China tries to calm market; Indian bonds tighten; Lat-Am prices slump; Ukraine talks continue

By Christine Van Dusen

Atlanta, Aug. 13 – China devalued its currency for a third consecutive day and defended the decision during a Thursday press conference, which helped to calm investors’ nerves a bit and tighten some spreads while other bonds took a “breather.”

“Global risky assets have taken a breather following the sharp corrections of the last two days,” according to a report from Barclays Capital. “Major European equities indices are up by 1% to 2%, credit spreads are narrower and core yields are slightly higher. Asia markets were also much calmer, with most currencies and equity indices rebounding.”

Also attracting attention on Thursday was the news that Ukraine had not reached a deal in its debt negotiations and was resuming talks. In response, trading of the sovereign’s bonds was somewhat muted, said Fyodor Bagnenko, a fixed-income trader with Dragon Capital.

“Activity is a lot more subdued in [emerging markets], but some small bottom-pickers are in,” a London-based trader said.

Asian credits bounced back between 2 basis points and 5 bps, but the rally faded after the London open, another trader said. Notes from the region closed the session unchanged to 3 bps tighter.

China-based Alibaba Group Holding Ltd. underperformed, moving 5 bps wider on poor earnings, he said.

“Korea is broadly unchanged,” he said. “Malaysia bounced back, with real-money demand in the [Malaysia’s Petroliam Nasional Bhd. (Petronas)] 2025s. The bonds closed at 147 bps bid, 144 bps offered from the wides of 157 bps yesterday.”

Bonds from India were 1 bps to 3 bps tighter, he said, and India-based Icici Bank Ltd.’s new 3 1/8% 2020s closed the Asian session at 164 bps bid, 159 bps offered after trading earlier this week at 158 bps. The notes priced at 160 bps.

Indonesia firms up

Indonesia’s bonds firmed up on Thursday morning after the China news and on the headline that the sovereign had reshuffled its cabinet, another trader said.

“Cabinet reshuffle looks like a small positive although taking a back seat to China,” he said. “Front end is up 1/8 point, belly up ¼ point to ¾ point, long end up ¾ point to 1¼ points.”

But sukuk from Indonesia underperformed, he said, “although they outperformed yesterday predominantly due to illiquidity and a lack of bonds coming out.”

Lat-Am widens

Looking to Latin America, low-beta spreads widened on the day after moving tighter on the open, a New York-based trader said.

Five-year credit default swaps spreads for Brazil closed at 310 bps from 304 bps, while Mexico’s moved to 138 bps from 134 bps.

Cash prices “slumped” along with Treasuries, he said, and were better-offered throughout the afternoon at prices near Wednesday’s.

Argentina bonds were mostly unchanged, and Venezuela continued to weaken as the price of oil continued to drop.

Turkey sees short-covering

Turkey continued to see the Street short-covering its bonds and banks were “feeling very squeezed, especially in the short end of curves, as do corporates,” another trader said.

“We saw no real sellers of paper on the way down,” he said. “Just the Street, marking it lower.”

Africa still struggles

In other trading on Thursday morning, African assets struggled, he said.

“But given the spreads on offer, if the market continues to stabilize – with Brent holding above $50 – investors will be tempted to lift the high yields on offer,” he said. “Quality corporates remain unchanged mostly on price as spreads gyrate with United States Treasury moves.”

Ukraine in focus

Taking a closer look at the situation in Ukraine, the continuation of debt talks “suggests the sides still see a tangible possibility to find common ground by the end of this week,” said Alexander Paraschiy in a report for Concorde Capital. “At this stage, the risk of the introduction of a debt repayment moratorium looks smaller.”

He believes the government should either issue a consent solicitation for the sovereign’s $500 million bond that is due in 41 days or announce a debt repayment moratorium and “restart the debt talks from scratch,” he said.

“We still believe in a peaceful solution, with the bond restructuring parameters to contain a small haircut,” he said.

Sunac to issue bonds

Sunac China Holdings Ltd. announced that wholly owned subsidiary Tianjing Sunac Zhidi Co., Ltd. plans to offer RMB 3 billion of non-guaranteed bonds with an over-allotment option for RMB 3 billion of additional bonds.

These first tranche bonds will consist of two types. The company plans to issue RMB 2 billion of type 1 bonds and RMB 1 billion of type 2 bonds.

Type 1 bonds will have a term of five years and include an option to increase the coupon rate after the end of the third year as well as a put option. Type 2 bonds will also have a term of five years.

The coupon for the type 1 bonds will be in the range of 3½% to 5½%, and the coupon for the type 2 bonds will be between 4.2% and 6.2%. The final interest rates will be determined through a book-building process.

Shenwan Hongyuan Securities Underwriting Sponsor Co., Ltd. will act as lead underwriter, and China Securities Co., Ltd. will act as joint underwriter for the issuance.

The offer period will run from Aug. 14 to Aug. 17.

As previously announced, the China Securities Regulatory Commission approved Sunac’s proposed issuance of up to RMB 6 billion of domestic corporate bonds earlier this month.

The company had said it plans to offer the bonds in tranches, with the first tranche to be completed within 12 months and the remaining tranches to be completed within 24 months.

Sunac is a Tianjin, China-based residential and commercial property developer.

Marfrig releases earnings

Some investors were keeping an eye on Brazil-based Marfrig Global Foods SA, which reported stronger-than-expected financial results for the second quarter.

“The company shut down five out of 15 beef production plants in Brazil as a measure to reduce costs,” according to a report from Schildershoven Finance BV. “The sale of its poultry assets will additionally improve the company’s balance sheet. We expect a positive reaction to the company’s bonds. At the same time, beef producers may continue to be under pressure in Brazil.”

Marisa Wong contributed to this article.

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