Latvia, Hydoo do new deals; oil prices continue to plummet, hurting sentiment; Lat-Am widens

By Christine Van Dusen

Atlanta, Dec. 8 – The Republic of Latvia and China’s Hydoo International Holding Ltd. sold notes on Tuesday as spreads widened for many emerging markets names amid lower commodity prices that dampened investor sentiment.

“Oil prices have dropped circa 8% since Friday’s OPEC meeting, where the organization decided to maintain its policy while acknowledging that it would ‘retain production’ close to current levels,” according to a report from Barclays Capital.

From Latin America, few prices were spotted in the early morning, “but everything there is wider by at least 5 basis points,” a New York-based trader said. “We will open weaker across the board.”

Later in the session, sovereign credit spreads remained wider, with Brazil’s five-year credit default swaps spreads moving to 467 bps from 454 bps after trading as wide as 480 bps. Mexico’s closed at 170 bps from 164 bps after trading as wide as 174 bps.

“Cash prices do weaken as U.S. Treasuries barely move and spreads widen,” a New York-based trader said. “Latin American high-yield has Venezuela continuing to weaken close to pre-election levels, with PDVSA’s 2017 at 61.10 from 61.75 and Venezuela’s 2027s at 44.25 from 45.”

“Flows were quiet, with a lack of conviction seen in either direction,” he said.

From Russia, tensions continued with Turkey after a photo surfaced showing a Russian soldier with a missile launcher while passing Istanbul.

“The Russian bond market is likely to remain under pressure in the short term,” according to a report from Schildershoven Finance BV.

Meanwhile, Turkish leaders said that Russia’s economic sanctions could cost Turkey’s economy up to $9 billion.

Ukraine in focus

In other news, the International Monetary Fund was scheduled to meet as soon as Tuesday to discuss ways to continue lending to Ukraine, even if the country goes into arrears on the $3 billion eurobond due Dec. 20 to Russia, a London-based strategist said.

“Current policies by the IMF only allow for missed payments to commercial investors,” he said. “Russia has offered Ukraine to repay the debt in three tranches from 2016 until 2018, contingent on a guarantee from the U.S., the E.U. or an IFI. No substantial progress has been made since.”

Sovereign seeks funding

If a deal is not reached, both parties will likely go to court and Russia could try to block IMF funding to Ukraine, the strategist said.

“The new bonds issued to investors that accepted the deal earlier this year are not subject to cross-default clauses to former notes,” he said.

In trading, Ukraine’s sovereign bonds have been “largely stable” so far this week, said Fyodor Bagnenko, a fixed-income trader from Dragon Capital.

“Quasi-sovereign banks and [MHP SA] moved lower,” he said. “Probably a lagged reflection of the sovereign’s selloff last week.”

Latvia sells notes

In its new deal, Latvia sold $550 million 0.5% notes due Dec. 15, 2020 at 99.843 to yield mid-swaps plus 28 bps, a market source said.

The notes were talked at a spread in the low-to-mid-30 bps area.

Barclays, Goldman Sachs and JPMorgan were the bookrunners for the Regulation S deal.

Proceeds from the sale will be used to fund a tender offer for up to $525 million of its $1.25 billion of 2¾% notes due 2020 and $500 million of 5¼% notes due 2021, according to a notice.

Issuance from Hydoo

In another new deal, China’s Hydoo International priced $100 million 13¾% notes due Dec. 15, 2018 at 99.404 to yield 14%, a market source said.

Morgan Stanley was the sole global coordinator and, with SC Lowy, the joint lead manager and joint bookrunner for the Regulation S deal.

The proceeds will be used to finance the acquisition of land-use rights and the development of projects for the Shenzhen-based developer and operator of large-scale trade centers in China.

Also on Tuesday, market-watchers were whispering about a possible upcoming issue of notes from China Nuclear Engineering Group Corp.

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