Venezuela’s PDVSA, Brazil flat to higher as political questions persist; banks in Turkey find buyers

By Rebecca Melvin

New York, May 31 – Venezuela remained a focus of investors of Latin America debt on Wednesday, with pricing flat to higher despite lower crude oil prices.

Brazil’s sovereign debt also edged higher as optimism over reforms continues to buoy that market despite some market experts who say reforms will be delayed or possibly not even take place.

PDVSA (Petroleos de Venezuela SA)’s 8˝% notes due 2017 were up around 91˝, which is up from about 90Ľ previously, according to one market source. A second source put the bond at 91.1 yielding 32.75%.

PDVSA’s bonds, which are quasi-sovereign bonds, and Venezuela’s sovereign bonds jumped on Tuesday after news that Goldman Sachs Group Inc.’s asset management group purchased $2.8 billion of PDVSA bonds last week, paying about $865 million for the paper.

Local politicians pushed back on the bank as officials opposed to president Nicolas Maduro’s administration have recently asked international financial institutions to avoid any transactions that might help a government accused of human-rights abuses.

Brazil’s sovereign bonds were also seen edging higher on Wednesday, with the Brazil 6% notes due 2026 indicated at 108.45 bid, 108.8 offered, up from 108.25 bid, 108.6 offered on Tuesday, according to a market source.

Most of Brazil’s sovereign paper was indicated up between 0.2 point to 0.3 point, but some remained unchanged day over day.

“If you take a look at this market, the banks are bullish, buying the story that the government can deliver on reforms, but our view is different: we think reforms will be delayed and that there is serious risk of reforms not occurring at all,” New York-based Natixis economist Juan Carlos Rodado told Prospect News.

The reforms imply tightening the budget, and controlling expenditures on social security and pensions. But given the current political climate, congress is going to be reluctant to pass the initiatives. “Reforms might disappoint,” Rodado said, and at best there will be diluted social security reform.

Without social security reform, Brazil’s economic picture is bleak. While Brazil’s economy has improved in the last year, going from negative 3.6 gross domestic product growth in 2016 to 0.5% in 2017. And inflation is down as well, so there are positive signs. But social security must be reformed to make the improvements sustainable, Rodado said.

Debt linked to social security is on the rise. Currently debt is 72% of GDP, up from 56% of GDP in 2014, Rodado said. By way of comparison, Mexico’s level of debt is 48% of GDP, and Colombia’s public debt is 55% of GDP.

“If you want to make debt sustainable, you have to make reforms,” Rodado said.

Brazil sovereign CDS was quoted at 236 basis points, which is down from a wide mark of 272 bps on May 18, which was the peak of the political crisis surrounding the corruption scandal swirling around president Michel Temer.

Temer was accused of accepting bribes from meatpacking company JBS SA, but he has denied wrongdoing.

JBS has admitted to giving about $150 million in bribes and other favors to Brazilian politicians.

In the Middle East, trading flow looked to be linked for the most part to month-end alignment, with offers wanted in the same bonds from multiple investors.

Turkey’s sovereign CDS is now firmly back below 200 bps, and bank paper saw buyers, including “a little two-way flow” in the bonds of Turkiye Vakiflar Bankasi TAO (Vakifbank) 2022 notes, as well as in Turkiye Garanti Bankasi AS 2023 notes and Finansbank AS’s notes of 2022.

In Kazakhstan, SB JSC Home Credit and Finance Bank sold KZT 10 billion of 15% three-year bonds at a price of 99.9928 to yield 15%.

Tsesna Capital and Bank CenterCredit subsidiary BCC Invest are arrangers for the issue.

The deal was oversubscribed; orders were received for KZT 12.27 billion of bonds.

The Almaty, Kazakhstan-based bank had said it plans to use the proceeds from the bond offering to finance its lending activities.

Elsewhere, Russia’s OJSC MMC Norilsk Nickel said it is planning to offer dollar-denominated five-year eurobonds, a market source said. Mizuho, Citibank, Societe Generale, VTB Capital, Sberbank, ICBC and Gazprombank are joint bookrunners for the deal, which comes on the heels of Norilsk’s $1 billion of 4.1% six-year notes priced in April.

MMC Norilsk Nickel is a Moscow-based mining and metallurgical company.

And in Africa, Ivory Coast said it intends to offer dollar- and euro-denominated bonds as part of a tender offer via BNP Paribas, Deutsche Bank, JPMorgan, Natixis and Standard Chartered are the bookrunners for the deal.

The tender offer is for up to $250 million of the sovereign’s outstanding 5 3/8% notes due 2024 and up to $500 million of its outstanding dollar-denominated step-up bonds due 2032.

© 2015 Prospect News.
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