EM debt bounces around; Mexico notes improve; Frontera Energy holds off, eyes market

By Rebecca Melvin

New York, June 15 – Friday’s emerging markets debt market was similar to Thursday’s session, with fairly active trade supportive of many higher-grade credits, while many lower-grade credits bounced around to the downside.

Mexican sovereign and corporates were better on the day in tandem with the Mexican peso regaining ground after sinking to a 16-month low on Wednesday.

Mexico’s 4¾% notes were up on Friday to 91.5 from 90.6 on Thursday.

Companies like the country’s state-owned energy company Petroleos Mexicanos SAB de CV, Grupo Televisa SAB de CV and Unifin Financiera SAB de CV Sofom ENR were also better or retaining their footing after slides lower for the last month.

Pemex’s 6½% notes due 2027 were up another tick at 100.44 on Friday in active trade, compared to a close of 100.38 on Thursday and 99.75 on Wednesday.

Grupo Televisa’s 4 5/8% notes due 2026 were up 0.33 point last at 99.76 after slumping to 52-week lows at the end of May and again during the second week of June.

Unifin Financiera saw its 7 3/8% notes due 2026 close unchanged on the day at 93.06, which is down about 5 points from early April.

Fitch Ratings affirmed Unifin’s long-term and short-term local currency issuer default ratings at BB and B, respectively, citing its leading position in the leasing sector in Mexico. The ratings on the company’s global unsecured debt and perpetual bonds were also affirmed.

But the peso looks set for more rocky trading as the nation’s July 1 presidential election date gets closer. Leftist candidate Andres Manual Lopez Obrador is ahead in the polls by double digits, and the type of business climate that would exist under an AMLO presidency is unknown. In addition, North American Free Trade Agreement talks remain unsettled. Nevertheless, most issuers prefunded their debt financing needs with a number pricing early in the year before volatility slammed the market.

Brazil under pressure

Brazil credits remained under pressure but were mostly little changed on the day. Petroleo Brasileiro SA’s 7 3/8% notes due 2027 were trading actively in a narrow range but ended little changed at about 98.5. At the beginning of June, the bonds were above par.

Brazil was among EM credits that sold off this week ahead of the wrap up of the U.S. Federal Open Market Committee’s decision on Wednesday.

The Fed raised its short-term interest rate another 25 basis points and signaled two more rate raises this year for a total of four.

The Federal Reserve raised its Fed Funds target rate to a range of between 1.75% and 2%. It last raised the rate in March to between 1.5% and 1.75%.

Frontera awaits calmer tone

No deal talk on Frontera Energy Corp.’s planned $500 million offering of five-year senior notes emerged on Friday, and the deal was not expected to price on Friday, according to a syndicate source.

The Colombia-focused energy company, like other issuers, needs to feel comfortable with the levels they will be able to achieve on yield, the source said, adding that it wasn’t possible to speculate on when pricings will occur, only that markets need to be calmer for new issues to proceed.

Round two of Colombia’s presidential election is set to take place on Sunday, which could contribute to some uncertainty regarding pricing for this deal this week.

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