11 de marzo de 2016 / 12:08 / en 2 años

EM market finds its pulse

* Brazil leads the charge

* Corporate supply boosted

* More to come but risks remain

By Sudip Roy

LONDON, March 11 (IFR) - The EM bond market exploded back to life this week as issuers from across the board jumped in to take advantage of the better market tone, with the prospect of more big deals to come soon.

After a tepid first two months, the primary market turned 180 degrees as new issues came thick and fast.

Twelve borrowers across the globe printed deals, raising US$13.44bn as EM caught up with other markets to exploit the best issuance window in several months. While fundamentals remain weak, as reflected by a series of downgrades and negative ratings actions in recent weeks, the technical picture has improved.

“EM local market returns in US dollars are up and leading the rebound year-to-date, while fund flows continue to suggest there is appetite for EM risk,” said Murat Ulgen, global head of emerging markets research at HSBC in a report.

It’s anyone’s guess how long this appetite for risk will last, but while it does EM issuers are exploring all corners of the funding markets - dollars, euros, high grade, high yield, and sub debt.

Latin America has led the way with six borrowers this week, Brazil the star turn. The sovereign sold its first deal in 18 months, in a move that caught the market by surprise.

Brazil priced a US$1.5bn 10-year bond at a yield of 6.125% off a book of US$6bn that allowed leads to cut pricing by 37.5bp through the execution process.

Like a number of emerging markets credits, Brazil’s bonds have rallied hard over the past month. Its 4.25% Jan 2025 notes have tightened 140bp since February 11, according to Eikon data, to trade at a Z-spread of 440bp at Wednesday’s close.

The rebound in commodity prices and dovish central bank policies in developed markets have undoubtedly helped lift sentiment, though in Brazil’s case investors have also been emboldened by hopes that the country’s political troubles have passed their worst.

“I think this trade benefited from the technicality of the investor base being underweight,” said a banker away from the deal.


While Brazil has dominated headlines, the spurt in corporate supply is almost as notable. Outside of Asia, barely any corporate had tapped the market this year with only Mexican state-owned oil company Pemex issuing, albeit its US$5bn triple-tranche trade in January is the biggest EM deal of the year.

Pemex was back this week, this time through a 2.25bn dual-tranche offering, continuing the theme of EM’s best borrowers tapping euros to lock in low yields.

But more promising were the first corporate transactions of the year from CEEMEA through Kuwaiti holding company Kipco and Turkish conglomerate Koc, while America Movil, also in euros, and Cemex sold the first private-sector corporate deals from Latin America.

The latter’s trade, in particular, provided an encouraging sign for the broader EM market. The Mexican cement company printed a US$1bn 10-year non-call five senior secured notes.

Cemex, B+ by Standard & Poor’s and BB- by Fitch, not only upsized the deal from US$500m thanks to strong demand, but also cut pricing by a staggering 62.5bp, from an initial yield of 8.375% area to 7.75%.

“It’s a high yield, B rated name that came in by 60bp over the day and increased its size. This is a good example of how the more esoteric, lower-rated names are increasingly working,” said a syndicate banker away from the deal.

With the pipeline building, bankers hope the issuance spree will continue. Asia could join in soon. The region has been relatively quiet, albeit three EM issuers were in the market this week.

But with China’s National People’s Congress finished, bankers expect the country’s state-owned enterprises to emerge soon, though broader regional corporate issuance may not get going fully until the blackout period for Hong Kong-listed companies ends.


And a year that began so badly for emerging markets could soon see some record-breaking deals. Argentina is expected to raise US$11.5bn-US$12bn through its first deal since defaulting in 2001, while Israeli pharmaceutical Teva is eyeing US$22bn in bonds to help finance the acquisition of Allergan. Both are possible in the second quarter.

Russian issuers are also slowly returning to the market with Gazprom meeting Swiss investors next week, while a more niche name in B&N Bank (known locally as BinBank) is holding a roadshow too.

Bankers, though, burned by the volatility in the asset class ever since the May 2013 Fed tapering announcement, are not getting carried away.

“It’s good to see that the EM market is still alive, although I‘m not sure how long the positivity will continue,” said one syndicate official. (Reporting by Sudip Roy; editing by Julian Baker)

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