Pacific Rubiales, Odebrecht eyed; liquidity thin, pressure for Ukraine; flows more active

By Christine Van Dusen

Atlanta, Oct. 17 – Investors on Friday were keeping an eye on Colombia-focused Pacific Rubiales Energy Corp., which announced it will jointly explore business opportunities with Mexico’s Petroleos Mexicanos SAB de CV (Pemex).

Pacific Rubiales’ curve climbed 4 basis points on the news that the oil and gas company had entered into a three-year agreement with Pemex to discuss and analyze potential oil and gas cooperation in Mexico, a New York-based trader said.

“The [Pacific Rubiales] curve is flying on the news, combined with a nice, healthy dose of short-covering,” he said.

By entering the Mexican energy market, Pacific Rubiales could increase its daily output from 330,000 barrels to 700,000 barrels, according to published reports.

The curve dropped back about ¾ point as Friday rolled on, but high-grade credits from Latin America were mostly tighter and firmer overall, he said.

In particular, corporate notes from Mexican issuers improved, and offers became thin on some credits, he said.

“[Cemex SAB de CV] looks like it turned the corner and is up,” he said. “I expect it to run even higher.”

Still, some high-grade bonds from Brazil continued to lag, he said, pointing to names like Odebrecht SA.

The builder was in the spotlight on Friday following accusations that it was part of a cartel that overcharged for projects and diverted money. The cartel was also said to have attempted to bribe Petroleo Brasileiro SA in order to win contracts.

In response, Odebrecht bonds were mostly flat and didn’t firm up like other Latin American names, a trader said.

Ukraine bonds under pressure

In other news, sovereign bonds from Ukraine remained under pressure amid thin liquidity at the end of the week, said Svitlana Rusakova of Dragon Capital.

“With buyers reluctant to add risk, it seems even minor selling interest can move the market lower,” she said. “The market is awaiting more clarity on the prospects for resolving the conflict in Eastern Ukraine, with today’s Poroshenko-Putin meeting possibly providing some clues.”

The early part of the talks between the presidents of Russia and Ukraine did not bring the countries closer to resolving the crisis, though. Talks were expected to continue on Friday, but market sources did not expect the leaders to be successful in bolstering the ceasefire agreement or solving a gas pipeline dispute.

Middle East in focus

From the Middle East, bonds closed at about the same levels as on Tuesday, a London-based trader said.

“Flows are today were pretty active for a Friday, with some position re-jigging and investment-grades across this part of the world retaining a solid bid,” he said. “Some high-yield paper is still around, but even that came back a tad into the close.”

Investors were fairly active in bonds from Kuwait and Dubai’s Damac Real Estate Development Ltd. The latter issuer’s notes have widened as much as 65 bps.

“Sabic Capital’s 2020 euro notes traded very well,” he said. “This one has been such a good little bond.”

Dar al Arkan Holdings’ notes were 35 bps wider, he said.

“Active, tiring and busy week,” he said. “Two more weeks of what has already been a very eventful month.”

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