investors.

"Most of the recent activity and dealer squeezing we've seen has been almost exclusively by retail," he said. "Hence, although the world looks to be a much better place today, it still makes you wonder if this rally has any legs and makes me want to buy protection."

Russia names active

Other active emerging market names included Russia's 2020s, which were trading between 99.5 and par, and Vimpelcom's 2022s. Those notes were seen trading at about 85.25.

"Russian quasi-sovereign banks are 30 bps tighter and generic corporate risk is 10 to 15 bps tighter," a trader said in the morning.

By the afternoon, Russia's quasi-sovereigns were having a "phenomenal day," a trader said.

"The buying today is far more frenetic than the selling one week ago," he said.

Also on Wednesday, Serbia's 2021s - which dropped from 98 to 90 on the opening day - were back at 97.

Evraz releases results

In more news from Russia, Moscow-based steel and mining company Evraz Group SA released its first-half results on Wednesday morning and reported that revenues were up 31% to $8.4 billion while net profits fell short of forecasts.

"The outlook is for softening in pricing and demand with operations affected by lower production volumes in the Czech Republic and South Africa," a London-based analyst said.

In response, bonds from Evraz were somewhat active on Wednesday. The company's 2015s were trading at between 97 and 98.5 while its 9½% 2018s were seen at between 98.5 and par and its 6¾% 2018s were trading between 85.5 and 87.

"All the Russia metals and mining bonds that collapsed are now the major outperformers," a trader said.

Africa in focus

Jordan's 2015s bounced, tighter by about 77 bps on the week and trading at about 94.5 on Wednesday.

And Cairo-based African Export-Import Bank saw good demand out of Asia on Wednesday morning, with its bond back up at 95, about 2½ points off the low prints.

"Even the Afrexim 2014s are in demand, bouncing back to life," a trader said.

Egypt started out the day a bit soggy, he said, before recovering in the afternoon and trading at 450. Morocco's 2020 notes also had a weaker start to the day.

"But Morocco's 2017s remain a rock, 24 bps tighter on the month," he said. "There's solid tightening in Africa but I didn't see much in the way of volume in this sector."

Pemex does deal

In its new deal, Mexico-based petrochemical company Pemex priced a $1.25 billion add-on to its 6½% notes due June 2, 2041 at 102.131 to yield 6.339%, or Treasuries plus 315 bps, an informed market source said.

BNP Paribas and Deutsche Bank were the bookrunners for the Rule 144A and Regulation S deal.

"Pemex is the first name to take advantage of the new world [for EM assets,]" a trader said. "It will be closely watched by all the others waiting in the wings."

The new issue came as Pemex's bonds took a beating on the news that the company's attempt to raise its voting stake in Repsol YPF SA had failed.

"The pent-up line of issuance and mandates must be following this market very closely," another trader said. "A few little shoots have popped up on other parts of the world."

He pointed to Indonesia, which was rumored to be considering a roadshow for a sukuk offering of notes.

In other deal-related news on Wednesday, Poland's PKP SA - parent company of Grupa PKP, the state-owned rail operator for the Republic of Poland - set price talk for its planned issue of €180 million five-year notes at the mid-swaps plus 375 bps area, a market source said.

Goldman Sachs and RBI are the bookrunners for the notes.

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