EM bonds end flattish on the day after positive week; new Saudi notes below par; Lebanon struggles

By Rebecca Melvin

New York, Jan. 11 – Spreads on emerging markets debt ended little changed on Friday after a weaker start. But the market is still in a better place following a strong first full week of trading for 2019 compared to where it closed out 2018. Several sovereign issues priced deals and there was secondary market demand, but Lebanon plunged on fears raised by “some report about restructuring,” a London-based market source said.

Saudi Arabia’s new 4 3/8% long 10-year bonds due April 16, 2029 were quoted at a tight 99.70 bid, 99.80 offered early Friday. The $4 billion tranche priced midweek. Its sister issue, $3.5 billion of 5¼% 31-year notes, was quoted at 99.40 bid, 99.55 offered.

In Wednesday's action Kingdom of Saudi Arabia (A1/A+) priced $7.5 billion of notes in two tranches, in a deal that was massively oversubscribed.

The State of Israel also launched and priced €2.5 billion of senior notes (expected ratings A1/AA-/A+) in two evenly split tranches.

Republic of Turkey priced $2 billion of new 7 5/8% long 10-year notes (Ba3//BB) that were flat to slightly better on Thursday, trading up 1/8 point at 99 5/8 bid, from pricing at 99.555 on Wednesday to yield 7.68%, tight to yield talk in the 7 7/8% area.

Republic of Philippines and Republic of Slovenia priced benchmark deals on Monday, with the Philippines pricing a $1.5 billion issue of 10-year fixed-rate senior notes (Baa2/BBB/) at a 110 basis points spread to Treasuries and Slovenia (Baa1/A+/A-) pricing €1.5 billion of 1.1875% 10-year fixed-rate notes at a 40 bps spread to mid-swaps.

Also in new issue news on Friday, Korea’s Kookmin Bank mandated banks and set a roadshow for a U.S. dollar-denominated Tier II sustainability bond, according to a market source.

Citigroup, HSBC, Societe Generale CIB, Standard Chartered Bank and UBS are arranging fixed-income investor meetings in Asia and Europe for the Seoul-based lender beginning Jan. 17.

In Latin America, Brazil’s Votorantim Cimentos International SA, a subsidiary of Votorantim Cimentos SA, is offering to exchange up to $500 million principal amount of its $1,150,500,000 of outstanding 7¼% senior notes due 2041.

In exchange, the company is offering 7¼% senior notes due April 5, 2041 to be newly issued by St. Mary’s Cement Inc. (Canada), a wholly owned, direct subsidiary of VCI, and guaranteed by VCSA.

Votorantim is also soliciting consents to amend the notes indenture to eliminate substantially all of the restrictive covenants, as well as various events of default and related provisions.

The exchange offer and the consent solicitation will remain open until Feb. 7.

Lebanon ‘killed’

Lebanon’s 6 3/8% notes due 2020 were seen 89.23 bid, 90.73 offered on Friday, down from about 92 previously, with spread widening by375 bps on the day, according to the source.

Lebanon’s 6¼% notes due 2025 were seen down to 73.88 bid, 75.38 offered with spread wider by 74 bps.

Lebanon’s longest-dated bonds, a 7¼% note due 2037, were seen 69.02 bid, 71.03 offered, with spread wider by 60.9 bps.

Lebanon was “killed on some report about restructuring,” a London-based market source said.

Investors were reacting to comments by the country’s finance minister that its heavy debt burden may need to be alleviated by debt restructuring.

Subsequent comments by Finance Minister Ali Hassan Khalil and other officials stepping back from the possibility of restructuring had little effect in soothing investors, and spreads blew out as much as 600 basis points on the sovereign’s shorter-dated notes, according to a London-based market source.

Khalil’s comments were first reported by Bloomberg.

Lebanon has one of the world’s largest debt burdens, equal to about 153% of GDP. The International Monetary Fund recommended last June that the country carry out “an immediate and substantial fiscal adjustment” to improve debt sustainability.

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