EM debt weaker as rand dips; Barbados tanks on default; Slovak Republic, ICBC pricing

By Rebecca Melvin

New York, June 5 – Emerging markets debt was a little weaker with spreads wider on Tuesday amid more currency woes and even though U.S. Treasury yields have come in some, a market source said.

Problems hit the South African rand, with that currency dropping to a two-week low on Tuesday and pushing the level to 12.77 to the dollar after data showed the economy suffered a contraction in the first quarter.

South Africa’s economy shrank by 2.2% in the 2018 first quarter, with the most significant falls in agricultural, manufacturing, and mining. South Africa bonds also weakened, and stocks were flat.

Trouble seems to be popping up one after another, the market source said regarding issues that prevent the emerging markets debt space from recovering. Problems began in the second half of April with the strengthening dollar with first the Turkish lira dropping sharply and then the Argentine peso. Last week investor worries over Italian and Spanish bonds sent more tremors though the space.

Other bad news that seems largely contained due to the small amount of dollar debt affected is the Barbados default that sent its three U.S. dollar-denominated bonds down to distressed levels in the past two days.

The country’s new prime minister announced that the government will suspend all external debt payments and asked both external and domestic creditors to cooperate in restructuring.

The sovereign 7¼% notes due 2021, of which there is $150 million outstanding, were reported to have changed hands at as low as 36 from about 92 last week.

Barbados also has $200 million of 7% notes due 2022 and $190 million of 6¾% notes due 2035. Stifel emerging markets analyst Victor Fu said the bonds were trading sporadically and that the level was about 43 bid, 46 offered. Fu estimates a recovery value of 22% to 30% due to the country’s extremely high existing debt burden to GDP.

Meanwhile, the Slovak Republic was able to set final terms for 10- and 50-year notes that were well tight compared to initial talk and guidance.

Final terms for the 10-year note was set at mid-swaps plus 10 basis points, from guidance of mid-swaps plus 15 bps and initial price talk of 20 bps area.

The final terms for the 50-year note was guided to mid-swaps plus 80 bps from guidance of mid-swaps plus 90 bps and initial talk of 90 bps to 95 bps.

The order book stood at €3.6 billion for the 10-year notes and at €1.7 billion for the 50-year notes at the time final terms were set.

The deal was initially expected as a single tranche of 10-year notes, but investors were also queried during marketing regarding a potential 50-year issue.

Barclays, Citigroup, Erste Group and Raiffeisen Bank International Group are joint lead managers and joint bookrunners of the Regulation S deal.

In Latin America, Frontera Energy Corp. joined the calendar. The crude oil and gas company focused in Latin America is starting a roadshow for a $500 million offering of five-year senior notes which will run through the middle of next week.

Frontera joins two other deals that have been announced and are the calendar, and market players are keeping a careful eye on them to see if and how they will be completed.

These deals will give an indication on what the sentiment is. There have been no new deals lately to serve as a gauge. The last one was two weeks ago when Hunt Oil of Peru priced, a New York-based source said.

“The market we are in is not exactly the best,” the source said.

When the market is more stable, there will be more trades. There is quite a big pipeline, the source said.

Out of Asia, Industrial and Commercial Bank of China Ltd. through its London branch guided pricing on a triple tranche of U.S. dollar-denominated three- and five-year floating-rate note benchmarks and a euro-denominated benchmark of three-year floating rate notes, according to a syndicate source.

Pricing on the dollar three-year floating rate note was guided to Libor plus 100 bps area. The dollar five-year floating-rate note was guided to Libor plus 110 bps area, and the euro three-year floating-rate note was guided to mid-swaps plus 70 bps area.

© 2015 Prospect News.
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