CAF to price dollar benchmark; Venezuela up on political news; secondary bid strengthens

By Rebecca Melvin

New York, July 10 – Emerging primary markets were mostly quiet to start the week on Monday, but there was a generally supportive tone in the secondary market with bids seen returning for the Middle East and Africa regions as well as Eastern Europe, following weakness last week, market sources said.

“We’ve come back today to a solid start after being a little bit weaker last week,” a London-based trader said.

A second trader said that Egypt, Oman and South Africa improved, although Saudi Arabia remained a couple of basis points wider on spread after last week’s profit-taking.

In Latin America, regional lender Corporacion Andina de Fomento set initial talk on a U.S. dollar-denominated benchmark that was expected to price on Tuesday at the mid-swaps plus 50 bps area, a syndicate source said.

The CAF three-year Securities and Exchange Commission-registered notes were being sold via bookrunners Barclays Bank plc, BofA Merrill Lynch and Deutsche Bank Securities Inc.

Other deal action was quiet in Latin America, and the status of Pampa Energia SA’s peso-denominated offering of five-year notes for up to $500 million equivalent was not in the market anymore, a syndicate source said.

The Buenos Aires-based energy company’s deal was not withdrawn but instead the issuer is “gauging market conditions,” the source said.

In secondary market action, Venezuela and its state-owned oil company, Petroleos de Venezuela SA, moved up strongly in busy trade.

Investor enthusiasm in Venezuela got a boost on news that the country’s opposition leader Leopoldo Lopez was transferred from prison to house arrest on Saturday.

Venezuela paper was all up a point or more, with some of the more liquid paper trading up 1.5 points, a Connecticut-based trader said.

The move was even more significant because the notes of fellow oil companies of the region, including Brazil’s Petroleo Basileiro SA and Mexico’s Petroleos Mexicanos SAB de CV were down on the day, the trader noted.

Petrobras and Pemex were weaker despite stronger commodity and crude oil prices. Stocks in Brazil and Mexico were also better by more than 1% each on Monday.

West Texas intermediate crude oil gained 32 cents, or 0.7%, to $44.55 a barrel on the session on the Nymex. While Brent crude oil edged up by a similar amount to $47.02.

The fund flow figures are expected to remain in focus this week.

On the primary calendar for central Europe, Kazakhstan’s oil and gas company Nostrum Oil & Gas LP was being eyed, a trader said, as the company sweetened its offer to buy back existing notes. The tender offer is being held concurrently with marketing of new dollar-denominated benchmark medium-term notes.

Investor meetings were held in Europe and the United States beginning July 3 for the Rule 144A/Regulation S offering.

Another deal in focus was a name that trades in the high-yield space as well as in emerging markets: United Group BV. The Amsterdam-based company, which provides telecommunications services to Balkan countries, started a European roadshow on Monday for a €1.35 billion three-part offering of senior secured notes.

The United deal includes tranches of five-year fixed-rate notes, which come with two years of call protection, seven-year fixed-rate notes, which come with three years of call protection, and six-year floating-rate notes, which come with one year of call protection. The roadshow wraps up on Wednesday.

“It’s more high yield but it involves central Eastern Europe,” a trader said.

Venezuela strengthens

PDVSA’s 12¾% notes due 2022 traded up more than a point to 56½ bid, 57½ offered.

The PDVSA 6% notes due 2024 traded up a point to 1¼ point to 38 bid, 39 offered, and the PDVSA 6% notes due 2026 traded up to 37 bid, 39 offered.

PDVSA bonds jumped a point or more in fairly decent volume for a summer Monday, a Connecticut-based trader said, adding that there was about $100 million of volume in PDVSA recorded by Trace data.

On the Venezuela sovereign curve, bonds also went up. The Venezuela 12¾% notes due 2022 moved up to 61½ and the Venezuela 11.95% notes due 2031 moved up to 54½ bid, 55 offered.

The strength – with some issues up by 1½ points – was attributed to positive news regarding Leopoldo Lopez. Thousands of opposition supporters celebrated the popular politician’s release from the Ramo Verde military prison, where his health had allegedly deteriorated considerably in recent weeks.

“The market is definitely more active,” a trader said, with the thinking being that Venezuela’s unpopular president Nicolas Maduro yielding to internal and international pressure to allow the release – at least to house arrest – of Lopez is a sign of improved possibility of regime change.

This was a prisoner that was very valuable to him, the trader said.

There are hundreds of political prisoners in Venezuela, which marked on Sunday the 100th day of street demonstrations against the Maduro administration since April.

Scores of people have died when protests have turned bloody, but the unrest shows no signs of letting up, especially as Maduro has called for a vote on July 30 for a special assembly that would have the power to rewrite the country’s constitution.

Opposition leaders as well as ruling party dissidents say that the assembly will be unfairly stacked with Maduro supporters and that it will attempt to outlaw elections and political parties.

Lopez co-founded the political party First Justice in 2000 and founded the Popular Will in 2009. He was jailed in 2014 on charges that he instigated violence at protests, but supporters claim he is innocent.

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