Market remains positive; Cemex deal upsized, prices below talk; Venezuela, PDVSA drift

By Rebecca Melvin

New York, Nov. 28 – Emerging credit markets remained positive on Tuesday as investors digested several key news events, including a confirmation hearing of the Federal Reserve chair nominee Jerome Powell and passage of the U.S. tax bill out of committee in the United States and another test of a North Korean missile that appeared stronger than previous missiles tested with a potential range of more than 8,000 miles, according to reports.

Market tone was positive, a market source said early in the day, as investors eyed the U.S. Senate Banking Committee confirmation hearing. In his opening comments, Powell suggested that a continuation of the current Fed policy under chair Janet Yellen is appropriate.

Powell told the Senate panel that he believes current regulations for the banking system are tough enough and that it is time to consider ways to make the rules more efficient and less burdensome. He also said he intends to follow Yellen’s lead in winding down accommodation in the form of quantitative easing and that an increase of the Fed’s benchmark federal-funds target “is coming together” for the Dec. 12 to Dec. 13 meeting. Such an increase would lift the rate to 1.25% to 1.5% and represent the Fed’s fifth rate increase in two years.

Meanwhile, the U.S. tax bill cleared committee and now moves to the full floor of the U.S. Senate as soon as Wednesday.

In market news, Mexico’s Cemex SAB de CV launched and priced an upsized €650 million of notes, and investors were also watching for word on the planned Alibaba Group Holding Ltd. tranches, for which investor calls were wrapping up on Tuesday.

The initial deal Cemex announced early Tuesday was for €400 million of the seven-year non-call three notes. After upsizing, the notes ultimately priced with a 2¾% coupon, which was tightened from initial talk in the 3¼% area.

The deal was sold from syndicate desks based in London.

Meanwhile, Alibaba was selling three tranches of Securities and Exchange Commission-registered notes via joint bookrunners Morgan Stanley, Citigroup, Credit Suisse, Goldman Sachs (Asia) LLC and JPMorgan. Co-managers are ANZ, BNP Paribas, DBS Bank Ltd. HSBC and ING.

Elsewhere, Brazilian bonds remained strong, which has been the case in recent sessions, and Venezuela and Petroleos de Venezuela SA bonds were drifting around in the low- to mid-20 range for most issues.

The fact that a military general was taking the helm of PDVSA raised a few eyebrows on Monday but did not ultimately affect pricing of the bonds, a market source said.

National Guard Maj. Gen. Manuel Quevedo will be the new energy minister and president of PDVSA. He replaces Nelson Martinez, a U.S.-educated company veteran who was undermined by last week’s arrests of associates at PDVSA’s U.S. arm, Citgo Petroleum Corp. Another U.S.-educated veteran oilman, Eulogio Del Pino, was fired as oil minister.

Maduro said Gen. Quevedo would spearhead a continuing anticorruption campaign. “We’re going for a total restructuring of PDVSA,” Mr. Maduro said on Sunday. “It is time for a new oil revolution.”

A source said the new PDVSA president was a non-event for the market for Venezuela and PDVSA bonds, which were drifting around with no clear direction.

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