EM debt firm as market weighs potential for China-U.S. trade deal; Indonesia, Baidu on tap

By Rebecca Melvin

New York, Dec. 3 – Emerging market debt was firm on Monday as investors were cheered by an informal agreement by the presidents of China and the United States for a temporary cease fire on tariffs while further negotiations are conducted.

“Pretty strong day across the board,” a London-based market source said. “Under-performers seem to be higher-quality names with people looking to move down the credit curve given bullish sentiment.”

In weekend meetings between China president Xi Jinping and U.S. president Donald Trump, Trump agreed to postpone for 90 days implementation of further U.S. tariffs that had been scheduled to take effect on Jan. 1 while trade talks continued. On Monday, U.S. Treasury secretary Steven Mnuchin said there is an immediate focus on reducing auto tariffs.

Equities were higher on the news and U.S. Treasuries slipped, sending the yield on the benchmark 10-year note to 2.999%. Oil prices were also higher and the U.S. dollar was slightly lower against a basket of international currencies.

In the new issue market, the Republic of Indonesia announced it is selling U.S. dollar-denominated notes (Baa2/BBB-/BBB) in three tranches that are being registered with the Securities and Exchange Commission.

Moody’s Investors Service has rated the proposed notes Baa2, citing the sovereign's credit profile as being supported by narrow fiscal deficits and low government debt ratios.

The large size of its economy and healthy and stable growth prospects act as credit supports; while credit challenges include low revenue mobilization and a reliance on external funding.

Also planning a deal is Baidu Inc. The Beijing-based web services company plans to price an add-on to its 4 3/8% notes due 2024, which originally priced last month.

Baidu’s $600 million of 4.375% notes due May 14, 2024 priced on Nov. 9 at 99.802 to yield 4.416%, or Treasuries plus 133 basis points. The bonds have a make-whole call at Treasuries plus 20 bps and are callable at par from April 14, 2024.

Goldman Sachs (Asia) LLC and J.P. Morgan Securities LLC are joint bookrunners for the SEC-registered deal.

Proceeds from the notes will go toward repaying existing debt and for general corporate purposes.

In addition, the China Development Bank said it plans to issue three-year and five-year dollar-denominated floating-rate senior notes and four-year euro-denominated fixed-rate notes, according to a syndicate source.

The tranches (expected rating: A1/BBB) will be sold under Regulation S as part of the bank’s debt issuance program and are subject to market conditions.

India’s Alembic Pharmaceuticals Ltd. informed the Bombay Stock Exchange that it will consider plans to issue non-convertible debentures at a board of directors meeting on Dec. 6.

The Vadodara, India-based company manufactures pharmaceutical products, pharmaceutical substances and intermediates.

Also in the primary arena, state-owned Banco del Estado de Chile priced CHF 125 million senior unsecured notes due 2024 to yield 0.6925%, according to market sources.

The issuance was made under the bank’s medium-term notes program of up to $3.5 billion.

© 2015 Prospect News.
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