Emerging markets steady; Steinhoff, Nostrum price; Venezuela flat, up slightly after vote

By Rebecca Melvin

New York, July 17 – Emerging markets were steady on Monday with a couple of deals pricing that had been on the forward calendar for most of the month. Secondary markets were mostly quiet but firm, sources said.

The bonds of Venezuela and its state-owned oil company Petroleos de Venezuela were flat to higher by about ¼ point in quiet trade after an opposition vote on Sunday in which 7.6 million Venezuelans cast ballots against president Nicolas Maduro’s plan to install a constituent assembly that would be given a mandate to rewrite the country’s constitution.

Investor reaction to the Venezuela vote was expected to continue on Tuesday since Monday’s volumes were light as is typical for summer Mondays, a Connecticut-based trader said.

Among new deals that priced were Steinhoff International Holdings NV’s upsized €800 million of 1 7/8% notes due 2025 that came slightly below par to yield mid-swaps plus 130 basis points, and Nostrum Oil & Gas plc’s $725 million of 8% notes due 2022 that priced at par.

Steinhoff’s new notes were to be used primarily to repay debt, and Nostrum is concurrently tendering for its Zhaikmunai LLP 7 1/8% senior notes due 2019 and 6 3/8% senior notes due 2019.

DAE Funding LLC’s planned $1.9 billion two-part offering of senior notes, announced last week, was talked on Monday at a 4¾% to 5% coupon for the benchmark tranche of five-year notes, and at a 5 1/8% to 5 3/8% coupon for the seven-year notes, also described as a benchmark tranche.

The Rule 144A and Regulation S notes are expected to price later this week.

Venezuela’s credit was flat to better by ¼ point in quiet trading, a Connecticut-based trader said.

Low liquidity kept a lid on pricing moves, he said. “It was very thin volume,” but more of a reaction was expected on Tuesday.

The turnout for Venezuela’s unofficial vote, which was essentially a referendum on Maduro’s proposed constitutional rewrite, was impressive given that the vote was advertised only by social media and by word of mouth, the trader said.

National media were prohibited from advertising the vote, the trader said.

In addition there were only about 2,000 polling places available, compared to about 15,000 polls for an official election, he said.

All but a few thousand of the 7.6 million people who cast ballots rejected Maduro’s plan. But that number represents just about half of a normal election turnout and only about one-third of eligible voters.

Venezuela’s bonds flat

PDVSA’s near-dated 8½% notes due 2017 were quoted at 86 bid, 87 offered.

Venezuela’s near-dated 13 5/8% bonds that mature in August 2018 were 74 bid, 77 offered, while the Venezuela 2018 bonds with a 7% coupon were 64 bid, 66 offered.

Venezuela’s most distressed paper is the 5½% notes due 2037, which were quoted at 36 bid, 37 offered on Monday.

“Things are going to get interesting,” the trader said, adding that the vote was good, but the situation remains fluid since the Maduro-government still plans to hold its vote in two weeks on July 30.

Meanwhile there are those who are weighing the possibility of default. Deutsche Bank Markets Research published a report on Friday suggesting that, while the bank isn’t forecasting a default by the end of the year, it is a real possibility depending on how things develop.

“Amid continued escalation of political and social tension, more and more investors begin to engage with us on discussing potential restructuring scenarios,” Deutsche Bank wrote.

The bank said that it doesn’t think restructuring alone will be enough to right the ship and that bondholders will likely face a “substantial amount of nominal haircut.” Nevertheless, if the situation is well managed, the damage might be kept to a minimum especially if exposure is not to the higher-priced bonds.

It is likely, the bank said, that recovery for the sovereign bonds will be higher than for the PDVSA bonds.

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