EM narrowly mixed in quiet trade; Asia prices deals; MENA sovereign spreads outperform

By Rebecca Melvin

New York, July 18 – Emerging markets debt was narrowly mixed in quiet trade, with the primary market moribund in many regions although Asia saw some mostly local-currency deals price, with China Development Bank Financial Leasing Co., Ltd. issuing $500 million of guaranteed floating-rate notes due 2021.

Also in primary action, Singapore’s United Overseas Bank Ltd. priced A$600 million of 3½-year senior floating-rate notes under its $15 billion global medium-term note program. The notes (expected: Aa1/AA-/AA-) will bear interest at the three-month Bank Bill swap rate plus 81 basis points. And Singapore’s Public Utilities Board announced it issued S$300 million of 3.01% bonds due 2033 at par on Wednesday.

Taiwan’s Hon Hai Precision Industry Co., Ltd. announced it priced NT$9 billion of bonds at par with maturities of three, four, five, six, seven and 10 years. Taiwan’s Sinyi Realty Inc. issued NT$1.8 billion of five-year corporate bonds at par to yield 1.05%.

Spreads on emerging markets debt were mixed with sovereign debt in the Middle East and Africa region holding in better than most banks and corporate debt, according to a London-based market source.

Egypt’s sovereign curve was tighter, for example, with issues in on average of 3 to 5 bps, with the exception of its short dated 2020 notes, which were 8 bps wider.

Morocco and Qatar were also slightly tighter, as was the longer end of Lebanon’s sovereign debt. But Saudi Arabia was mostly wider, contrary to the recent trend in Saudi paper, which has been among the strongest in MENA over the past month.

Pricing was nearly flat in many names. Vale SA’s 6¼% notes due 2026 were little changed in very active trade, but down from last week.

Shares of the Rio de Janeiro-based iron ore and nickel producer were up after the company reported record volume in the second quarter, which was better than expected, and difficult given Brazil’s nationwide truck drivers’ strike which disrupted business for many companies during the quarter.

Vale announced sales volumes for iron ore for the quarter were up 5.8%. Meanwhile its premium of two grades of iron ore has climbed 26% since last year, as a newly started mine, S11D, is delivering superior grade ore production.

Other iron ore producers including Rio Tinto and BHP are also pushing production upward, as China has put into effect some production controls on steel mills for environmental production and this is forcing steel mills to shift toward medium- and high-grade ore, according to a Gimme Credit research note.

Vale’s 2026 notes were busy trading at the lower end of their recent range, ending just under 109. Vale has $2 billion of the 6¼% notes.

Gimme Credit said that it considers the Vale 2026 notes expensive, citing market complacency in a situation in which world prices have been pushed artificially high by strong demand from China as well as liability risk related to its Samarco situation.

Overall the market remained in vacation mode but with expectations that the emerging markets primary market in Latin America at least will shift into high gear after the typical summer slowdown.

© 2015 Prospect News.
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