Volumes low but tone firm; Greece extends banking holiday; roadshow for China’s Minmetals

By Christine Van Dusen

Atlanta, July 17 – Flows were light but the tone was firm for most emerging markets assets on Friday, even as Greece once again extended its banking holiday, this time closing lenders through Sunday.

The Hellenic Capital Market Commission also announced that the Athens Exchange will remain closed during that time. The banks and exchanges have been closed since June 28.

Meanwhile, Asian bonds were mostly quiet, with an early close, and broadly unchanged, a London-based trader.

The only exception was China, which saw its notes get a boost on renewed buying of Chinese equities.

“Chinese property, in particular, saw real-money buying,” he said. “The high-yield space is up 3/8 point to 1 3/8 point.”

Korea Gas Corp.’s new 3½% notes due 2025 that priced 99.824 to yield Treasuries plus 110 basis points was a bit soft on Friday.

“Unable to break away from reoffer,” he said.

Barclays, BofA Merrill Lynch, Deutsche Bank, HSBC, Mizuho Securities and UBS were the bookrunners for the Rule 144A and Regulation S deal.

In other trading, bonds from Ukraine entered the end of the week on better footing, a trader said.

“The sovereign opened stronger in the morning after a statement was released that Ukraine and bondholders made significant progress on ‘a number of substantive issues’ and agreed to focus on ‘narrowing the gaps,’” said Fyodor Bagnenko, a fixed-income trader with Dragon Capital.

The sovereign’s 2017s traded between 54¾ and 55¾, up 1 ½ points, he said, amid low liquidity.

“Some offers in the recently squeezed Ukraine 2021s and 2022s appeared,” he said.

Minmetals sets roadshow

In deal-related news, Hong Kong-based property company Minmetals Land Capital Ltd. will set out on Monday for a roadshow to market a dollar-denominated issue of notes, a market source said.

Deutsche Bank, HSBC, JPMorgan and ICBC (Asia) are the joint global coordinators and, with Citigroup and MUFG Securities, the joint lead managers and joint bookrunners for the Regulation S deal.

Indonesia moves higher

In Asian sovereigns, “the flows were also negligible, but a positive overnight tone and a decent bounce in China has got the Indonesia long end around ½ point higher while the belly is around 1/8 point higher,” the London trader said. “U.S. curve-steepening is certainly helping valuations in the long end.”

Philippines bonds were mostly unchanged in the belly of the curve while the long end was up about ¼ point, “with the exception of 2037s,” he said. “They’re in a squeeze, up a ½ point on the day.”

Light volume for Lat-Am

From Latin America, volumes and inquiries were “super light” but the tone was firm for most high-grade credits on Friday, a New York-based trader said.

Brazil-based Petroleo Brasileiro SA closed 10 bps to 12 bps wider, he said, with bids hit in the Street throughout the curve and into the close.

“Even the century bond – which had been really stable, spread-wise, all week as Treasuries rallied – widened 10 bps into the close, a hefty move for that bond in one session,” he said. “The main reason for widening was general deterioration in Brazil with ongoing scandal tapebombs, growth malaise and a severe lack of conviction that Levy can turn this ship around dutifully.”

Brazil underperforms

Indeed, bonds from Brazil were big underperformers on Friday, with spreads widening and cash prices taking a hit, another New York trader said.

Five-year credit default swaps spreads for moved out to 266 bps from 258 bps while Mexico’s were unchanged at 127 bps.

Looking to Chile, most bonds from Cencosud SA moved a little bit higher, the New York trader said.

Mexico-based Cemex SAB de CV also moved higher amid what looked like some short-covering.

“The rest of the curve has held as U.S. high yield trades sideways for the week,” he said.

Among sovereigns, Brazil was an underperformer.

Kazakhstan trades

In other trading on Friday morning, the new 2045 notes that Kazakhstan priced at Treasuries plus 335 bps were about 40 bps wide to the 2044s, another trader said.

“On the face of it, the new Kazakhstan 2045 has a lot going for it,” he said. “But the 17 cash points puts me off.”

Citigroup, JPMorgan, Kazkommerts Securities and Halyk Finance were the bookrunners.

The deal included $2.5 billion notes due in 2025 that came to the market at Treasuries plus 285 bps and $1.5 billion notes due in 2045 that came to the market at Treasuries plus 335 bps.

“Any negative headlines over the weekend – take your pick from Greece, China, terrorism – and we could see risk off on Monday and last-in-first-out rules will apply,” he said. “The liquid $4 billion new Kazakh supply will suffer most. If the weekend goes without a hitch and Monday is a risk-on session, the 44’s will retrace the 30 bps of widening we saw into this week’s deal – win-win.”

Pacific Rubiales in focus

Latin America-focused Pacific Rubiales Energy Corp. continued to get attention at the end of the week, even after Mexico’s Alfa SAB de CV and Harbour Energy Corp. withdrew their takeover bid. Now, the Venezuela-based shareholders of Pacific Rubiales are in talks with U.S. and European investors about the future of the company.

The O’Hara Administration, which represents a large group of these shareholders, “confirmed its willingness to be a long-term investor in Pacific Rubiales and believes the company has significant potential for expansion,” according to a report from Schildershoven Finance BV. “According to Venezuela’s shareholders, there is huge potential for the company in the Venezuelan and Mexican markets.”

Pacific Rubiales’ bonds traded up and down within a 2-point range, with strong volumes and “decent Street action as well, closing up a tad on the day, 2 points on the week,” the New York trader said.

Still, risks remain, Schildershoven said.

“In the short-term, this news is positive for the oil producer as it demonstrates a willingness of shareholders to support the company,” the report said. “On the other hand, the risks for the company are high and without external support it will be difficult for Pacific Rubiales to service its debt in the current oil price environment.”

EM proves ‘resilient’

Overall, emerging markets assets have been “resilient” to the recent big-picture problems hurting other markets, according to a report from Barclays Capital.

“The ups and downs of the Greece saga and Chinese equity markets appear to have been successfully dealt with by both hard currency and local currency markets,” the report said. “A part of the resilience in EM fixed income is due to reduced market expectations for the Fed hiking cycle, which has given EM central banks more room to keep accommodative policies in place.”

Many emerging markets assets have also benefitted from the move lower in oil and other commodity prices, the report said.

“The Iran deal opens the door for additional supply into an already oversupplied market,” the report said. “Without an offsetting response, oil prices are likely to stay low. This is likely to put pressure on growth in exporting countries, worsening their credit quality and weighing on their currencies. Lower oil prices are likely to dampen reflation pressures in EM, however, muting expectations for any hawkish shift in EM policies.”

But corporate bonds from emerging markets are likely to continue to face “a difficult environment” in the near term, Barclays said. “A tightening of U.S. monetary policy will likely be a difficult environment for EM flows. Tight valuations, compared with similarly rated US counterparts and sovereign, argue for further widening of EM corporate spreads in the short term.”

Small deal from Oman issuer

On Thursday, Oman’s Renaissance Services SAOG sold $125 million 7.9% perpetual notes at par to yield 7.9%, a market source said.

Bank Sohar SAOG, National Bank of Oman SAOG and Standard Chartered Bank were the bookrunners for the Regulation S deal.

The issuer provides services to the oil and gas industry.

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