New issue from Venezuela’s CAF; trading calms a bit after oil-, China-related volatility

By Christine Van Dusen

Atlanta, Feb. 19 – Venezuela’s Corporacion Andina de Fomento (CAF) priced a tap of its Swiss franc-denominated notes on Friday as oil prices and China remained top-of-mind for emerging markets investors.

“Developments on both fronts over recent days have helped to instill a degree of calm, with risk appetite improving,” according to a report from Barclays Capital. “We think such calm may prove short-lived; this week’s downgrades of sovereigns and corporates from Standard & Poor’s are a reminder of the ongoing deterioration in the fundamentals of commodity-producing countries and companies.”

Investors are “hoping for some time for a breather, following a busy week in terms of news flows and price moves,” a trader said. “Geopolitical risks are more and more emerging as a threatening scenario, especially ahead of today’s talks on a ceasefire agreement in Syria.”

Syria on Friday was at the center of another controversy, blamed by Turkey’s government for the recent bomb attack in Ankara. Turkish officials believe Syria worked with Turkey-based Kurdish militant groups YPG and PKK.

“The association, whether true or not, is disturbing, as it increases the probability of a scenario in which Turkey, alone or together with some allies, marches into Syria,” the trader said. “Already in the last two weeks, Saudi Arabia and Turkey have floated the idea of a joint ground operation. The countries had however deemed such a move to be unlikely, given the lack in support by the U.S.”

Turkish credit remained resilient, though, with risks already “somewhat priced in,” he said. “On the other hand, we think that geopolitical risk factors are insufficiently priced in, and could pose some concerns to investors going forward.”

Buying abates

Looking to Latin America, buying from most accounts – which picked up on Wednesday and Thursday – abated on Friday, a New York-based trader said.

“But rising bids this week are holding in,” he said.

Brazil-based Vale SA's bonds were helped by the increased iron ore output reported from China, as it signaled increased demand, “even as the company missed analysts’ production targets for fourth-quarter 2015,” he said.

High-grade bonds from names like Braskem SA and Gerdau SA were quiet on Friday, he said.

Romania draws orders

The new issue of notes from Romania – €1.25 billion in taps of the Oct. 29, 2025 and 2035 bonds – drew a final combined order book of €2.3 billion, a market source said.

The deal included a €750 million tap of the 2¾% notes due in 2025 that priced at 101.688 to yield 2.55%, following talk in the 2.55% area. About 23% of the orders went to Romania.

On Friday morning the notes traded at 101¾ bid.

The €500 million tap of the 3 7/8% notes due in 2035 priced at 99.645 to yield 3.9%, following talk in the 3.9% area. About 22% of the orders went to Germany and Austria.

The notes traded early Friday at 99¾ bid, a trader said.

Citigroup, HSBC, RBI and UniCredit were the bookrunners for the Rule 144A and Regulation S deal.

Domodedovo official arrested

In news from Russia, the owner of Moscow’s Domodedovo Airport was arrested on Thursday on charges he had provided unsafe services that contributed to the death toll from a terrorist attack in 2011.

“The detention of the Domodedovo airport owner is negative for the company’s eurobond, and a quite strong price drop may follow,” according to a report from Schildershoven Finance BV. “However, the correction may provide a good opportunity to buy bonds of an operationally strong company at a lower price.”

In November of 2013, the airport – via DME Airport Ltd. – priced $300 million 6% notes due Nov. 26, 2018 at par to yield mid-swaps plus 449.3 basis points via ING, Raiffeisen Bank and UBS in a Regulation S deal.

CAF prices tap

In its new deal, Venezuela’s CAF priced a €250 million tap of its 1% notes due Nov. 10, 2020 at 100.803 to yield 0.825%, or mid-swaps plus 80 bps, a market source said.

The original issue priced in November at 99.903 to yield 1.02%, or mid-swaps plus 73 bps.

BofA Merrill Lynch, Credit Agricole CIB, Credit Suisse and HSBC were the bookrunners for the Regulation S transaction.

CAF is a lender based in Caracas, Venezuela.

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