Mexico City Airport bonds jump after amended offer; EM debt firms

By Rebecca Melvin

New York, Dec. 12 – Mexico City Airport’s bonds jumped Wednesday after Mexico’s Ministry of Finance and Public Credit announced amendments to its tender offer for $1.8 billion of the bonds. The rest of the emerging markets debt market sported a stronger tone, with spreads performing well in secondary action, while the primary remained quiet, market sources said.

Mexico City Airport bonds lifted on improved tender offer terms for bondholders compared to the original Dec. 3 offer. The tender is still capped at $1.8 billion of the $6 billion of bonds outstanding, but now includes a buyback price of par plus interest as well as a consent payment for investors who tender before Dec. 19, which is improved from the reverse Dutch auction to determine the prices starting as low as 90 as proposed when the tender was initially announced.

Mexico City Airport’s 5½% bonds due 2047 were said to have bounced up to the low 90s from the low to mid 80s. The nearer dated 4¼% notes due 2026 and 3 7/8% notes due 2028 were seen between five and six points better at 91.25 and 92.75, respectively, according to reports. Mexico City Airport’s 5½% notes due 2046 were not heard to trade.

The bonds of Mexico’s state-owned oil company Petroleos Mexicanos SAB de CV also popped.

Pemex’s 6.5% notes due 2027 and 6¾% notes due 2047 were up as much as 3 points each at 97.5 and 88, respectively, according to Trace data.

Mexico’s financial assets sagged when Andres Manuel Lopez Obrador, as president elect, announced in October that the airport project was being canceled, in concurrence with the results of a public referendum, which was criticized for being hastily conducted.

Lopez Obrador’s new government, which was installed Dec. 1, now faces the risk that the airport debt could be accelerated if bondholders choose to do so, and the team is being somewhat more accommodative, a stance encouraging other holders of Mexican debt.

Emerging markets debt was better overall on Wednesday. The iShares ETF based on J.P. Morgan’s U.S.-dollar denominated emerging markets sovereign bonds showed shares were up by about 0.25 point near the end of New York trading, after having been up nearly 0.5 point earlier in the day.

But even though the tone was better, issuers remained at bay, with no new deals heard in the Central & Eastern Europe, Middle East & Africa or Latin America regions.

“Who would issue in mid-December?” a London-based trader asked.

For the month so far, there have been $7.08 billion in 12 emerging markets deals. This was mostly China debt but including $3 billion priced by Indonesia, compared to $17.1 billion in 36 deals for the same period last year, according to data compiled by Prospect News.

Last year’s tally for the first half of December was also dominated by issuers based in China but included a number of Latin America deals, which are lacking this year.

Returns for emerging market debt are negative for the year and unlikely to pull into positive territory this month. The market took a dive last spring in reaction to U.S. dollar strength. Currencies came under fire, especially those of Turkey and Argentina, and then uncertainty and concerns about slowing global growth took things a peg lower this fall. Looking ahead to 2019, David Woo, Bank of America’s head of global rates, FX and emerging markets fixed income, says “make volatility your best friend.”

The dollar will remain a strong performer but the decoupling of the U.S. economy from other global economies was a 2018 theme that isn’t expected to persist in 2019, Woo said at a recent press briefing.

“There will be recoupling as a result of the U.S. doing worse. EM will be the big winners if China and Russia do well in 2019,” Woo said.

Among other considerations is how Washington D.C.’s policies proceed in the aftermath of the U.S. midterm elections, in which the Republican Party lost control of the House of Representatives.

Gridlock is predicted to settle in with the result being that the U.S.-China trade war becomes more complicated, Woo said.

“There are a lot of uncertainties,” Woo said. The dollar took off in 2018 because of the decoupling story in which the trade war didn’t impact the U.S. economy. But moving ahead, it is more likely that there will be a recoupling with the ongoing trade war, he said.

Bank of America predicts that a prominent theme in 2019 will be U.S. dollar weakness and that U.S. GDP will run at about 2%.

Bank of America’s Ben Randol, senor G10 FX strategist, said, “A divided [U.S.] government raises uncertainty, and it is not likely to be benign.”

“The fundamental China and U.S. differences will be resolved, but things will get worse before they get better,” Randol, who also spoke at the briefing, said.

© 2015 Prospect News.
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