Braskem has priced $750m in 2021 bonds at 98.14 with a 5.75% coupon to yield 6.00%, or UST plus 243bp, at the tight end of 6.000%-6.125% guidance. Braskem is funding a tender offer for shorter, more expensive bonds. Capitalizing on its recent promotion to investment grade by S&P, the petrochemicals producer was heard getting more than $2.5bn in orders for the Baa3/BBB minus/BB+ bond, with a yield that pleased investors. “They left a little bit on the table this time,” says a New York-based EM investor. He sees a 10bp-15bp concession to the curve, noting that the company has not given up much in the past. The bond traded up slightly in the gray market, according to a trader. “This is an improving situation,” says another US EM investor participating in the deal. He expects a third investment-grade rating soon, and sees Braskem in strong position to improve in the next 2-3 years along with Brazil’s GDP growth. Citi, Deutsche Bank and Santander managed the deal. Braskem is raising the funds to buy back any and all of $250m in 11.750% 2014 bonds, $250m in 9.375% 2015s and $275m of 8.000% 2017 bonds. It will offer $1,242.50 per $1,000.00 for the 2014, $1,220.00 per $1,000.00 for the 2015 and $1,168.75 per $1,000.00 for the 2017, it says, in a tender launched as soon as today. Braskem’s most recent transaction was a $450m perpetual in September.
Category: Economy & Policy
Hike Expected for Peru Rate
Market consensus points to an expected 25bp hike in Peru’s policy rate, increasing it to 4.00%. Morgan Stanley says that the central bank will have to continue tightening rates to contain inflation. It expects the rate to reach 5.50% by the end of the year. Barclays, however, expects a 50bp hike, saying that strong domestic growth –of around 10% year over year in February- gives the central bank room for more aggressive tightening.
Investors Upbeat Despite Subdued Flows
With EM debt seeing slowing inflows and some managers seeing outflows, investors remain positive towards the asset class. EM bond funds posted a net inflow of $2.32bn for Q1 2011, according to EPFR, a shadow of the $11.54bn recorded during the comparable period last year. “There is still a need for income,” says Paul Denoon, head of EM debt at AllianceBernstein. “For fixed-income it is an issue of relocation,” the investor says, explaining that there may be more funds going into products other than straight EM, such as multisector funds with an EM component. The slowdown in flows is not a major concern at this point, he says. “Interest is still high in EM,” says Denise Simon, EM portfolio manager at Lazard Asset Management. She says investors are still underexposed to and interested in EM, and describes the slowdown as “natural” and “healthy.” Alberto Bernal, head of research at Bulltick, notes that many local pensions in LatAm are investing less in EM assets and more in cheap US assets. EM performance is lagging as well. EM external debt has returned just 1% this year, compared to 4% for US high yield, 4% for EM equities and 6% for the S&P 500, according to HSBC. Optimism about a US recovery may be diverting funds away from pure EM bond investment and could pressure the asset class further if it is joined by US rate hikes expected later this year, Pablo Goldberg, head of EM research at HSBC, says. He notes that too little US growth is also unfavorable, as US and China are still key drivers for EM economic performance. All spoke on an EMTA panel in New York Monday. Panelists saw the EM debt benchmarks returning 4%-6% this year, and local currency benchmarks returning about 7%.
VW Leasing Raises MXP2bn
Mexico’s VW Leasing has issued MXP2bn in 3-year bonds at TIIE plus 40bp, pricing in line with guidance, according to a banker on the deal. The issue received MXP3.2bn in orders, according to another banker on the deal. Prior to the sale, a report from Scotia had expected pricing of 30bp-35bp, while some investors had expected as much as 60bp. “The company has a guarantee from Volkswagen, which is why the deal is AAA, but the leasing company itself does not have a very strong balance sheet,” says one investor. Mutual funds, bank treasuries and pension funds were the main types of investors, bankers say. VW leasing plans to use proceeds to finance its operating needs. BBVA Bancomer and Banamex managed the sale. The leasing company last came to the Mexican market in October 2010, when it issued MXP1.5bn in 4-year bonds, which priced at 60bp over TIIE.
Brazil Upgraded to BBB by Fitch
Brazil’s sovereign rating was upgraded by Fitch Monday to BBB from BBB minus. “The Brazilian economy has increased to 4%-5%, supporting the medium-term fiscal outlook and the continued strengthening of its external liquidity position,” according to Fitch. The outlook is revised to stable from positive. GDP growth last year reached 7.5%, and notes that while Brazil’s current account deficits are likely to remain more elevated, the deterioration in net external debt indicators could be contained by expected FDI. Economic growth is expected to reach 4% in 2011, according to Fitch. The ratings agency has had the sovereign on a positive outlook since June 2010. S&P rates Brazil one notch lower, at BBB minus with a stable outlook, while Moody’s rates it Baa3. The BRL closed against the USD at BRL1.61 Monday. Nomura says it sees BRL1.60 as fair value based on its models. “We see recent events as further proof that the current interventionist policy will likely do little to impede the appreciation of the BRL,” Nomura says in a research note.
Funds Flow into EM Bonds
In the week ended March 30, EM bonds saw inflows of $441m, EPFR Global says, adding that this is an 11-week high. “Flows into EM bond funds continue to favor funds with local currency mandates and, from a geographic perspective, those with an Asian focus,” EPFR says. Performance was also positive, with the funds gaining 1.02% in the week ended March 31, and 1.54% so far this year, according to Lipper.
IMF Completes El Salvador SBA Review
The IMF says it has completed its second review of El Salvador’s economic performance as part of its 3-year stand-by arrangement (SBA). The arrangement was approved on March 17 for SDR513.9m, equivalent to 300% of the country’s quota in the IMF. “The decline in the overall fiscal deficit envisaged for 2011 will continue to support the economic recovery and stabilize the public debt,” the IMF says. For 2011, it adds, improved prospects for external and domestic demand are expected to lift output growth, although high global fuel and food prices will increase inflation and the external current account deficit.
LatAm Equities See Outflows
In the week ended March 30, LatAm equities saw outflows of $80m, according to EPFR Global, the 11th consecutive week of inflows. “Sentiment towards the region’s biggest market shows some signs of thawing with Brazil equity funds posting inflows for the first time since the second week of January as evidence that fiscal discipline is beginning to have an effect brightened the outlook for interest rates,” EPFR says. Brazil equities posted inflows of $7m in the week. GEM equity funds had inflows of $1.5bn. As for performance, Lipper data shows that in the week ended March 31, LatAm equities gained 6.23%, but are still down 1.54% year-to-date. Meanwhile, EM equities gained 6.34% in the week and are up 0.33% ytd. Global small and mid-cap funds are up 4.77% in the week and 3.89% ytd.
Pemex: Paying Up For Production
Pemex has been making changes to try and resuscitate oil output. They may not be enough to fully exploit Mexico’s potentially huge untapped resources.
Mexican Economy in Sweet Spot
Mexico’s macroeconomic environment is in good shape, but reforms are required to draw further investment. The drug war weighs on GDP expansion.