New Kenya tranches trade up; Belarus prices $600 million, but Trans-Oil Group pulls deal

By Rebecca Melvin

New York, Feb. 22 – Kenya’s newly priced $2 billion of eurobonds traded higher on Thursday after the sovereign priced 10- and 30-year tranches at yields that were tight compared to initial talk, according to a market source.

The Kenya 7¼% notes due 2028 were quoted late in the London session at 101.10 bid, 101.35 offered, and the longer-dated Kenya 8¼% notes due 2048 traded up to 102.20 bid, 102.60 offered, according to a London-based source.

Kenya’s existing notes were mixed with the spread on the near-dated Kenya 5 7/8% notes due 2019 blowing out by 35 basis points, while the spread on the medium term 2024 notes tightened slightly by 3.8 bps.

Also making a debut in the market on Thursday was another deal for Belarus. Its $600 million of 6.20% notes due 2030 sported a new issue premium that was within the existing curve, according to a market source.

But another emerging Europe issuer, Moldova’s Trans-Oil Group of Cos. pulled its deal for $225 million of five-year notes, which was talked at 6½% yield. The postponement represented the second time in as many weeks that an emerging Europe deal was withdrawn. Last week, GTLK Europe Capital DAC canceled its benchmark offering of dollar-denominated seven-year Regulation S senior notes. GTLK, whose parent is Russia’s PJSC State Transport Leasing Co., had launched the deal on Feb. 14 at 5½%.

There were no further new deal announcements for the Central & Eastern Europe, Middle East and Africa region on Thursday on the heels of two sizable issues that came the day before.

One market source said that the CEEMEA primary was expected to remain quiet now until next week given another bout of market volatility and that two sizable deals for the region already priced this week.

“We’ll come back next week so that we can maximize” pricing and investor participation, the source said.

Early Thursday global stock markets were “feeling pretty wobbly,” and the U.S. Treasuries were weak, with the yield on the 10-year benchmark close to touching 3%, the source noted.

“We will want to look for signs of stabilization,” the source said.

Kenya’s new bonds priced despite a ratings downgrade and cautionary words from Moody’s Investors Service while the deal was roadshowing last week. The rating service downgraded the sovereign to B2 from B1 and assigned the new rating to the new bonds on Thursday. Moody’s cited deteriorating fiscal health and heavy debt burden for weighing in with a downgrade.

But Kenyan President Uhuru Kenyatta pledged the capital infusion would be used prudently and transparently to boost the welfare of all Kenyans.

Over a third of the funds raised will go toward repaying debt with the rest earmarked for development projects aimed at boosting the economic prospects of the East Africa nation that struggles with staggering poverty.

The new bonds raise Kenya’s debt burden with debt to GDP likely to edge towards the 60% this year, from 42% in 2013. The International Monetary Fund on Thursday cautioned that Kenya’s budget deficit level is “heading to the red zone.”

Kenya’s fiscal deficit stands at 9.9% of GDP and needs to be reversed, IMF chief of mission Ben Clements has told the National Assembly Budget Committee.

Meanwhile the bond issue brought Wednesday was seven times oversubscribed, according to sources, indicating keen demand for inexpensive paper from investors in Europe and the United States.

From West Africa, Nigeria, which priced two new tranches for $3 billion last week, looked modestly stronger on Thursday compared to their debut trading session.

The Nigeria 7.143% notes due 2030 were quoted at 101.62 bid, 102.37 offered on Thursday compared to 101.55 bid, 101.85 offered last Friday. Nigeria’s 7.696% note due 2038 was 102.81 bid, 103.46 offered, compared to 102¾ bid, 103¼ offered last week.

Nigeria managed to raise $1 billion more than Kenya, and its order book for the two tranches topped $11 billion for the notes, one source said.

Spreads on Nigeria’s older notes was mostly tighter on Thursday. The spread on the sovereign’s nearest dated 5 1/8% notes due 2018 was 12.4 bps tighter, according to a market source.

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