While EM bankers were looking to Egypt’s three tranche trade as the barometer for investor appetite for lower rated EM bonds, GTLK was the one which came unstuck after the leads were unable to move pricing from initial price talk.
The failure of the trade, which was postponed after the final spread was set on Tuesday, suggests a waning risk appetite among investors, particularly for credits with less favourable fundamentals.
Pipeline 'evaporates'
An EM portfolio manager said it was “very telling” that GTLK hadn’t managed to tighten from price talk, giving an indication of how “lukewarm" the demand was.
“Investors are clearly being more picky than, say, at start of the year which isn’t a bad thing, I don’t think it is a bad credit; it’s a liquidity thing,” he said.
However, the investor was keen to emphasise that this was not a sign the market had turned.
“I expect more volatility especially with CPI data tomorrow," he said. "But the market is having to be a little more discerning in the names it buys,how their portfolios have behaved in this, and what liquidity means. I’m still overall optimistic our asset class will perform as long as global/EM growth remains firm.”
Indeed, a second buy-side EM credit analyst said that the issue was specific to the issuer. He blamed the Reg S-only format of the deal, limiting the pool of investors that could buy it; the possibility of more sanctions against Russia from the US; and the fact the borrower had sold a new issue recently as specific reasons for the postponement, which were exacerbated by fragile market.
A third investor said his firm was not keen on the credit. “5.5% seemed to offer some value, but the fundamentals in that business are not that good and no one is keen to add much risk,” he said.
The analyst added that while it was “never a good sign” to see a pulled deal, he hoped that the rest of the market would not pay too much attention to that fact. He added, however, that the “new issue pipeline had evaporated.”
Egypt on the other hand got its $4bn deal away on Tuesday evening. Order books were around $12bn at the last update, which the first investor said looked “pretty healthy, all things considered.”
The issuer had not however managed to tighten pricing too much across the three tranches, moving from 315bp area to 303bp final spread over Treasuries for the five year, from 385bp area to 373bp final spread for the 10 year, and from 490bp area to 478bp for the 30 year.
In the loans market, Turkish food giant Yildiz Holding has restructured $1bn of short term loans into one long term syndicated loan, as part of its plan to facilitate growth this year. Yıldız has made several acquisitions over the last decade buying companies including Godiva, Nuroll, DeMet’s Candy and United Biscuits.
Emirates International Telecommunications (EIT), Dubai Holding’s telecom business, is looking to refinance a previous facility with a Dh2.1bn ($572m) club loan. The group is in talks with Emirates NBD, Noor Bank and Commercial Bank International (CBI). It will be backed by EIT’s stakes in Axiom Telecom and Du.
Francesca Young, emerging markets editor, +44 (0)20 7779 7317
Virginia Furness, emerging markets deputy editor, +44 (0)20 7779 8299
Olly West, Latin America reporter, oliver.west@globalcapital.com
Bianca Boorer, emerging markets loans reporter, +44 (0)20 7779 8423
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