Emerging market sees slight pullback on profit taking; Ecuador pressured by new issue

By Reshmi Basu and Paul A. Harris

New York, Dec. 7 -Emerging market debt saw a slight pullback in dollar prices, unable to muster momentum from Tuesday's rally.

Brazilian bonds dipped on profit-taking, noted sources. During the session, the Brazilian bond due 2040 lost half a point to 125.65 bid, 125¾ offered.

Elsewhere, Fitch's upgrade of Mexico had little impact, added a trader. The Mexico bond due 2033 lost ¾ of a point to 115.60 bid, 116.15 offered.

Ecuador issues $650 million

In the primary market, the Republic of Ecuador sold $650 million of 10-year global bonds (Caa1/CCC+/B-) at 91.692 to yield 10¾% via JP Morgan and Deutsche Bank.

The new issue put pressure on Ecuador's curve, remarked sources. On Tuesday, both the Ecuador bond due 2012 and 2030 enjoyed an upward spike in price. On Wednesday, both issues saw a sharp decline.

During Wednesday's session, the 2030 bond underperformed the rest of the market in an "accommodation effect for a new supply," observed Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

Moreover, the new 2015 bond slipped in the secondary, falling 0.20. And since the 2030 bonds crumbled by two points, the new bonds were not cheap, according to a market source.

In late trade, the 2012 bond was quoted at 100½ bid, 101½ offered, down a point. The 2030 bond was spotted down 2 points at 90¾ bid, 91½ offered.

The sovereign's component of the JP Morgan EMBI+ fell 1.75% while the spread widened by 23 basis points over Treasuries.

Venezuela places $300 million order

Meanwhile, it was reported on Tuesday that Venezuela accounted for $300 million of the book order. Exactly how this played out in investors' minds is difficult to ascertain, according to an emerging market analyst.

"The Venezuela factor is a tough one to price," noted the analyst.

"On the one hand, it helps to see that Ecuador has a large official sponsor that is willing to lend it money without much in the way of policy reform conditionality.

"On the other hand, though, Venezuela will probably look to sell these bonds into the market over time if they can turn a profit on them, which means that the upside on this issue might be lower than on another bond with more normal major holders," he added.

In the Latin American region, Venezuela has presented itself as an alternative funding source for credits which have a rough time accessing capital markets. For instance, Venezuela has exercised immense influence in Argentina, observed Alvarez.

With Venezuela taking up nearly half of Ecuador's new issue, that left $350 million outstanding for investors to pick at. Alvarez does not see that as a positive.

"Venezuela is becoming a lender of last resort for these countries in Latin America. That may solve an immediate financing problem, but it depends on what they are going to do with the paper down the road," he added.

United Overseas sells $500 million

In other primary news, Singapore's United Overseas Bank issued $500 million of hybrid tier I perpetual preference shares (A2/A-) at par to yield Treasuries plus 131 basis points. The deal was talked at mid-swaps plus 73 to 75 basis points and by that measure it priced near the wide end at 74.5 basis points more than mid-swaps.

Deutsche Bank was the global coordinator. Credit Suisse First Boston and JP Morgan were joint lead managers for the Rule 144A/Regulation S offering.

In another development, Galaxy Entertainment Finance Co Ltd. increased the size of its dual tranche offering of senior notes to $600 million from $500 million.

Additionally, price talk was revised for one of the tranches. The $350 million to $400 million offering of seven-year fixed rate notes was talked at 9 7/8% to 10%, in from the 10% area. The talk on the $200 million to $250 million offering of five-year floating rate notes remained the same at Libor plus 500 basis points.

The deal appears to be a blow out, according to sources.

The issue is many times oversubscribed on both tranches and there is very strong demand globally, according to a syndicate source.

The issue was expected to price Wednesday after the close of New York's trading session. At press time, no terms were heard.

© 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.