Satmex sells notes on quiet holiday for U.K., Asia, Russia; International Container eyed

By Christine Van Dusen

Atlanta, May 2 - Mexico's Satelites Mexicanos SA de CV (Satmex) sold notes on a Monday that saw risk appetite rise on the news of Osama bin Laden's death, then fall amid concern of terrorist retaliation. These mood swings took place against a mostly quiet backdrop for emerging markets assets, given that it was a holiday for the United Kingdom, Asia and Russia.

"Emerging markets have seen mixed price action in light volumes with several key markets closed in Asia alongside the U.K. bank holiday," according to a report from RBC Capital Markets.

The JPMorgan Emerging Markets Bond Index Plus spread tightened 3 basis points to Treasuries plus 273 bps, with Argentina tighter by 11 bps and Venezuela by 8 bps.

Trading volumes were thin, with no standouts among names in the secondary market, a New York-based trader said.

"It's very quiet today," he said. "Europe and Asia are on holiday so the U.S. never really got on its feet."

Satmex prices bonds

In its new deal, Mexico-based satellite service provider Satmex priced $325 million senior secured notes due May 15, 2017 at par to yield 9½%, a market source said.

The deal priced at the tight end of talk, which was set at 9½% to 9¾%.

The notes include a make-whole call at Treasuries plus 50 bps prior to May 15, 2014. Thereafter, the notes are callable on or after May 15 at 104.75 in 2014, 102.375 in 2015 and par in 2016.

The deal also includes an equity clawback of 35% at 109.5 prior to May 15, 2014.

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

Proceeds will be used to redeem the company's existing first-lien notes and for other funding needs.

International Container eyed

The Satmex deal followed Friday's pricing of Philippines-based port operator International Container Terminal Services' $200 million perpetual notes, which came to market via Citigroup and HSBC at par to yield 8 3/8%, a market source said.

The coupon is set at 8 3/8% for the first 10 years. After year 10 the coupon will be reset over the prevailing five-year Treasury rate plus a 250 bps step-up. The coupon will reset at the prevailing five-year Treasury rate every five years thereafter.

The notes also include a call at par on May 5, 2016 and May 5, 2021 and a change-of-control put at 101%.

The issuer has the option within the first year to convert to senior bullet notes in year 10. The distribution rate will step down 62.5 bps.

The final book for the deal exceeded $800 million from more than 90 accounts, a source said.

About 73% came from Asia and 27% from Europe. Private banks accounted for 54%, funds 34% and banks 12%.

Fifth week of inflows

Emerging markets bond funds took in $461 million during the week ended April 27 - down slightly from the $486 million seen the week before - marking the fifth week that the funds have taken in fresh money, according to a report from data tracker EPFR.

"Investors started coming off the sidelines again during the fourth week of April despite growing evidence of slowing growth in the U.S. and fresh trouble ahead for weaker euro zone borrowers," the report said.

About $403 million of the money flowed into funds with a local-currency mandate, said Cameron Brandt, senior analyst with EPFR.

"That was a shift, because in the previous couple of weeks flows had been fairly even," he said.

Investors are showing a preference for Asian debt, as opposed to Latin American assets, given the situation in conflicted Peru as the election nears.

"There's still definitely an awareness of political risks, so people are still jumping in fairly selectively," Brandt said.

Looking ahead to this week's data, there don't appear to be any catalysts present that will lead to a big bump or drop in inflows, he said.

"We are going into the two-month period where people tend to set up their positions before quietly shifting gears for the summer," he said. "If I had to guess, I'd say we'll have another solid week. We seem to be in a position where there' s an awful lot of money looking for a home, but not enough homes that people are comfortable with."

Bullish stance urged

In response to the current state of funds flows, investors should remain "tactically bullish" on EM, according to a recent report from RBC Capital Markets.

"However, going forward we see a number of potential risks on the horizon, including the uncertain impact of the end of (quantitative easing) over the summer, potential U.S. growth revisions lower ... and further policy tightening in Japan," RBC said.

Taking a closer look at individual emerging markets, Russia's oil prices are underpinning the sovereign's fundamentals, narrowing the fiscal deficit, the report said.

"Look to add on any near-term further spread back-ups," RBC said. "The debut seven-year ruble global bond saw strong demand."

Turkey, meanwhile, is in a strong fiscal and debt position with a healthy banking system and the potential for a credit rating upgrade, RBC said.

That continues "to support historically low spreads," the report said. "But the level of Turkish credit default swaps - with the five-year near 150 bps - offers cheap protection against external risks."

Greece in focus

Also on the market's mind on Monday was Greece, which is seeking more time to repay its emergency loans, a source said.

This comes as officials from the European Union and the International Monetary Fund prepare to evaluate whether the sovereign's current austerity measures are making an effective dent.

Greece's attempt to get more time likely won't help the sovereign dodge further restructuring measures, the source said.

© 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.