Mexico's Pemex, Islamic Development Bank, Turkey price notes; EM bond spreads tighten

By Christine Van Dusen

Atlanta, June 19 - Mexico's Petroleos Mexicanos SAB de CV (Pemex), the Republic of Turkey and Saudi Arabia's Islamic Development Bank priced notes on a Tuesday that saw investor confidence get a boost as the Federal Open Market Committee met to ponder ways to improve the economy.

The committee is expected to extend its bond-buying program, known as Operation Twist, to buoy the United States' faltering economy. That, along with more positive rhetoric out of the euro zone, helped improve the market's mindset and tighten spreads on Tuesday.

"It's been a solid day, with spreads performing again," a trader said.

The Markit iTraxx SovX index spread was at Treasuries plus 303 basis points, near the recent lows.

"Reports today suggest the broader European Union will be more accommodating. That, and EM countries giving more cash to the IMF, is bolstering the mood," he said. "The real action is left to the cash bond market. There has been good buying of all the current in-vogue names."

He pointed to the recent issue of 2019 notes from Dubai's Jebel Ali Free Zone (Jafza), which was up at 103, and Qatar's 2042 bonds, which were quoted at 117.

"Gazprom is also looking to issue, but that's having no impact on secondary spreads," he said.

Against this backdrop, petrochemical company Pemex priced a $1.75 billion issue of 5½% notes due June 27, 2044 at 107.31 to yield 5.53%, or Treasuries plus 280 bps, a market source said.

Barclays Capital, JPMorgan and Banco Santander were the bookrunners for the Rule 144A and Regulation S deal.

"Pemex out of Mexico is taking advantage of solid demand," a trader said.

Latin America moves higher

Other Latin American credit pushed higher on Tuesday morning following Monday's lackluster session, the New York-based trader said.

Standouts included Brazil-based Vale SA's 2022 bonds and the 2021 notes from Brazil-based Petroleo Brasileiro SA (Petrobras).

"Vale and Petrobras paper continue to lag the recent uptick we saw late last week, but they look to be tightening a bit more now," he said.

Volumes improve

Tuesday also saw better performance from Embraer SA's 2022 bonds, Brazil-based Banco Votorantim's 2016 notes and Braskem's 2021 bonds and 2022 bonds.

"Overall, Street volumes have picked up dramatically, to the levels last seen on Thursday," the New York trader said during the late morning. "High-beta paper such as Minerva, Marfrig and Cemex are all better bid."

In other news from Latin America, Chile-based Empresa Nacional del Petroleo's downgrade by Moody's Investors Service put a bit of pressure on the paper, he said.

"But it would seem the downgrade and the reasons for it - elevated financial leverage - didn't surprise too many, as this has been an ongoing theme for the company for a while now."

Hang Lung notes do well

In other trading, Hong Kong-based HPL Finance Ltd. - a unit of real estate company Hang Lung Properties Ltd. - saw its recent issue of $500 million 4¾% notes due 2022 perform well, a trader said.

The notes priced at 98.546 to yield 4.936%, or Treasuries plus 335 bps, via HSBC, Goldman Sachs, Bank of America and Morgan Stanley in a Regulation S deal.

The notes were quoted at 325 bps bid on Tuesday.

Korea Exchange notes perform

Also performing on Tuesday was the recent issue of notes from Korea Exchange Bank. The Seoul-based lender priced $700 million 3 1/8% five-year notes at 99.455 to yield 3.244%, or Treasuries plus 255 bps.

Bank of America, HSBC, ING, KEB Asia Finance, Citigroup and Morgan Stanley were the bookrunners for the Regulation S and Rule 144A deal.

IPIC, Qatar see demand

Looking to the Middle East, demand remained at the long end for names like Abu Dhabi-based International Petroleum Investment Co.'s 2041 bonds and Qatar's 2040 and 2042 bonds.

"Qatar's 2042s are now 35 bps tighter on the month," a trader said. "Long-end Qatar is off to the races. We're seeing 117 prints on the '42s."

IPIC's 2041 bonds were quoted at 112.50 bid, 113.50 offered.

"There's also been good action on Dubai Water and Electricity Authority's 2020s," he said. "They're at 107.375 bid, 107.625 now."

Other names from Dubai were firm again, he said.

Recent laggards get buyers

Even recent laggards Ras al-Khaimah and Bahrain-based BBK saw some buyers on Tuesday.

Ras al-Khaimah's 2014 notes were quoted at 110.62 bid, 111.37 offered while its 2016 notes were seen at 107.62 bid, 108.37 offered.

"As emerging markets balance sheets continue to look a lot cleaner and a lot less messy than Europe or the United States, investors are allocating a larger percentage of their assets and funds to the likes of Qatar or IPIC, which is perfectly logical," he said. "There is a huge opportunity for emerging markets names to issue at the long end to vastly improve their debt profile."

Saudi bank sells notes

In its new deal, Saudi Arabia's Islamic Development Bank priced an $800 million issue of 1.357% five-year sukuk notes at par to yield mid-swaps plus 40 bps, a syndicate source said.

The deal - via Barwa Bank, BNP Paribas, CIMB, HSBC, NCB Capital and Standard Chartered -was upsized from $750 million.

"It's good to see the demand on this AAA-rated name," a trader said. "Does go to show how a new issue can reinvigorate a curve or a name."

He expects a similar story from the upcoming issue from Bahrain.

"I'm kind of expecting the Bahrain issue to do this, even though I find it a little strange to issue a new bond so close, tenor-wise, to a bond already trading at 99.25 bid, par offered, with the Bahrain 2020s," he said.

Turkey prints bonds

Turkey priced a $1 billion add-on to its 6% notes due 2041 to yield 5¾%, a market source said.

Deutsche Bank, Goldman Sachs and Morgan Stanley were the bookrunners for the deal, according to a Securities and Exchange Commission filing.

Proceeds will be used for general financing purposes, which may include the repayment of debt.

The original issue was $1 billion and came to the market on Jan. 12, 2011.

Aleesia Forni contributed to this article.

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