Wednesday, 26 September 2018

Ukraine makes coupon payment

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Ukraine has paid a US$120m coupon payment due today on its July 2017 bond, according to Reuters. Goldman Sachs analysts had written a note last month that said that, as its base-case scenario, Ukraine would not make the payment and would, therefore, enter into default.

Negotiations over a US$23bn debt restructuring continue with its creditors. Attention will also now turn to Ukraine’s next major payment – a US$500m bond due on September 23.

In the primary markets, Zambia hit the mid-range of its size target by raising US$1.25bn on Thursday but it paid a high price to do so.

At 9.375%, Zambia’s yield is higher than where even Ghana’s 2026s are trading and while Zambia managed to print at a coupon just inside 9%, it do so by selling the bond at a significant discount to par.

Zambia paid a new issue premium of 25-35bp but given the state of its economy and what Kazakhstan paid last week, albeit for a much bigger deal, that was always likely to be the going rate.

Zambia’s officials didn’t help their cause, publicly telling newswires of their intention to raise up to US$2bn – though on the roadshow, investors were told to expect US$1bn–$1.5bn. Those public pronouncements drove their curve 1–1.5pts lower.

With Zambia done and dusted, attention turns to whether a couple of esoteric high-yield trades will get done. Georgia’s Rustavi Azot has set IPTs of 12.50%–13.00% from IOIs of 11%–13% for a US$180m five-year non-call three bond that’s now expected to price on Monday.

The bond terms contain standard conditions, including a limitation on indebtedness once gross consolidated debt-to-Ebitda exceeds 3.5x from 2015 and 3x from 2017, according to Fitch.

The latest fund flow data show EM bond funds saw net inflows of US$262m, according to EPFR, led by local currency funds and blend funds.

As for today’s conditions, European markets are opening with a slightly weaker bias after a soft night in Asia.

In Japan, a bout of weekend profit taking saw the Nikkei close down 0.7% despite a better than expected mfg PMI number. The Hang Seng is off around 1%, and the Shanghai Composite is off around 0.9% after a horrible mfg PMI print.

In Europe, Bund and BTP futures are up over 20 ticks. Stock futures are in the red, but credit is fairly nonchalant with the Main 0.5bp wider at 61.25bp, the Crossover 2bp wider at 281bp and the Senior Financials flat at 69bp.

This week has mostly been about US earnings. And last night after the close, Amazon became the latest high profile name to blow the doors off, sending its shares rocketing 17% in after-hours trading, which in turn sent Nasdaq futures north.

But the reality of the season is that the market is only really reacting to bad numbers, as we saw on Wednesday after some of the tech firms disappointed. And so despite the likes of GM, Dow Chemical, McDonald’s, Eli Lilly and Kimberly-Clark all beating the Street, the miss from Caterpillar was what the market latched on to, leaving the Dow and S&P down over 0.5%.






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