Emerging markets eye Middle East crisis; LatAm ends week on a down beat; Ivory Coast prices

By Rebecca Melvin

New York, June 9 – The political crisis between Qatar and more than a half dozen Middle Eastern nations was a focus of emerging markets this past week, causing debt prices in the region to gyrate.

Qatari sovereign bonds widened over the week, with the spread on shorter-dated issues widening by 40 basis points to 70 bps, while longer-dated maturities pushed out by 15 bps to 20 bps, according to a credit strategy note published Thursday by MUFG Securities analyst Trieu Pham.

The Qatar debt levels were deemed fair in the context of the Gulf Cooperation Council, with the Qatar 3¼% notes due 2026 trading about 3 bps wide compared to Saudi Arabia’s 3¼% notes due 2026 and 20 bps wide compared to Kuwait’s 3½% notes due 2027, Pham wrote.

“While Qatar is undeniably a stronger credit in terms of wealth, growth, and fiscal balance sheet, the ongoing political risks could see a weakening of its economy and financial system,” Pham wrote.

Other GCC credits also weakened including Oman and Saudi Arabia.

The situation began on Monday when Saudi Arabia, the United Arab Emirates, Bahrain and Egypt severed diplomatic ties with Qatar, citing that country’s alleged connections to terrorism. Other nations followed suit in cutting ties with Qatar, including the Maldives, Mauritania, Mauritius and Yemen. Meanwhile, Djibouti, Jordan and Senegal downgraded their relationship to the Gulf Arab state.

On the heels of the GCC political upheaval, Iran suffered a rare terrorist attack on Wednesday in which the nation’s parliament and the mausoleum of Ayatolah Ruhollah Khomeini were hit, killing 12, and for which Islamic State claimed responsibility.

These events signal a reshaping of the region, which may create more instability before stability returns, according to an article published by Geopolitical Futures on Friday.

“These events may have happened independently of each other, but together they represent a powerful shift. Qatar’s willingness to rebuke Saudi Arabia shows that Iran is growing stronger or that Saudi Arabia is growing weaker – or both,” according to the article.

The primary markets were mostly quiet on Friday. But the Republic of Cote D’Ivoire priced two benchmark issues of unsecured notes (Ba3//B+), including a $1.25 billion issue of 6 1/8% amortizing notes due 2033 that priced at 98.747 to yield 6¼%, and slipped another ½ point below issue price after the break.

The notes were trading at 98 3/8 bid on Friday, according to a trader, who added that the new Ivory Coast 6 1/8% notes had recovered from post-allocation lows of 97¾ bid.

The Ivory Coast deal also included €625 million of eight-year notes, which priced at par to yield 5 1/8%. The yield printed tighter than the 5 3/8% to 5½% final price talk. Initial guidance was in the 5 5/8% area.

Back in the secondary market, Latin America sovereign and corporate debt closed weaker on Friday, although off the lows for the week, with corporate debt underperforming, a New York-based trader said.

“I can’t really tell you why [it is lower]. Most markets are not really affected by what happened in the U.K., and there is not really much else: commodity markets are behaving, and it’s a relatively low-volume Friday,” the trader said.

The U.K. general election on Thursday was another emerging market focus this week and resulted in a hung parliament that surprised markets and took the pound down by about 2%. But markets overall were unscathed.

A trader of Middle Eastern debt said that the U.K. election result was having no impact at all on that space, although the Qatar situation was still evolving.

Latin America was “wider across the board, however, with the exception of Colombia,” the trader said.

Venezuela sovereign debt and the debt of Petroleos de Venezuela SA (PDVSA) were notable underperformers, with PDVSA bonds closing down between ½ point to a point.

In Brazil, Petroleo Brasileiro SA (Petrobras) closed down ¼ point to ½ point.

Oil prices took a leg lower this past week after data on Wednesday showed a build in inventories, and that contributed to pressure on the region this past week, the trader said.

Paul A. Harris contributed to this story.

© 2015 Prospect News.
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