Oil prices, Bank of Europe rate cuts boost EM; Lat-Am spreads tighten; Ghana postpones deal

By Christine Van Dusen

Atlanta, Aug. 4 – Emerging markets bonds moved higher and tighter on Thursday as oil prices rebounded and the Bank of Europe unexpectedly cut its rates and resumed bond purchases in an effort to reduce the impact from Brexit.

“Emerging markets credit continues to trade well, with spreads tightening and cash prices gapping higher,” a trader said.

Said an analyst, “Oil has become somewhat of a narrative, as [Gulf region] bonds felt the pinch yesterday.”

Overnight, the markets “saw some stabilization in oil prices,” he said.

Brazil led the way higher on Thursday, with cash prices up as much as 1½ points from late-Wednesday’s levels, another trader said.

“The EM Index looks to be up at 93.15 from 93 close and even Venezuela is recouping some of the big losses from yesterday,” he said, while noting that buyers remained cautious around the sovereign.

Brazil’s five-year credit default swaps spreads were tighter at 277 basis points from 284 bps while Mexico’s moved to 146 bps from 153 bps, another trader said.

“Cash prices continue to be relentlessly well-bid, with seemingly high offers lifted,” he said.

Even Petroleos Mexicanos SAB de CV (Pemex), which had been lagging the rally, “played catch-up, as long-end prices moved multiple points,” he said. “Pemex long end bonds in particular saw aggressive gaps higher, with some maturities finishing higher by three or four points.”

High-yield names from Latin America also traded well on the day but did underperform compared to lower-beta credits, he said.

PDVSA, Argentina close higher

PDVSA’s 2017s closed at 73.50 from 72.50, while Argentina’s Bonar 2024s finished at 116.25 from 116 and its 2026 closed at 109 from 108.10.

“Flows saw better buying of duration in good size throughout the day,” a trader said. “With the BOE rate-cut, yield-starved investors will continue to reach for the extra pickup available in the EM credit world. Any fundamental micro credit concerns seem to be on the back burner, as yield is the primary focus for fixed income investors.”

Ghana delays issuance

Ghana has decided to delay the issuance of up to $1 billion of notes due to market conditions, a market source said.

The notes were to be issued concurrent with a tender offer.

BofA Merrill Lynch, Citigroup and Standard Chartered were the bookrunners for the Rule 144A and Regulation S deal.

“Investors will have certainly asked for substantial premiums for a new potential transaction for one of the already highest-yielding curves,” an analyst said. “A postponement of the deal would be considered a credit-negative, adding concerns about the ability of sub-Saharan sovereigns – except for South Africa and supras – to tap international debt markets.”

Vale sells bonds

On Tuesday, Brazil’s Vale Overseas Ltd. priced $1 billion 6¼% notes due Aug. 10, 2026 at par to yield 6¼%, or Treasuries plus 470.3 bps, according to a company filing.

Banco Bradesco BBI, BB Securities, BNP Paribas, Citigroup and Morgan Stanley were the joint bookrunners for the Securities and Exchange Commission-registered deal. CIBC World Markets, Credit Agricole Securities, Mizuho Securities, MUFG Securities, Natixis Securities, SG Americas Securities, and SMBC Nikko Securities were the co-managers.

The proceeds will be used to pay part of the redemption price of the 6¼% notes due January 2017 issued by Vale Overseas.

Vale is a Rio de Janeiro-based producer of iron ore and nickel.

Issuance from Road King

China’s Road King Infrastructure Ltd. – via subsidiary RKI Overseas Finance 2016 (A) Ltd. – priced $450 million 5% notes due Aug. 9, 2016 at par to yield 5%, according to a company filing.

DBS, HSBC and JPMorgan were the joint global coordinators, joint bookrunners and joint lead managers for the deal.

The proceeds will be used to refinance existing indebtedness.

Road King is a toll road and property company based in Hong Kong.

© 2015 Prospect News.
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