Emerging market debt climbs higher; Cemex sells $750 million perpetual securities

By Reshmi Basu, Paul Deckelman and Paul A. Harris

New York, Feb. 6 - Emerging market debt continued to ride higher amid a supportive backdrop Tuesday while Brazil extended gains, profiting from Monday's rating improvement by Fitch Ratings.

In the primary market, Mexican cement maker Cemex SAB de CV placed a $750 million offering of perpetual hybrid bonds via Barclays Capital and JP Morgan.

The issue priced to yield a spread of Treasuries plus 187 basis points.

Elsewhere, Brazil's Minerva Overseas Ltd. reopened its 9½% notes due 2017 (/B/B+) to add $50 million.

The deal priced at 98.125 to yield 9.797%.

The financing subsidiary's parent, Brazilian beef exporter Industria e Comercio de Carnes Minerva Ltda., will guarantee the unsecured unsubordinated notes.

Credit Suisse was the bookrunner for the Rule 144A and Regulation S transaction.

On Jan. 19, Minerva placed a $150 million offering of the original notes at 97.646 to yield 9 7/8%. The reopening brings the total size of the deal to $200 million.

Adding to the pipeline, Ukraine's Ukrsotsbank JSCB is currently holding investor presentations for a dollar-denominated offering of loan participation notes (B2/B/B-).

Simultaneous presentations started Monday, Feb. 5, and the roadshow will make stops in Hong Kong, London, Singapore, Zurich and Geneva.

The roadshow is scheduled to wrap up in Frankfurt and Munich on Wednesday, Feb. 7

ABN Amro and Credit Suisse will run the books on the Regulation S deal, which will be issued via Credit Suisse International.

The maturity is expected to be three to five years.

EM sees support

Emerging market debt moved higher Tuesday, bolstered by a supportive performance by core financial markets as well as a heightened appetite for risk.

For the session, the JP Morgan EMBI Global index rose 0.3% while spreads kicked out by 1 basis point versus Treasuries as the market was unable to keep up with the rally in Treasuries, according to a market source.

A trader said that the Latin American secondary market was quiet, with many market participants focused on the new Cemex deal, which priced late in the New York trading session - too late for any meaningful aftermarket activity.

"My sense was that the market was OK - probably slightly tighter on the day - but it wasn't like there were any big moves."

The trader estimated that spreads against Treasuries - which have recently been coming down to near-historic low levels as yields on the U.S. government paper have fallen on signs of non-inflationary economic growth - were another basis point or so tighter.

But nothing really seemed to stand out.

"Across the countries, it doesn't really look like there was much variation, and it was very quiet, except for the Cemex deal."

Also seen helping to keep the Latin market firm was a continued positive response to Fitch Ratings' announcement on Monday that it had revised its outlook on Brazil's debt upward to positive from stable previously. In trading Tuesday, the country's benchmark global bond due 2040 was quoted having firmed 0.188 to a bid level of 132.813. That gain came on top of Monday's 0.437 rise in response to the good ratings news.

Brazil's average spread tightened by 2 basis points to 180 basis points over Treasuries.

In revising its outlook to positive, Fitch brought its assessment of Brazil's BB credit status into with Standard & Poor's previously announced positive outlook.

Fitch said that "the rapid improvement in Brazil's external balance sheet, notably its shift in 2006 to being a net public external creditor, raises the likelihood of an upgrade over the next two years," that is, "as long as public finances do not deteriorate."

Argentina slips amid allegations of CPI data fixing

While Latin spreads generally remained tight, taking their cue from Brazil, Argentina's were heard to have widened about 2 to 3 basis points to 193 basis points over, pushed wider by the news that president Nestor Kirchner said that his country wants to renegotiate some $6.3 billion of debt it has outstanding with Paris Club creditor countries on "honorable terms," offering to pay off the defaulted debt over the next 10 years.

Kirchner's government has already raised some eyebrows in the debt markets with actions that have produced allegations that the Buenos Aires regime was manipulating inflation statistics for political purposes.

That has caused a retreat in the country's inflation-linked peso bonds, which fell for a second consecutive session. The yield on the bonds due 2033, which rose 6 bps on Monday, was up another 2 bps Tuesday to 5.38%.

On Tuesday, an official from the union that represents employees at the government's statistical institute said that a new director installed last week by Kirchner had prevented them from issuing their usual statistical methods to calculate the January consumer price data, which was released - several hours later than usual - on Monday. He threatened a possible protest strike.

Kirchner has denied that there has been any statistical manipulation, claiming the criticism was politically motivated.

Meanwhile higher oil prices lent a supporting hand to Venezuela, as it helped lead the broader market higher, according to a source.

In trading, the Venezuelan bond due 2027 added 0.55 to 124.50 bid, 124.60 offered.

Among other benchmark names, the Russian bond due 2030 moved up 0.44 to 112.25 bid, 112.56 offered. The Turkish bond due 2030 gained 0.25 to 153.50 bid, 154 offered.

Asia remains steady

In the Asian market, meantime, spreads remained tight and prices firm, as the market awaited pricing later in the week of Indonesia's upcoming issue, which is expected to total at least $1 billion and which could go as high as $2 billion.

Yield guidance was set around 6.875% on the upcoming mega-deal, which was being marketed to potential investors Tuesday with roadshow presentations.

Like the Latin market continuing to react to the positive ratings news about Brazil, the Asian market continued to bask in the warm afterglow of Moody's Investors Service's announcement that it had revised Indonesia's outlook to positive from stable - a move which could help make the upcoming bond issue more attractive.

Overall, the market is expected to tighten, given the absence of U.S. economic data this week to puncture appetite risk moving forward, noted a source.

Furthermore, February has seen a good start, erasing the declines seen in the EMBI index last month.

As one market source noted, "the search for yield is alive and well."

© 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.