Investor confidence shaken by Fed report; Grupo Bimbo, CEZ, Bahrain Mumtalakat sell bonds

By Christine Van Dusen

Atlanta, June 23 - Market-watchers looked up from World Cup soccer on Wednesday just long enough to notice that the Federal Reserve's decision to keep interest rates near zero sent Treasury yields to a near-low, injuring investor confidence but still allowing the new issuance pipeline to stay open - if only for a trickle of new deals.

"Today was really Fed-centric," an economic strategist said, pointing out that the Fed has downgraded its economic outlook and blames the European debt crisis for hindering a recovery in the United States.

In response, the Dow "saw a late-day rally," an emerging markets strategist said. "But emerging markets have not yet reacted to that."

The Fed decision primarily pointed out the fact that monetary policy in the United States is continuing to diverge from that seen in emerging economies, particularly in regions like Asia, where China recently decided to no longer peg the yuan to the dollar in an attempt to create more flexibility for the currency. That caused investors to worry that China's cash reserves could drop and lead to a reduction in Treasury buying.

"If you're an Asian emerging economy, your policy keeps getting tighter," the economic strategist said.

Grupo Bimbo, CEZ price

While this obviously didn't spawn the stable environment required in order to truly open the long pipeline of potential deals from emerging market issuers, Wednesday did see the pricing of three new issues.

Mexico City-based baked goods and snack company Grupo Bimbo SAB de CV priced $800 million 4 7/8% notes due 2020 at 99.726 to yield 4.91%, or Treasuries plus 180 basis points, according to an informed market source.

Bank of America Merrill Lynch, HSBC and Barclays were the bookrunners for the Rule 144A and Regulation S deal.

"The books were over four times oversubscribed," the source said.

Also on Wednesday, Prague-based power distribution company CEZ AS priced €500 million 4½% notes due 2020 at 99.11 to yield 4.613%, or mid-swaps plus 167 bps, a source said.

Credit Agricole CIB, Deutsche Bank, Erste Group Bank and RBS were the bookrunners for the Regulation S-only deal.

And the Kingdom of Bahrain's wealth fund, Bahrain Mumtalakat Holding Co., priced $750 million 5% notes due 2015 at 99.077 to yield 5.212%, or mid-swaps plus 300 bps.

Deutsche Bank, HSBC, JPMorgan and Standard Chartered were the bookrunners for the Regulation S-only deal, which was talked to yield 5 3/8%.

Conditions ripe for deals

Market-watchers also whispered about a possible eurobond issue from Moscow-based financial services company Promsvyazbank, which may embark on a roadshow beginning June 28.

This activity comes at a time when investors are sitting on a build-up of cash that they're looking to put into play, the emerging markets strategist said.

"Investors are obviously building up cash positions, and there are no redemptions, only new investor flows and not enough new bonds being placed. So cash has been on the rise," he said. "There's $18 billion of amortizations and interest this month, and so far only about $5 billion or $6 billion of issuance. So investors have built up about $12 billion of cash just this month to add to last month's similar amount."

So demand conditions are "building for a strong rally," he said. "The question is whether externals are going to allow for positive sentiment to take hold."

Swap participation solid

Wednesday also saw Argentina announce that its $18.3 billion debt swap - which offered a second exchange opportunity to bondholders who didn't participate in a 2005 swap - closed with 66% participation, exceeding the sovereign's goal of 60%.

"The restructuring seems to have come off with better participation than expected," the EM strategist said.

But Argentine bonds didn't get a boost in response. The sovereign's "discount bond was down by half a point" by mid-afternoon in New York, he said.

Some sources blame this on the lawsuits filed by the holdout holders of $6 billion in bonds. Others say there's concern that the sovereign will have difficulty issuing debt at less than a 10% yield.

But the EM strategist believes Argentina's drop "maybe just reflects what's going on in the broader market," he said. "Plus, the World Cup tends to be distracting a lot of traders and investors. In emerging markets, certainly volumes have been fairly thin."

Venezuela's 2027 bond, for one, was down about ¾ of a point on Wednesday in thin trading. "That just shows that it's not Argentina-centric," he said. "Whether today's downside for Argentina and Venezuela is reflective of anything real remains to be seen."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.