NEW YORK, March 17 (IFR) - Brazil credits were suffering another bout of selling Tuesday morning, with the rest of the region’s bond markets following them lower as crude prices slump.
“It is very bad,” said a New York-based trader focused on Brazil. “We are about 25bp-50bp wider. We are seeing some capitulation, and no one is bidding paper.”
The increasingly negative mood in Brazil has now spread to other credits not connected to the corruption scandal at state-owned oil entity Petrobras.
Brazilian beef name Marfrig, steel maker Gerdau and BR Foods, for example, have all watched their bond prices sink in recent days.
“People feel that things are not getting better, and it is hard to see any signs that (the government) will get a handle on this anytime soon,” said a senior DCM banker.
BR Foods 2024s were being quoted at 95.00 this morning, marking a good two point drop since the beginning of last week.
It is a similar story for 2024s issued by steelmaker Gerdau, which were being spotted at 96.25 today versus the 99.50-100 seen last week. Marfrig’s 2020s, meanwhile, were being bid at 93.25 after trading Friday at 96.75.
Spreads on Petrobras bonds also continue to gap out, further inverting its curve. Its 2016s, 2024s and 2044s were being quoted this morning at 725bp-700bp, 610bp-595p and 600bp-585bp.
“We need some good news in Brazil urgently,” said Klaus Spielkamp, a trader at Bulltick in Miami.
“With oil trading at these levels, it is putting more pressure on S&P and Fitch to act on Petrobras’s ratings. People are worried about Petrobras’s (delayed) numbers but also about its business.”
Concerns about Brazil and the decline in crude prices have taken their toll on secondary levels elsewhere, dampening borrowers’ enthusiasm for bond sales.
“People are reluctant to come at wider spreads, which they blame on Brazil,” said a syndicate official.
This comes as Ecuador wraps up roadshows this week ahead of a possible bond sale. The sovereign is considering a shorter-dated seven-year to keep costs lower, say investors meeting with government officials, but pricing may prove tricky given recent movements in the secondary market.
Ecuador’s 2024s were trading lower Tuesday at around 89.00 or a yield of 9.78%, as Brent and WTI continued to hover near recent lows. On Thursday, the bonds were being bid at 92.25, according to Reuters data.
Meanwhile, Colombia-focused E&P name Pacific Rubiales’s 2025s appeared to find a bottom this morning at around 55.00 after collapsing several points yesterday on news it would not extend joint venture contracts with Ecopetrol to develop the Rubiales field in Colombia.
“Oil is trading lower but that seems to be the level where people are wiling to defend the bond,” said Spielkamp.
Colombia Telecomunicaciones S.A. (ColTel), Colombia’s second largest telecommunications company, has hired BBVA and HSBC as structuring advisors and joint bookrunners and Citigroup and Credit Suisse as joint bookrunners to arrange a series of investor meetings in the US, Europe and Asia.
A US dollar-denominated 144A/Reg S hybrid bond transaction may follow. The issuer is rated BB/BB, while the hybrid bond is expected to be rated B+/B. ColTel is 70% owned by Spain’s Telefonica S.A. and 30% owned by the Republic of Colombia. Meetings kick off today in Bogota and continue until March 24.
The Republic of Peru (A3/BBB+/BBB+) has hired BBVA, Deutsche Bank and Morgan Stanley to arrange meetings with fixed-income investors. The sovereign is in Los Angeles and London on Tuesday and will wrap up in Boston on Wednesday.
Ecuador is expected to come to market a new US dollar-denominated bond sale as soon as this week through lead Citigroup.
Peruvian state-controlled mortgage bank Fondo Mivivienda, rated BBB+ by both S&P and Fitch, also wrapped up investor meetings this week through leads Deutsche Bank and JP Morgan.
Mexican media company TV Azteca is bringing to market a rare project bond related to the development of the Andean country’s fiber optic network. (Reporting by Paul Kilby; Editing by Marc Carnegie)