Odebrecht executive’s arrest hurts bonds; Pacific Rubiales eyed; Lifestyle sets talk

By Christine Van Dusen

Atlanta, June 18 – While many emerging markets bonds took a break on Friday from the week’s rampant volatility, corporate notes from Brazil took a beating on the news that the chief executive officer of Odebrecht SA had been arrested in connection with the corruption scandal that ensnared Petroleos Brasileiro SA.

Odebrecht’s notes dropped 10 points in the morning and then recovered some of those losses later in the day, while credit default swaps spreads for the sovereign widened to 240 basis points from 233 bps.

The chief executive of construction company Andrade Gutierrez SA also was arrested, which hurt the company’s 2018 bond, a trader said.

In other trading from Latin America, cash prices moved higher for many bonds in response to the rally in U.S. Treasuries, a New York-based trader said. But flows remained light, as is typical on a summertime Friday.

High-yield names from the region were mixed, with Argentina moving lower and Venezuela and PDVSA mostly unchanged to slightly higher, he said.

Meanwhile, Asian credits on Friday morning held on to the previous afternoon’s bounce, with investment-grade bonds finishing the volatile week unchanged on the day.

“Client flow returned, post-Federal Open Market Committee, with real-money buyers, while Greece concerns kept most sidelined,” a London-based analyst said.

Bonds from China were about 10 basis points wider on the week, he said.

“Korea and Malaysia are unchanged, and India is 10 bps to 15 bp wider as corporates leaked without support,” he said.

Ukraine mostly unchanged

From Ukraine, bonds entered the end of the week mostly unchanged as investors “generally lack conviction in the absence of new headlines and while guessing continues as to the forthcoming coupon on the Russian-held bond,” said Fyodor Bagnenko, a fixed income trader with Dragon Capital.

Long-end notes managed to edge higher, he said, while quasi-sovereign banks strengthened about ˝-point.

Pacific Rubiales in focus

Latin America-focused Pacific Rubiales Corp. remained in the news on Friday after the company accused dissident shareholders the O’Hara Group of not waiting the required period of time before purchasing a block of shares.

Pacific Rubiales wants a court to exclude these shares from the July 7 vote on a planned takeover by Mexico’s Alfa SAB de CV and Harbour Energy Ltd., a deal that O’Hara opposes.

O’Hara has discussed this with its lawyers, a New York-based trader said, and believes the case won’t stand up in court.

Said another trader: “The current iteration of the Alfa and Harbour bid looks to be on very shaky ground.”

Argentina rebound awaited

Prices for sovereign bonds from Argentina could rebound briefly on the news that president Dilma Rousseff is trying to limit budget expenditures, according to a report from Schildershoven Finance BV.

“It's likely that investors will positively perceive Brazil president Dilma Rousseff’s efforts,” the report said, “which may help the sovereign improve its finances and maintain its investment-grade rating.”

Though prices may rebound in the short term, “the ongoing confrontation between the government and congress may negatively impact the market in mid term,” the report said.

Lifestyle sets initial talk

China’s Lifestyle International Holdings Ltd. set initial talk at Treasuries plus 245 bps for a dollar-denominated offering of 10-year notes, a market source said.

The bonds will be issued by subsidiary LS Finance (2025) Ltd. and guaranteed by Lifestyle International.

Merrill Lynch International and J.P. Morgan Securities plc are the joint lead managers and joint bookrunners for the offering.

“We see fair value at z-spread 217 bps, or Treasuries plus 220 bps bid, based on the current [Lifestyle] 2022 at z-spread plus 207 bps, and a 10-bps pickup for the 2.7-year duration extension,” a trader said. “We see about 25 bps of value at initial price guidance of 245 bps.”

The use of proceeds – to repay bank financing, to fund capital expenditures relating to store renovation and new department store projects and for general corporate purposes – is “more opportunistic than necessary,” the trader said.

“Although Lifestyle faces headwinds in its business operations and the use of proceeds looks more opportunistic than necessary, we think the relatively low net gearing and diversification value would likely offset these concerns, especially given the quiet new issue calendar recently,” he said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.