“The recession and fall in oil price will
negatively impact government revenues,”
Fitch said in report about Colombia.
The sovereign’s bonds bounced shortly
following the cut. Its 5.20% 2049 bond was
DOWNûSIGNIlCANTLY ûTRADINGûATûûASûOFû
end of day Thursday, according to
MarketAxess.
Before the downgrade the note had been
trading at around 106.10 on Tuesday,
according to the data.
Similarly, its 4% 2024 bonds were down
slightly on Thursday, changing hands at
100.10, down from 101.150 before the
downgrade, MarketAxess showed.
Fitch is expecting the nation’s economy to
contract by 0.5% in 2020, mostly due to declining
domestic demand and falling oil exports. But it
expects a recovery of around 2.3% in 2021.ECUADOR
EMTA RECOMMENDS TRADING
ECUADOR BONDS WITH ACCRUEDWhile markets brace themselves for some
sort of debt restructuring in cash-strapped
ECUADOR, emerging markets trade
association EMTA is recommending that
sellers of the country’s sovereign bonds
continue to be paid accrued interest during
grace periods.
Last month, the government said it would
cover a 2020 bond payment that was due on
March 24 but use grace periods on interest
due on other bonds later this month to
retain funds for the health emergency
caused by the coronavirus.
It also called for talks with creditors to
REPROlLEûLIABILITIES ûLEADINGûTOûAûSTRINGûOFû
downgrades.The health crisis caused by the pandemic
and a dramatic drop in oil prices have only
EXACERBATEDûTHEûDIFlCULTIESû%CUADORûHASûHADû
in meeting debt payments.
Bonds typically start trading without
ACCRUEDûINTEREST ûORûhmATvûINûMARKETû
parlance, when there is uncertainty over
whether the bondholder will receive
interest or principal in a timely manner.
As Ecuador is using its grace period to
delay payments, it is not technically in
default, and EMTA recommended that
sellers in all trades entered into on or after
March 30 be entitled to accrued and unpaid
interest if paid during the grace period.
EMTA made similar recommendations for
Venezuela bonds in 2017 amid uncertainty
over whether coupon payments would
ultimately reach investors as the
government blamed US sanctions for delays.
)TûlNALLYûENDORSEDûmATûTRADINGûINûEARLYû
2018 after S&P downgraded Venezuela to D
and grace periods on several bonds had long
expired.
The situation in Ecuador is expected to be
clearer cut, with analysts expecting the
GOVERNMENTûTOûlNDûAûRESOLUTIONûTOû
upcoming debt payments quickly.
“The next steps are quickly coordinating
WITHûLEGALûANDûlNANCIALûADVISERSûFORûAûFAST
track friendly proposal,” Siobhan Morden,
HEADûOFû,ATINû!MERICAûlXED
INCOMEûSTRATEGY û
wrote on Monday.MEXICO
PEMEX BONDS SWING AS MARKETS
ASSESS RELATIVE VALUEBonds issued by Mexican state-owned oil
lRMûPEMEX continue to suffer price swingsas investors assess whether to abandon the
credit altogether or buy at what might be
cheap levels.
With one foot already in junk territory
after Fitch cut it to BB+ last year, Pemex
faces another possible demotion to sub-
investment-grade from Moody’s, which
rates it Baa3 with a negative outlook.
If that happens soon, debt-laden Pemex
could become one of the largest fallen
angels ever in terms of the amount of debt
that will shift from investment grade to
junk.
0RICESûONûITSûBONDSûALREADYûREmECTûSUCHû
concerns. And a dramatic drop in oil prices
as well as S&P’s decision last month to cut
the Mexican sovereign to BBB from BBB–
has only exacerbated secondary levels of
the state-owned entity.
Pemex’s recently issued 6.95% 2060 hit
an intra-day high last Tuesday of 68.50,
only to drop back to 66.75 for a spread of
914bp later in the day, still a touch higher
than where they on March 27, according to
MarketAxess data.
It is a similar story for the 5.95% 2031s,
which were also issued January. They were
trading at 70.00, but have since fallen back
to 68.76 or 1,025bp over Treasuries.
Rafael Elias, an analyst at INTL FCStone
Financial, said that many investment-
grade investors sold Pemex following
S&P’s downgrade of the sovereign in
anticipation of a Moody’s downgrade for
Pemex.
“The price for the Mexican oil basket is
now slightly above US$10 per barrel,” Elias
wrote in a report last week.
“This means that oil revenues are going
to be much lower than those budgeted for
2020 where it was assumed that the basket
would average around US$40 per barrel. IInternational Financing Review April 4 2020 73EMERGING MARKETS AMERICAST+312a
T+275 (the #)22 US$5.25bn A3/-/A BofA/GS -T+325a
T+285 (the #)24 US$5.75bn A3/-/A BofA/GS -3.8% (#) - - - Central/Guosen
/Zhongtai/Wing Lung/CMBCHK/
CMBC Cap Goldbridge Securities/
Everbright Sun Hung KaiT+550 area,
T+550 (the #)112 US$700m Baa1/BBB+ Barc/Citi/CA-CIB/Miz/RBC -T+550 area,
T+550 (the #)114 US$750m Baa1/BBB+ Barc/Citi/CA-CIB/Miz/RBC -T+575 area,
T+575 (the #)115 US$900m Baa1/BBB+ Barc/Citi/CA-CIB/Miz/RBC -
- 31acs Aa2/AA UBS Switz 100%. AM 40%, Tsy 44%, Ins 7%,
PF 5%, Bks/PB 5%.
3.125% area, 2.75%
yld
- A1/AA-/A+ Barc/BofA/Citi/GS -
- 31acs Aa2/AA UBS Switz 100%. AM 40%, Tsy 44%, Ins 7%,
4.25% area, 3.875%
yld
- A1/AA-/A+ Barc/BofA/Citi/GS -
4.875% area, 4.5%
yld
- A1/AA-/A+ Barc/BofA/Citi/GS -
Pricing steps NIP (bp) Book size Ratings Bookrunners Distribution8 IFR Emerging 2327 p 67 - XX.indd 73 03 / 04 / 2020 19 : 21 : 03