Codelco prices notes; market eyes Fed decision; Venezuela/PDVSA rise in relief rally

By Rebecca Melvin

New York, July 25 – Corporacion Nacional del Cobre de Chile, or Codelco, priced $2.75 billion of senior unsecured notes in two tranches on Tuesday at yields that were well tighter than initial price talk.

The deals, including $1.5 billion of 3 5/8% notes due 2027 and $1.25 billion of 4˝% notes due 2047, were priced concurrently with announced tenders for several series of existing Codelco notes. The lighter yields on the new notes may encourage some investors to sit tight with older Codelco paper in view of how the older notes are yielding but with the premium offered on the tendered notes encouraging movement, a market source noted.

Final pricing came late in the day Tuesday with traders expecting secondary market action in the paper on Wednesday.

The state-owned copper mining company is seen as a solid credit on par with Chile’s sovereign rating.

Elsewhere, dollar-denominated and euro-denominated emerging primary markets were quiet ahead of the wrap up of the U.S. Federal Reserve’s regularly-scheduled policy meeting on Wednesday. U.S. Treasuries sold off slightly ahead of the meeting amid some skittishness regarding how asset sales accumulated during years of monetary easing will be handled.

Rates remain the key driver for emerging market credit as the summer lull continues and ahead of Wednesday’s policy decision news by the Federal Open Market Committee, a market source said.

Argentina, which has seen a variety of issuers tap the U.S.-dollar market lately, was possibly going to have another entity bring an issue this week. But dollar-deals out of Brazil, which has been quiet of late, were not expected.

Venezuela/PDVSA relief rally

Back in secondary action, the bonds of Venezuela and its state-owned oil company Petroleos de Venezuela SA enjoyed a relief rally on Tuesday with much of the curve of both entities recouping about four points, following a hard drop for much of the last week, a New York-based trader said.

The situation in Venezuela remains a standoff between the opposition and president Nicolas Maduro, who intends to hold a vote on Sunday to institute a constituent assembly tasked with re-writing the country’s constitution. But “people are probably stepping in because they think it is cheap; some see value to it,” a market source said by way of explanation for the debt’s relief rally despite ongoing uncertainty.

This week is crucial as the Venezuela opposition is pressing hard for Maduro to reverse course. On Wednesday and Thursday, there will be another national strike, which hobbled Caracas and the nation’s other major cities last Thursday.

President Donald Trump said last week that the United States will not stand by and watch Venezuela’s democracy crumble, and if Maduro goes ahead with the vote many feel economic sanctions will be imposed by the United States.

Investors are watching the situation carefully, cognizant of how damaging U.S. sanctions could be and unable to call whether Maduro will back down or not.

“You could flip a coin; it’s hard to tell,” a market source said.

“With Maduro, anything is possible. You don’t see any normal or rational plan. He is playing to win because he knows if elections are held as scheduled in 2018, he will be out,” the source said.

PDVSA’s 8˝% notes due 2017, which has been one of the hardest hit bonds, was seen back at 80Ľ bid, 81˝ offered on Tuesday, according to a trader, and significantly higher than where they had been but still down from the low 90s at the beginning of June.

PDVSA’s 8˝% notes due 2020 were seen to have closed at 69˝ bid, 70˝ offered, and the PDVSA 6% notes due 2024 were back to 36˝ bid, 37˝ offered. All three bonds were actively traded and all recovered about four points.

As for the Venezuela sovereign paper, the Venezuela 6% notes due 2020 were closed at 40˝ bid, 41˝ offered. The Venezuela 11ľ% notes due 2026 were at 45˝ bid, 46˝% offered, and the Venezuela 11.95% notes due 2031, which had been hammered down to about 40 were back up to 44˝ bid, 45˝ offered.

Codelco prices notes

Codelco’s two deals came at discounted reoffer prices to yield Treasuries plus 150 basis points and Treasuries plus 175 bps for the 10-year tranche and 30-year tranche, respectively.

The Rule 144A and Regulation S notes (expected ratings: A3/A+) were expected to price initially at yields in the area of Treasuries plus 180 basis points and Treasuries plus 200 bps, respectively.

The deal was initially expected to be roughly $2 billion in size depending on the amount of bonds tendered, a syndicate source said.

Proceeds will be used to pay for tender offers of notes due 2019, 2020 and 2021, on interest on the tendered notes, for related fees and with any remaining proceeds for general corporate purposes.

Bookrunners of the new notes are BofA Merrill Lynch, HSBC, JPMorgan and MUFG.

The bonds are expected to be listed on the Luxembourg Euro MTF.

Based in Santiago, Codelco is Chile’s state-owned copper mining company.

© 2015 Prospect News.
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