Emerging Markets: Taiwan Semi, IsDB sell $1 billion plus notes; Russia corporates under stress

By Rebecca Melvin

Concord, N.H., April 22 – A handful of notable emerging markets bond deals priced this past week as investor concerns mounted about the implications of the war in Ukraine, rising inflation, higher borrowing costs and slipping global growth forecasts. Several Russian corporate issuers cited sanctions imposed in response to Russian aggression for cutting off their ability to service debt or do business.

The primary market investment-grade space saw some activity. A subsidiary of Taiwan Semiconductor Manufacturing Co. Ltd. sold $3.5 billion of notes (Aa3/AA-) in four parts on Tuesday, including five-, seven-, 10- and 30-year notes.

Philippines’ Asian Development Bank sold $4 billion of notes on Wednesday, including $3 billion of 2 7/8% three-year notes and $1 billion of 3 1/8% 10-year notes. The tranches priced at SOFR mid-swaps plus 22 basis points, or alternatively at Treasuries plus 12.625 bps, and SOFR mid-swaps plus 47 bps, or at Treasuries plus 26.95 bps, respectively.

Islamic Development Bank sold a $1.6 billion five-year sukuk, or Islamic bond, (expected ratings: Aaa/AAA/AAA) on Thursday. The Jeddah-based lender priced the deal to yield SOFR mid-swaps plus 50 bps, according to a market source. Pricing was tightened from guidance of SOFR mid-swaps plus 55 bps area and initial talk of SOFR mid-swaps plus 60 bps area.

Korea Mine Rehabilitation and Mineral Resources Corp. (Komir) issued on Wednesday $425 million 4 1/8% five-year notes (A). The public mining company plans to use proceeds for general corporate purposes, including to repay maturing debt.

McDonald’s restaurants franchisee, Arcos Dorados Holdings Inc., based in Uruguay, priced $350 million of 6 1/8% sustainability-linked senior notes due 2029, according to a company news release on Thursday.

The notes were issued by subsidiary Arcos Dorados BV. They include sustainability performance targets associated with the company’s commitments to reduce greenhouse gas emissions by 36% in its restaurants and offices and by 31% in its supply chain by 2030.

There were outflows from EPFR-tracked emerging markets bond funds for the week ending April 20, with those funds recording their 14th outflow in the 16 weeks year-to-date as the yield on 10-year Treasuries hit a three-year high of 2.91% and Germany’s benchmark two-year note offered its highest return in eight years.

Asia Pacific bond funds were the only major geographic group to post an inflow during the week ending April 20. The inflow was amid critical food shortages in Sri Lanka and International Monetary Fund discussions with a delegation from that country about a potential IMF loan program. Other emerging markets countries vulnerable to the same pressures as increasingly expensive imported food compete with funding needed to service debt are Egypt, Pakistan and Tunisia.

A significant cut to global growth expectations from the World Bank, paired with March weakness in China’s most recent economic numbers, also weighed on markets.

The World Bank cut its global growth forecast for 2022 by nearly a full percentage point due to the impacts of Russia’s invasion of Ukraine. The organization now expects economic growth of 3.2% this year, down from a prior 4.1% forecast.

China also reported that its economy slowed in March as consumption, real estate and exports were hit hard, worsening an outlook already weakened by Covid-19 curbs and the Ukraine war.

Among Russia corporate and commodity players in the news this past week, Alfa Bank JSC missed an interest payment due April 14 due to legal and regulatory obligations of the principal paying agent, according to a notice.

The bank was paying interest on the $8.5 million of 5.95% loan participation notes due 2030 (ISINs: XS2080273878, XS2063279959) issued by Alfa Bond Issuance plc for the sole purpose of loaning the proceeds to Alfa Bank.

Russian fertilizer company Uralkali asked noteholders to identify themselves for discussions relating to the interest payment due on April 22 for its $500 million 4% loan participation notes due 2024 (ISINs: XS2010040397, US91689LAA89), according to an announcement.

The company said noteholders should contact its treasury team as soon as possible at Treasury@uralkali.com.

The company is making its best efforts to ensure steady servicing of its debt.

Uralkali said it has sufficient liquidity to meet its upcoming payment obligations, but due to regulatory constraints the company is exploring alternative options for making the upcoming payment.

Mercury International Funding DAC said an interest payment due on RUB 4 billion 9.4% series 2 notes due 2030 (ISIN: XS2264174785) has not been paid due to legal and regulatory restrictions on the borrower, Arkada Holding LLC.

The notes were issued under a $300 million guaranteed note issuance program by the issuer on a limited recourse basis for the sole purpose of financing a loan to the borrower.

Mercury said it continues to liaise with the wholesaler and distributor of motor vehicles based in Russia regarding the payment that was due April 4.

Mercury is a special purpose finance company based in Dublin that invests in securities of companies located in emerging markets.

Fitch Ratings said in a report March 11 the escalating sanctions regime may impose insurmountable barriers on many corporates’ ability to make timely payments on foreign- and local-currency debt to certain international creditors.

London-listed, Russian gold producer Petropavlovsk plc said Wednesday it is working with advisers regarding the implications of its lender Gazprombank seeking immediate repayment of amounts due under its credit facilities.

The company said it has received notices from the Russian lender requiring immediate repayment of $201 million, which includes interest, due under a committed term loan and repayment by April 26 of about $87.1 million due under the group’s subsidiaries’ revolving credit facilities.

In an April 14 update, Petropavlovsk said it was unable to make the interest payment due on the term loan and that it cannot make Gazprombank an off-taker of 100% of the group’s gold production, which is a condition of its revolving credit facilities and term loan.

Taiwan Semi note tranches

TSMC Arizona Corp., a wholly owned subsidiary of Taiwan Semiconductor priced the following:

• $1 billion of 3.875% five-year notes at 99.829 to yield 3.913%, or Treasuries plus a spread of 100 bps. Initial price talk was Treasuries plus 120 bps area;

• $500 million of 4.125% seven-year notes at 99.843 to yield 4.151% or a spread to Treasuries of 120 bps. Initial price talk was Treasuries plus 137.5 bps area;

• $1 billion of 4.25% 10-year notes at 99.742 to yield 4.282%, or a spread over Treasuries of 135 bps. Initial price talk was Treasuries plus 155 bps area.; and

• $1 billion of 4.5% 30-year notes at 99.771 to yield 4.514%, or a spread over Treasuries of 150 bps. Initial price talk was Treasuries plus 175 bps area.

Goldman Sachs & Co. LLC was global coordinator and bookrunner along with J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Standard Chartered Bank.

The semiconductor manufacturer is based in Hsinchu, Taiwan. TSMC Arizona was incorporated in November 2020 and is expected to be primarily engaged in the manufacture and sale of integrated circuits. The subsidiary plans to spend around $12 billion from 2021 to 2029 to build and operate an advanced semiconductor manufacturing facility in Phoenix. Commercial production is expected to start in 2024.

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