Poland’s mBank plans new euro deal as EM debt ebbs; Gerdau little changed as real drops

By Rebecca Melvin

New York, Aug. 23 – Poland’s mBank SA announced Thursday plans for a new offering of short- to medium-term euro-denominated notes, representing the first signs of life in the Central & Eastern Europe region since late July.

But emerging markets debt overall was a bit wider, albeit in quiet trade, a London-based trader said, amid a higher dollar and somewhat stronger U.S. Treasuries. However, broader markets petered out to end with lower Treasuries and lower stocks and crude, while the dollar ended flat.

Markets are normally quiet in the last two weeks of August, but the summer lull is seemingly more pronounced for emerging markets debt this year as dollar strength and trade tensions have increased uncertainty.

mBank is wading into the quiet period, holding investor meetings next week in Germany and London with a senior unsecured benchmark expected to follow soon, subject to market conditions.

The deal represents the first new issuance for CEE since Bulgarian Energy Holding EAD priced a €150 million tap of its 3½% notes on July 24.

In the broader markets, U.S. stocks traded up from a mixed start but ended in the red. The United States put tariffs on $16 billion of Chinese goods despite the kick off of talks between lower-level U.S. and China trade officials slated for the next two days.

The new tariffs, mainly on Chinese semiconductors, chemicals, plastics, motorbikes and electric scooters, are on top of $34 billion of Chinese imports targeted last month.

China simultaneously retaliated with $16 billion worth of additional import tariffs on U.S. products including fuel, steel products, autos and medical equipment.

The potential fallout from this and other trade conflicts have introduced uncertainty to the markets, which are convinced regardless of a U.S. rate hike coming next month. The outlook after that has become less clear. One focus for the rest of this week as market players search for direction will be the annual Jackson Hole symposium meeting of U.S. Federal Reserve officials and Fed chairman Jerome Powell’s speech scheduled for 10 a.m. ET on Friday.

Brazil’s bonds had been mostly underperforming on a weaker real earlier in the week but were in line on Thursday. Brazilian steelmaker Gerdau SA’s bonds, which have been underperforming the company’s peers, were little changed.

Gerdau’s 4 7/8% notes due 2027, which priced last October, ended the session at 93.60 bid, 94.10 offered, which is the lower end of its recent range. The bonds had stood at nearly par in March.

In recent trade, the Gerdau 5.893% notes due 2024, of which $1.2 billion are outstanding, have been yielding 5.15%, which is up from 4.45% in March and still about 55 basis points wider than Brazil’s 8 7/8% notes due 2024, Gimme Credit analyst Cedric Rimaud wrote in a note published on Monday.

Gerdau reported strong results for the second quarter, driven by solid EBITDA growth in North America, where the company achieved its highest quarterly contribution since 2008 on sales and favorable foreign exchange, according to Gimme Credit’s Rimaud. The outlook for the second half of 2018 has some cross currents, however.

There is an expected slowdown in Brazilian industrial activity as the domestic market weakens due to the country’s presidential elections in October and the higher interest rates.

A weaker real will support foreign sales for Gerdau, but the external context is mixed, although most variables look to tilt in Gerdau’s favor.

There should be some pent up domestic demand for steel after the second quarter was affected by the country’s national truckers’ strike. Furthermore the impact of the United States’ review of the effect of imports on U.S. national security will likely lead to a reduction of imports, and that stands to benefit Gerdau since it produces within the United States, Rimaud pointed out.

Rimaud said Gerdau’s credit metrics improved during the first half, and further improvement is expected after completion of the sale of its U.S. rebar operations.

The company has only a “very small amount of maturities coming due in the next 12 months and it has about $3 billion in cash. Liabilities are much higher in 2020 and 2021, so Gerdau is expected to come to the market for a bond refinancing in 2019,” Rimaud said.

Also in regard to the United States, Gerdau opted for quotas over import duties so that while exported steel will be limited, it is expected to affect Gerdau “only at the margin.”

© 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.