Emerging markets assets’ performance ‘very impressive’; Oman does deal; Lat-Am mostly stronger

By Christine Van Dusen

Atlanta, June 29 – Oman sold notes on a strong Wednesday for emerging markets assets, with spreads and recent new issues tightening from reoffer as investors began to adjust to the idea of the United Kingdom leaving the European Union.

“With an official request to leave unlikely to happen before Cameron is stepping down – likely in October – the uncertainty will persist and, for now, it seems that [emerging markets] investors can comfortably live with it,” a London-based analyst said. “This morning, we are seeing [emerging markets] credit tighten a notch further, led by stock markets in the green, higher oil prices, stable U.S. rates and a weaker U.S. dollar.”

Latin American bonds opened stronger on Wednesday, a New York-based trader said, with underperformers from Tuesday playing some catch-up.

Liquid curves, like those from Ecopetrol SA and Cemex SAB de CV pushed higher, he said.

“The negative headlines regarding Cemex were taken by the market with a minimum grain of salt, as it becomes all about yield-searching in fixed assets,” he said, referring to the company’s initial public offering for its Philippines subsidiary. “Clients so far seem to be better buyers.”

Later in the day, bonds from the region were “still humming along,” another New York trader said. “The push higher on the open has leveled off, but that could be just a pause, as accounts recently on the sideline realize they [need to get] involved, to some degree.”

Banks from Colombia made small gains, he said, while banks from Peru were grinding higher.

“Peru corporates, both high yield and high grade, have seen nice gains the last two days, anywhere from one to two points,” he said.

Lat-Am in focus

Credits from Chile were quiet and higher, the New York trader said.

“Pulp and paper curves also doing better, as is retail,” he said. “Energy credits are unchanged to 3/8-point higher depending on the credit and where it was trading prior to the recent risk-on environment.”

Five-year credit default swaps spreads for Brazil closed Wednesday at 319 basis points from 333 bps, and Mexico’s finished at 162 bps from 176 bps, another trader said.

“Cash prices are well-bid throughout the day as an onslaught of buying had this illiquid market gapping higher,” he said. “Lat-Am high yield moves higher on the day, with both Venezuela and Argentina higher, although Venezuela did lag the overall rally in Latin America.”

PDVSA ticks lower, Argentina higher

PDVSA’s 2017s closed at 70.50 from 70, Venezuela’s 2027s finished at 48.50 from 48, and Argentina’s Bonar 2024s were up at 115.50 from 114.25.

Argentina’s 2026s, meanwhile, closed at 109 from 108, the trader said.

“Heavy volumes today with a month-end feel as better buyers came out in full force,” he said.

‘Frenzy’ for Middle East bonds

Looking to the Middle East, the market was an “absolute frenzy,” a London-based trader said.

Qatar’s 2046 closed tighter by 15 bps and International Petroleum Investment Co.’s 2022s were 30 bps tighter.

Abu Dhabi National Energy Co. (TAQA) saw its curve tighten by as much as 25 bps “on very, very solid demand,” he said. “The new 2021 and 2026 were at fresh tights and cash highs.”

Saudi Electricity Co.’s 2043s were 25 bps tighter on the month.

“All told, a very impressive day across the board,” he said. “Serious demand.”

Turkey sees demand

Bonds from Turkey continued to catch a bid, with one-way demand seen for banks and corporates, he said, even after the Tuesday night terror attack that killed at least 41 people.

“Turkey is trading nonetheless tighter – with sovereign credit default swaps around 2 bps to 3 bps and cash around 5 bps – and we note that similar attacks in the past did not impact markets substantially either,” the analyst said.

Said a trader, “The sovereign curve initially couldn’t keep up with the flattening U.S. Treasury, but demand has been coming in for the long-end over the last 24 hours. Interestingly, when talking to investors there is little conviction that Treasuries can hold current levels.”

Also on Wednesday, some market-watchers were questioning the value of emerging markets assets, “given that spreads are heading back to recent tights,” he said. “One thing no one can argue with is the flow, and it’s been one-way buying for now.”

Perhaps, he said, sellers are “sitting on their hands for month-end, or just watching to try and pick the top,” he said. “But for now, replacing risk is not as easy as you would expect, given all the recent global events.”

IPIC, Mubadala could merge

Taking another look at the Middle East, IPIC and Mubadala Development Co. are reportedly considering a merger, the analyst said.

“The merger would combine the forces of two key sovereign funds of similar sizes that are focused on diversifying the income stream in geographic and sector terms,” he said. “So far, IPIC has mainly been invested in energy assets while Mubadala’s scope goes beyond those, with many assets still not in a maturity state yet. The merger would therefore make sense as the combined entity could drive diversification further amid lower oil prices.”

Market sources were also whispering about a possible issue of euro-denominated notes from IPIC.

Oman sells bonds

In its new deal, Oman priced $500 million Islamic bonds due July 14, 2022 with a 3½% coupon, a market source said.

Standard Chartered Bank was the bookrunner for the sukuk.

Other details were not immediately available on Wednesday.

Arcor launches notes

Arcor SAIC launched a $350 million issue of seven-year notes (B1//B+) at 6%, following talk in the 6¼% area, a market source said.

Itau BBA, JPMorgan and Santander are the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used to refinance debt and for general working capital purposes.

The notes are being issued alongside a tender offer that ends July 1.

Arcor plans to finance the tender through the issuance of the new notes.

Arcor is a Buenos Aires-based maker of candy and other foods.

Dominican Republic add-on

Dominican Republic launched a $500 million tap of its 6 7/8% notes due Jan. 29, 2026 at 5.6%, following talk in the 5 7/8% area, a market source said.

Citigroup and JPMorgan are the bookrunners for the Rule 144A and Regulation S deal.

Launch from Marfrig

Brazil’s Marfrig Global Foods SA launched a $250 million reopening of its 8% notes due June 8, 2023 at 7 5/8%, a market source said.

The notes were talked in the 7¾% area.

BB Securities, Bradesco BBI, HSBC, Morgan Stanley and Santander are the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used to repay outstanding indebtedness.

Marfrig is a Sao Paulo-based food processing company.

Burgan Bank taps bookrunners

Kuwait’s Burgan Bank SAK has mandated HSBC, Standard Chartered, National Bank of Abu Dhabi, Emirates NBD and Societe Generale as bookrunners for a possible issue of benchmark-sized bonds, a market sources aid.

Other details were not immediately available on Wednesday.

Burgan Bank is a Sharq-based lender and subsidiary of Kuwait Projects Co. Holding KSC (Kipco).

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