Abu Dhabi Crude Oil Pipeline deal adds after initial drop; Inkia Energy on the road

By Rebecca Melvin

New York, Oct. 27 – Abu Dhabi Crude Oil Pipeline LLC’s newly priced dollar notes traded up on Friday after an initial dip following the company’s pricing of $3.04 billion of the senior notes in 12-year and 30-year tranches, a London-based market source said.

The new Abu Dhabi 3.65% notes due 2029 dropped below issue price before moving up to 99.90 bid, 100.5 offered.

The new Abu Dhabi 4.6% notes due 2047 also traded below their issue price first, before moving up to 100.5 bid, 101.25 offered.

The Abu Dhabi pipeline bonds saw strong demand from investors because it is very close to the credit of Abu Dhabi and a crucial entity for the government, a market source said.

Also new to the market on Friday was Celulosa Arauco y Constitucion SA’s newly priced $900 million of senior notes in 10-year and 30-year tranches. But those notes were not heard in trade on Friday.

The $500 million 2027 notes priced with a 3 7/8% coupon to yield Treasuries plus 160 basis points, and the $400 million 2047 notes priced with a 5˝% coupon to yield Treasuries plus 255 bps.

Venezuela in focus

Proceeds are being used to buy back portions of three series of notes of the Chilean wood pulp company.

Elsewhere in the market, Venezuela and Petroleos de Venezuela SA rallied in the secondary market after PDVSA, the state-owned oil company, announced it had made an $842 million amortization payment on its 2020 notes. While investors didn’t necessarily have the money in hand, investors trust that the payment would be arriving within days, a New York-based analyst said.

“The payment process is going to take longer now than it did before sanctions, and bondholders understand and are more tolerant,” the analyst said.

The PDVSA 2020 notes traded up to 85.25 bid, 86.25 offered after opening Friday at 81.5 bid, 82.5 bid and up from the upper 70s on Thursday.

From the lows, the 2020 note had moved up 6 or 7 points, a New York-based trader said.

Optimism over the payment and the belief that it now looks likely that PDVSA will pay its upcoming maturity – and together with the sovereign will pay a smattering of coupons due as well – caused the whole curve to surge.

“This implies that they are going to make the maturity. They would be stupid to make this payment and in a few days miss $1.2 billion,” the analyst said.

A trader said that the rally “took up my entire day,” forcing him to ignore other things going on in the market like new issues.

Most of the paper along the entire curve was up 3 points to 4 points, the trader said.

The Venezuela 2019 bond was an outperformer, jumping 4 points to 5 points, or about 10%, to 48.5 on Friday.

After the 2017 bonds are repaid next month, there will be a reprieve of several months in which no payments will be due. “During that short period bond prices will have room to climb higher,” the analyst said.

But Venezuela’s fiscal challenges are not over. Nevertheless, the nation’s oil exports to the U.S. have been declining steadily, and without that revenue from those exports, debt payments will remain difficult, the analyst said.

The most recent level of oil exported to the United States was the lowest level in the past two years at 350,000 barrels a day, which is down by more than half from 800,000 barrels a day.

U.S. refiners have been shifting their oil purchasers away from Venezuela to nations like China, India and Russia. Even though the distance is much longer, it is getting increasingly difficult to get credit from the U.S. for Venezuelan oil, the analyst said.

Other deals on tap

Back in primary market action, market players eyed the announcement that JSC NC Kazakhstan Temir Zholy may price a dollar benchmark following a series of investor meeting arranged by JPMorgan, Renaissance Capital, Halyk Finance and MUFG, and Inkia Energy Ltd. began meetings on Friday for a proposed offering of 10-year senior notes being arranged by Citigroup, Scotia and Credit Suisse.

Meanwhile, the Republic of Argentina has scheduled fixed-income investor meetings next week for planned issuance of euro-denominated bonds in two tranches.

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