New issues hit bond market amid rally
January 30, 2014
Two borrowers came to the dollar bond market Thursday as conditions improved after a turbulent week
Guatemala’s telecommunication company Comcel and Peruvian conglomerate Minsur were heard to be in the bond market Thursday following several days of volatility and the US Federal Reserve’s decision to cut bond purchases by a further $10bn a month.
The deals will test the market for Latin American borrowers after days of turbulence that saw Argentina devalue its currency and a surprise decision by Turkey’s central bank to hike interest rates, which sent currency markets tumbling.
“After all of the noise and the headlines about the EM currencies and the Argentina devaluation I suspect we have pretty strong retail [fund] outflows for the week, so that’s not going to help anybody feel better,” said a syndicate banker, adding that despite the uncertainty in the market she expected the Millicom-owned Comcel deal to do well. “I think that [telecommunications] is a sector that people like.”
Latin bond markets have had a tough run in recent days, with Unicomer stepping back from the market on Friday after lead managers were heard to have announced price talk the day before.
Chilean public transport operatorEmpresa de Transporte de Pasajeros de Metro nonetheless sold a heavily-subscribed $500m 10-year bond on Tuesday. Market players said the deal attracted a lot of interest because the company is controlled by Chile’s national government.
“I think Metro is a deal that is basically a sovereign, it’s pretty easy to buy,” a banker said.
Central American retailer Unicomer may have called off a bond sale last week because it pushed too hard on price. “I think this is a market where you don’t push things if you don’t have to,” said the banker.
Investors surveyed by LatinFinance on Wednesday said the Fed’s decision to extend tapering was already factored in — and that Chinese demand would have a heftier sway over markets. “Whoever was not expecting this by the Fed was crazy, unless people were thinking that the Fed was going to come to the rescue because emerging markets were going down,” said Edgardo Sternberg, a vice president at Loomis Sayles.
Even though EM bond markets have been volatile in recent days, there was no reason to believe that the countries would “implode”, he said. Growth in China and the consequent demand for commodities, which spurred growth in Latin America in recent years, would be the main factor influencing the region’s debt markets in the coming months, he said.
CDS referencing Latin sovereigns tracked tightened on Thursday, with Colombia and Mexico coming in by 3bp and Brazil by 1bp by early afternoon.
The Fed noted that US economic activity picked up in recent quarters. “Emerging markets should be supported by that,” said Sternberg. EM bond investors were more concerned about Turkey’s surprise interest rate hike on Wednesday and its impact on currency markets, said Andrew Stanners a portfolio analyst at Aberdeen Asset Management. “In terms of dollar bonds [the Fed’s decision] just keeps Treasuries roughly where they are now and that’s mildly supportive for dollar bonds,” Stanners said. LF