Primary sees deals from Vale, China State Construction; Latin American bonds trade mixed

By Christine Van Dusen

Atlanta, June 7 – Brazil’s Vale Overseas Ltd. and China State Construction Engineering Corp. sold notes on a “buoyant” Tuesday for many emerging markets assets, though some Latin American names put in mixed performance.

“The setting for EM remains buoyant, supported by low United States rates and stable oil prices around $50 a barrel,” a London-based strategist said. “Fed chair Yellen’s comments from yesterday appear to support investors’ view that a rate hike in June is highly unlikely.”

Latin American bonds opened strongly before weakening into the close, a New York-based trader said.

Brazil's five-year credit default swaps spreads closed at 328 basis points, unchanged, while Mexico's tightened to 156 bps from 158 bps.

“Cash prices continue to trade well and move up as the U.S. Treasury rally is supportive of higher levels,” he said. “Lat-Am high yield finishes with Venezuela lower, whereas Argentina is mostly unchanged to slightly higher.”

Venezuela’s 2027s were flat at 45 and PDVSA's 2017s finished at 69.75 from 70 after trading as high as 70.75.

Argentina’s Bonar 2024s were up at 113.50 from 113 and the 2026s closed at 106.50 from 106.375.

There were “better buyers seen for most of the session, with sellers popping up late in the day,” he said.

In other trading, the new issue of notes from Commercial Bank of Qatar QSC – $750 million 3¼% notes due 2021 that priced Monday at 99.384 to yield 3.385%, or mid-swaps plus 215 bps – performed well on Tuesday.

The notes closed on Tuesday at 99.80 bid, 99.90 offered, the trader said.

Citigroup, HSBC, Morgan Stanley and National Bank of Abu Dhabi were the bookrunners for the Regulation S deal.

Saudi Arabia in focus

In other news from the Middle East, Saudi Arabia's cabinet approved a plan to increase non-oil revenues, reduce the public sector bill to 40% of spending, create jobs in the private sector and increase gas output capacity.

“Oil output capacity is projected to stay flat at 12.5 million barrels per day,” the strategist said. “Earlier this year, Saudi Arabia secured a $10 billion loan and has been reported to seek potentially $15 billion later this year.”

This came as Saudi Arabia eyed a bond deal.

“One would assume that with north of $10 trillion-worth of bonds in the world now returning a negative yield that the recent supply from the Middle East would be welcome,” a trader said. “Spreads here have widened, and while yes, the Saudi supply is the big overhang in the market, I still have my base case as post-summer for this one.”

DPWorld solid, SECO active

Also on Tuesday, bonds from DPWorld were solid, with the 2023s closing at 99.70 bid, 99.85 offered after last week's 99, a trader said.

The belly of the curve for Saudi Electricity Co. was active, he said.

“Perpetuals are a bit all over the place,” he said. “Bahrain continues to trade fairly well, with a steepening bias.”

Ukraine sees support

From Ukraine, bonds have seen some support so far this week, said Fyodor Bagnenko, a fixed income trader with Dragon Capital.

“Similar moves were observed in the quasi-sovereign space, with banks outperforming,” He said.

Vale prints notes

In its new deal, Brazil’s Vale Overseas sold $1.25 billion five-year notes at par to yield 5 7/8%, an informed source said.

BB Securities, BofA Merrill Lynch, Bradesco BBI, HSBC and Santander were the bookrunners for the Securities and Exchange Commission-registered deal.

The proceeds will be used for general corporate purposes.

Vale is a Rio de Janeiro-based producer of iron ore and nickel.

Chinese corporate active

In its new deal, China State Construction Engineering priced a two-tranche issue of $1 billion notes due June 14, 2019 and 2021, a market source said.

The deal included $500 million 2¼% notes due 2019 that priced at 99.738 to yield 2.341%, or Treasuries plus 142.5 bps.

The $500 million 2.7% notes due 2021 priced at 99.763 to yield 2.751%, or Treasuries plus 152.5 bps.

HSBC, Citigroup, Goldman Sachs, CCB International, UBS, BOC International, BNP Paribas, BofA Merrill Lynch and ICBC International were the bookrunners for the Regulation S deal.

The proceeds will be used for financing overseas projects and other general corporate purposes.

The issuer is a Hong Kong-based construction contractor.

Oman to issue two tranches

Oman released yet more details on its upcoming offering of dollar-denominated and benchmark-sized notes, a market source said.

The deal is expected to be structured in two tranches, due in five and 10 years, with pricing planned for Wednesday or Thursday.

Citigroup, JPMorgan, MUFG, National Bank of Abu Dhabi and Natixis are the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used for general budgetary purposes.

A roadshow concluded on Tuesday.

TAQA sets roadshow

Abu Dhabi National Energy Co. (TAQA) will set out on Wednesday for a roadshow to market a dollar-denominated offering of notes, a market source said.

BNP Paribas, Citigroup, First Gulf Bank, HSBC, National Bank of Abu Dhabi and Societe Generale are the bookrunners for the Rule 144A and Regulation S deal.

The roadshow will take place in Asia, Europe and the United States.

“Their 2023 dollar notes are closing at 98.65 bid, 98.90 offered, 12 bps wider on the week,” a trader said.

Lukoil could issue

Russia’s OAO Lukoil could issue eurobonds in the second half of this year, a market source said.

Other details were not immediately available on Tuesday.

Lukoil is a Moscow-based oil and gas company.

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