15 de enero de 2016 / 17:08 / hace 2 años

Mixed reception for EM sovereign bonds

6 MIN. DE LECTURA

* Poland and Slovakia struggle in euros

* Chile and Mexico reopen dollars

* Onus on appropriate pricing strategies

By Sudip Roy and Paul Kilby

LONDON, Jan 15 (IFR) - A host of heavyweight EM sovereigns finally came to market this week, although fortunes were mixed as doubts about China's economic outlook and further jitters in commodity markets continue to haunt the asset class.

Poland (A2/A-/A-), Chile (Aa3/AA-/A+), Mexico (A3/BBB+/BBB+) and Slovakia (A2/A+/A+) all issued bonds, though the two European sovereigns, which both raised euros, struggled in terms of pricing and performance.

Chile also made a rare foray into the euro market as part of a dual-currency offering that included US dollars - the first from an EM sovereign in that market this year. That bond was linked to a tender. Mexico tapped dollars too as investors finally got to put their growing cash piles to work.

That the asset class's marquee names are hitting screens - Israel too was meeting investors this week ahead of a dollar deal - will be of enormous relief to syndicates. But in this market no trade is a simple execution, as Poland and Slovakia showed.

The former issued 10-year and 20-year bonds, raising 1.75bn in the process. But the leads were unable to move pricing on the 10-year notes from initial levels of 65bp area over mid-swaps, while on the 20-year it was only tightened by 5bp from an initial plus 105bp area.

There was a lack of consensus about what the new issue premium was on the 10-year, depending on which outstanding bonds were referenced. Based on an interpolation of the January 2025s and May 2027s, the premium was 10bp; based on the more recently issued September 2025s, it was closer to 25bp.

That difficulty in pinpointing fair value didn't help but bankers were still shocked that both bonds fell a point in the secondary market. "Poland is not normally [an issuer] that trades off," said one.

Another banker said Poland's political situation may also have put off some funds. The new government, led by the Eurosceptic Law and Justice (PiS) party that swept into power in an October election, has caused some disquiet after loosening a domestic spending rule. It is also potentially looking at penalising foreign investors.

Problems for CEEMEA sovereigns in the euro market were compounded on Thursday with Slovakia struggling with a 1bn 15-year trade.

As on Poland's 10-year notes, pricing was unable to move from initial levels, in this case 38bp area over mid-swaps, while the book, including lead manager interest, was barely above the deal size at 1.2bn. The bond then widened a touch in the secondary.

There are some mitigating circumstances. Markets are such that no deal is straightforward, no matter the credit. Even leading European SSA issuers are having to tread cautiously. It's notable that Spain, Belgium and Portugal all offered attractive premiums when they began marketing jumbo deals this week.

In addition, the ECB's Public Sector Purchase Programme has distorted secondary curves. Even Poland, which is not in the eurozone, has experienced a knock-on effect, with its most recently issued September 2025s trading much tighter than its other bonds with similar maturities.

But bankers say syndicates should be aware of these challenges. "We know how in the euro sovereign space, especially for eurozone sovereigns, you get very technical in how these bonds trade - who's buying, what's pushing spreads tighter," said one banker.

Onus on Syndicates

With markets churning on sentiment - the banker said credit fundamentals have gone out of the window, with prices moving because of "irrational" views on risk and liquidity instead - the onus is on syndicates to adopt more appropriate strategies.

Another banker said that other potential issuers in the euro market will be more nervous because of the Poland and Slovakia trades. "For other tightly trading names I think it will create concern," he said.

For those offering more juice, such as non-eurozone or non-proxy eurozone sovereigns, the execution strategy may be easier. Chile, for example, had fewer problems on Tuesday and indeed its 1.2bn 1.75% 2026 deal went better than the US$740m (US$1.35bn once a tender is included) 3.125% 2026 bond it printed later the same day.

At 110bp over mid-swaps, Chile's euro notes clearly offer more value than both Slovakia and Poland, with its inclusion in the OECD adding to its attraction to rates buyers. The sovereign was able to tighten pricing from an initial plus 120bp area.

At the final level, Chile's euro issue was seen coming with a 23bp-30bp concession after accounting for the extension from the 2025s, which were trading at a spread of between 75bp and 82bp, said bankers away from the deal.

Bankers close to the deal were putting the new issue concession nearer to 15bp after watching books reach close to 2.5bn.

As for the dollar deal, it started with a 35bp-40bp premium with the outstanding 2025s spotted at a G-spread of 100bp-105bp. At final pricing of 130bp over Treasuries, the premium was about 25bp. But while the bond came 10bp inside initial price thoughts, it failed to hit the tight end of guidance of 130bp area (plus or minus 5bp).

One banker said the difference in performance between the euro and dollar trades was partly down to timing. While the euro hit screens on a rare calm open in Europe, by the time the dollar bond launched "the world was about to end again".

The dollar bond may also have suffered because dedicated EM investors are too busy shoring up their faltering funds than seeking to buy assets. "People are seasick and are licking their wounds. There are a lot of casualties," said the banker.

Still, that didn't put investors off Mexico, which issued US$2.25bn of 4.125% 10-year notes at 210bp over Treasuries, 20bp inside initial levels.

"Mexico at 210bp sounds more interesting than Chile in the low 100s, especially in this kind of market," said the banker. "The spread in absolute terms helps. Mexico has better tailwinds." (Reporting by Sudip Roy and Paul Kilby; editing by Julian Baker)

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