Emerging market debt pressured by oil, equities; Vitro sells $1 billion of notes

By Reshmi Basu, Paul Deckelman, and Paul A. Harris

New York, Jan. 25 - Emerging market debt succumbed to weaker U.S. equities and lower commodity prices but new issues continued to see high demand.

In the primary market, Mexican glass-manufacturer, Vitro SAB de CV, priced an upsized $1 billion two-part offering of senior notes (B2/B).

The deal was doubled in size from the originally planned amount of $500 and increased at pricing from the $750 million it had been raised to earlier in the week.

The company sold a $300 million tranche of 8 5/8% five-year notes at 99.008 to yield 8 7/8%, on top of price talk which had been lowered from 9%.

Vitro also priced a $700 million tranche of 9 1/8% 10-year notes at 98.40 to yield 9 3/8%, again on top of price talk which had been tightened from 9½%.

Morgan Stanley, Credit Suisse and Lehman Brothers were joint bookrunners for the Rule 144A with registration rights and Regulation S transaction.

Also on Thursday, two banks priced deals.

Out of Kazakhstan, JSC Alliance Bank sold €750 million of five-year fixed-rate notes (Ba2//BB-) at 99.251 to yield 403.3 basis points over OBL government bonds.

HSBC and UBS managed the Regulation S sale, which was issued via ALB Finance BV, a Netherlands-based special purpose vehicle.

From Ukraine, Privatbank placed a $500 million issue of five-year bonds (Ba3//B) at par to yield 8%.

The issue priced at the tight end of price guidance, which was set in the area of 8% to 8¼%.

The deal makes sense for diversification purposes and for buy-and-hold investors since Ukrainian bank paper is rare in the market, according to a source.

However, the bonds are unlikely to move higher, given the absence of any near-term catalysts to push them up.

The book size was more than $650 million.

UBS was the bookrunner for the Regulation S transaction

And on the sovereign side, Argentina sold an additional $500 million of dollar-denominated Bonar VIII bonds due 2013, which were priced to yield 7.71%.

New issues in the secondary

Overall, new issues this week have been easily absorbed as investors remain hungry for new paper.

Wednesday's deal from Turkey was described as a great deal, especially given the poor execution of the previous re-openings earlier this year, according to a market source.

In Wednesday's session, the country sold €1.25 billion of 12.25-year global bonds (Ba3/BB-/BB-) at 99.106 to yield mid-swaps plus 168 basis points.

This is also the largest non-dollar transaction for Turkey.

The deal has helped add liquidity to the long-end of the curve, noted the source, adding that the large euro transaction will help fund a significant part of the euro redemptions scheduled for 2007.

The order book closed heavily oversubscribed at €2.5 billion with 132 accounts participating. By investor type, 53% went to banks, 30% to managed funds, 14% to insurance companies and 3% to others.

By geographic breakdown, Turkey grabbed 29%, followed by the United Kingdom with 26%, Switzerland and Italy each took 9%, Holland and the United States each nabbed 4% while Germany, Denmark, Ireland, and Singapore each took 3% and 7% went to others.

Meanwhile the new Vitro deal "traded well in the gray and after the break, but finished off its highs," according to a Latin American corporate trader.

The new 2017 benchmark bond traded as high as 101.75 and closed at 100.625-101.125, all up from an issue price of 98.40.

Latin American corporate names "in general were pretty heavy today [Thursday], even a couple of new issues from the last couple days traded off a bit today [Thursday]," added the trader.

In the Brazilian corporate secondary, meat exporter Independencia Alimentos saw its new 2017 notes close at 99.50 bid, 100 offered, slightly above Wednesday's issue price of 99.221.

Electricity company ISA Capital's new 2017 bonds closed at 103 bid, 103.50 offered, considerably stronger than Monday's issue price of 100.

Another beef exporter Minerva saw its 2017 notes (/B/B+) close at 98 bid, 98.50 offered, slightly above last Friday's issue price of 97.646.

Elsewhere private equity firm GP Investments, Ltd.'s perpetual bonds closed at 99 bid, 99.50 offered, down from last Thursday's issue price of 100.

EM softer on sliding commodities, equities

Emerging market debt dipped Thursday on declining commodity prices and softer equities.

At the end of the session, the JP Morgan EMBI Global index was down by 0.35% while spreads had narrowed by two basis points - underpinned by the sell-off in U.S. Treasuries.

In a rare occurrence of late, Ecuador was the session's best performer while Venezuela surfaced as Thursday's loser on weaker oil prices.

Year-to-date, the EMBI Global index is posting negative returns.

A trader in Latin American debt said that after several sessions in which paper in that market outperformed U.S. Treasuries, with spreads hanging in at historically tight levels, the market "gave up a little more today [Thursday]," and EMBI+ spreads widened out a little - although "it's still looking very expensive."

The trader added that "we've had a big move in Treasuries over the last few days [with sovereign spreads tightening as Treasuries retreated], so it was sort of logical that we would give it up, at some point."

Latin sovereign debt still trades at very tight spreads against U.S. government paper, though, with the new Brazilian bonds sold Wednesday around 173 basis points off Treasuries, the average Brazilian spread at 184 bps, and Argentina's bonds, on average, at 189 bps over.

The new $1 billion Vitro corporate deal was a focal point in a Latin market where not much else was happening on Thursday.

"It definitely obviously came very cheap, and traded up a bunch from the start," the trader said, "then it seemed to slow down a little bit. It looked like people viewed it as having come very cheap, so it looks like it was pretty well oversubscribed."

Back among sovereign issues, this market source saw nothing going on with Venezuela, beyond "a series of totaling competing, or conflicting statements from one of the senior officials as to whether they considered Ford or GM plants as nationalized - belonging to the government or not," in the wake of recent remarks by president Hugo Chavez that he intends to turn his country into a socialist state and will nationalize such large foreign-owned concerns as the electricity and telephone providers in order to do so.

"But I think that was viewed in the market more as comic relief. The comments made by Venezuelan government officials are so hard to read these days that you don't quite know exactly how much to believe."

The trader said there was no market response to Brazil's quarter-point interest rate cut, which the trader said was "so well projected, or anticipated, that everybody had pretty much bought on the rumor, so it wasn't too much of a surprise.

"I think the bigger worry is where U.S. rates are going - and does that mean that these countries can't keep cutting [rates] as much as they've been?" the trader warned.

Rumors of Philippine upgrade

In Asia, things were quiet - although market participants speculated on whether - or when - Philippines sovereign debt, which has been junk rated for years - may be upped to investment grade.

The latest development on that front was a report by the Singapore-based investment bank DBS, which declared in a new research report that "frankly an upgrade in the Philippine sovereign rating is long overdue." It cited the Manila government's success of late in reducing its budget deficit and its debt load.

"The government has fulfilled the requirement set by ratings agencies to raise government revenue as a percentage of GDP," the report said.

Moody's Investors Service currently rates the sovereign debt at B1, Standard & Poor's at BB- and Fitch Ratings at B+.

© 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.