Primary hosts Argentina, Halkbank; EM pauses, then finishes mixed; ‘rollercoaster so far’

By Christine Van Dusen

Atlanta, June 30 – Argentina and Turkey’s Turkiye Halk Bankasi (Halkbank) sold notes on Thursday as emerging markets assets at first took a breather and then finished the session mixed, in many cases unable to keep up the previous day’s momentum.

“After yesterday’s rip, the market looks to be taking a pause on the open today,” a London-based trader said. “Turkey and [Middle East and North Africa] cash prices are a touch softer, and spreads a few basis points wider. Can’t say I’m surprised, given the stellar run the market has had since last Friday’s open.”

Performance for most emerging markets assets was “a mixed bag,” driven by weaker currencies, a London-based analyst said.

Investors went into the Brexit vote light on risk, he said, “so we have seen a bit of a perfect storm into today’s month-end,” he said. “Supply and demand is, as always, the biggest driver in the market.”

Looking to Latin America, some bonds were slightly lower at the open on Thursday but improved as the session went on, a New York-based trader said.

Emerging markets credit, overall, continues to trade at rich levels, the analyst said, even as uncertainty about the global outlook has increased since the United Kingdom’s vote to leave the European Union.

Said a trader, “The first half of 2016 is done, and it’s been a rollercoaster so far. The summer lull is on the horizon, so watch for another liquidity trap.”

But do not worry too much, another trader said.

“I do not think EM is about to blow up, especially given continuing inflows, but another leg tighter looks challenging, for now,” he said. “It's a game of patience, and buying the dip.”

Lat-Am tightens

At the end of the session, Latin American paper was tighter and higher as a “month- and quarter-end buying bonanza” ate up paper, a New York-based trader said.

Brazil’s five-year credit default swaps spreads finished the day at 315 bps from 319 bps after trading as tight as 311 bps, and Mexico’s finished at 157 bps from 162 bps.

“Cash prices jump with U.S. Treasury strength and spread-tightening helping to boost levels, especially in the long end,” he said. “Latin American high yield finishes mixed on the day, with Venezuela underperforming on oil weakness.”

Venezuela’s 2027s were unchanged at 48.50, and PDVSA’s 2017s closed at 70.25 from 70.50, he said.

High yield mixed

Argentina’s Bonar 2024s jumped to 116.50, while the 2026s dipped to 108.50 from 109, the New York trader said.

“Volumes were very heavy, with month- and quarter-end buying being the dominant theme of the day,” he said. “The remainder of week should be on the quieter side, with the long weekend approaching and an early close tomorrow.”

Two tranches from Argentina

Argentina launched a two-tranche issue of $2.75 billion notes due in 12 and 20 years, a market source said.

The $1 billion notes due 2028 launched at a yield of 6 5/8%, following talk in the 6¾% area.

The $1.75 billion notes due 2036 launched at a yield of 7 1/8%, after talk in the 7¼% area.

BofA Merrill Lynch, Credit Suisse, Deutsche Bank and Morgan Stanley were the bookrunners for the Rule 144A and Regulation S deal.

The sovereign was expected to price the notes late Thursday.

Halkbank sells bonds

In its new deal, Turkey’s Halkbank priced $500 million 5.05% notes due July 13, 2021 notes at 99.781 to yield 5.05%, or Treasuries plus 402.5 bps, an informed market source said.

The notes were initially talked at a yield in the 5.3% area.

Citigroup, Goldman Sachs, HSBC and Unicredit were the joint global coordinators and, along with Bank ABC and Emirates NBD, the bookrunners for the Rule 144A and Regulation S deal.

“Halkbank bonds trade as the widest among the major Turkish banks,” a London-based analyst said. “While Halkbank’s are solid, investors are wary about the combination of quick loan growth, the focus on [small- and medium-sized business] loans and potentially state-directed lending. Moreover, the spread differential to other banks has widened in the past due to headline risk.”

He was referring to the March arrest of a trader who allegedly violated sanctions in Iran and bribed Halkbank’s former chief executive officer.

“Nonetheless, there are no investigations on Halkbank’s role,” the analyst said. “We do not expect so either in the foreseeable future, but further headlines could affect spread levels.”

Marfrig prices notes

On Wednesday, Brazil’s Marfrig Global Foods SA priced a $250 million reopening of its 8% notes due June 8, 2023 at 101.505 to yield 7 5/8%, a market source said.

The notes were talked in the 7¾% area.

BB Securities, Bradesco BBI, HSBC, Morgan Stanley and Santander were the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used to repay outstanding indebtedness.

Marfrig is a Sao Paulo-based food processing company.

Issuance from Arcor

Arcor SAIC priced a $350 million issue of 6% notes due July 6, 2023 at par to yield 6%, following talk in the 6¼% area, a market source said.

Itau BBA, JPMorgan and Santander were the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used to refinance debt and for general working capital purposes.

The notes were being issued alongside a tender offer that ends July 1.

Arcor plans to finance the tender through the issuance of the new notes.

Arcor is a Buenos Aires-based maker of candy and other foods.

Dominican Republic sells bonds

Dominican Republic printed a $500 million tap of its 6 7/8% notes due Jan. 29, 2026 at 5.6%, following talk in the 5 7/8% area, a market source said.

Citigroup and JPMorgan are the bookrunners for the Rule 144A and Regulation S deal.

Other details were not immediately available on Thursday.

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