Ecobank, Bulgarian Energy deals to roadshow next week; EM credit spreads slightly tighter

By Rebecca Melvin

New York, June 13 – Two new deals joined the new issue calendar on Thursday for the Central & Emerging Europe, Middle East and Africa region, and spreads were a little tighter in secondary dealings, likely on the back of some investor buying into the weekend. But the market overall remained thin and illiquid, a London-based trader said.

For Latin America, the primary market remained quiet but there was an uptick in appetite across the markets for riskier assets including emerging markets credit, a New York-based sellside source said as well.

In the CEEMEA primary, Africa came into focus again as pan-African banking group Ecobank Transnational Inc. announced a deal of U.S. dollar-denominated notes that will begin roadshow meetings on Monday.

“They may get some traction; we’ll have to see,” the trader said of the new deal going up on the calendar.

Bulgarian Energy Holding EAD, a state-owned electricity and gas company, also announced plans to hold a roadshow next week for an offering of euro-denominated notes. The deal, subject to market conditions, is being floated concurrently with the company’s tender for €500 million of 4¼% bonds due 2018. The deadline for the tender is June 20.

The company plans to finance the tender with the proceeds of the new bonds.

In Latin America, there was no word on Frontera Energy Corp.’s proposed offering of $500 million of five-year notes on Thursday. The Colombia-focused energy company had been scheduled to wrap up roadshow meetings on Wednesday in London.

“They may be waiting for the dust to settle following the central bank decisions,” a source said.

Meanwhile, Telecom Argentina SA has formally pulled its offering of U.S. dollar-denominated notes that had been announced in April, the source noted.

There was a bit of spread tightening starting Wednesday in Mexico, Colombia, Peru, Uruguay and Chile, which are the higher-grade credits in the region. But Argentina was weaker again particularly in the longer end of the curve. There was spread widening and lower pricing for that sovereign. The only bond performing in the Argentina curve is the Argentina 2019 bonds, the source said.

Some of the gains faded by Thursday’s New York session close, but overall there was an uptick in appetite for emerging markets credit, boosted by the outcome of the U.S. and E.U. central bank meetings, which were seen as largely in line or even dovish compared to expectations, the New York-based source said.

U.S. dollar strength remains a specter for the Latin America dollar-bond market going forward, but on Wednesday and Thursday the driving focus was away from the dollar and on central bank policy instead, the source said.

The European Central Bank said Thursday that it would end its bond-buying program in December and that it would hold rates in the eurozone steady until at least summer 2019.

The U.S. Federal Reserve on Wednesday raised its short-term interest rate another 25 basis points to a range of between 1.75% to 2%, and signaled that four rate hikes may be in the cards for this year, not three as previously telegraphed.

Light volumes

Back in CEEMEA, a trader said, “I think people have kind of checked out with the football on.” The comment was made in reference to the soccer World Cup games getting underway in Russia.

Market reaction to the European Central Bank’s policy update could have possibly given a little boost to government bonds, but nothing major,” the trader said.

With the Federal Reserve meeting cleared away without much market angst it looks like some buyers stepped in, but it is difficult to determine why some credits were doing better or worse than others.

“It seems to be just the way people are positioning things, and angling it,” the trader said.

Egypt sovereign bonds were mixed, but slightly better on the long-end of the curve. Iraq and Jordan continue to do okay.

After the Federal Reserve’s positive update on the U.S. economy on Wednesday, the International Monetary Fund warned in a report on Thursday that U.S. President Donald Trump’s import tariffs threaten to undermine the global trading system, prompt retaliatory responses from other countries and damage the U.S. economy.

In its review of U.S. economic policy, the IMF said that the country’s economic growth is expected to be strong this year and next, on the back of tax and spending measures, but that these same measures could cause greater risks from 2020 onwards.

Trump’s imposition of steel and aluminum tariffs on the European Union, Canada and Mexico has resulted in calls for counter measure tariffs, and this will likely dampen national and international investment, interrupt global and regional supply chains and undermine a system that has supported U.S. growth and job creation, according to the IMF.

In addition, the Trump administration’s trade dispute with China remains unresolved. On Friday, the United States is expected to announce revisions to an initial tariff list targeting $50 billion of Chinese goods. China urged Washington on Thursday to make a wise decision on trade, saying it was ready to respond in case Washington chose confrontation.

The IMF forecast that the U.S. economy will grow at 2.9% in 2018 and 2.7% in 2019, which were unchanged from its previous outlook. It also projected slower growth in 2020 at 1.9%.

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