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Комментарий Андрея Соловьева, Руководителя Управления рынков долгового капитала ВТБ Капитал, для IFR

20 Сентября 2017
IFR
EEMEA OPEN: New issues trade down

The main news from overnight was, as one would expect, the outcome of the Federal Reserve's Open Market Committee meeting.

Nominally this was as expected, the only real news being the outlining of the gradual winding down of the reinvestment of the proceeds from the Fed's quantitative easing programme.

In reality, however, this produced significant disappointment from those who were hoping for a more dovish take or, more appropriately, a "dovish surprise".

Specifically, this pertains to the Fed's forecasts and especially its dot plot of expected interest rate decisions, where there had been hopes for reducing or eliminating the possibility of another hike in interest rates in December, as well as the possibility of scaling back the three interest rate hikes the Fed foresees for next year. 
 
It is marginal comfort then that the terminal funds rate forecast was reduced slightly. The yield on 10-year Treasuries jumped to nearly 2.29%, though are now back at 2.27%. It will probably take a few days for the market to settle.

In the meantime, EM new issues are having a hard time of it and a slight pause in issuance should help - there are no significant US dollar deals expected in the coming days with the only mandates in the currency in the public pipeline from Sibur and Puma Energy.

This week alone has seen a US$4bn trade from Russia, US$2.5bn from South Africa, US$2bn from Petrobras, while Ukraine sold US$3bn last week. These are nominal amounts and the net issuance volumes are much less but it's meant there's been a lot of paper flowing through the market.

The supply combined with the moves in Treasuries has meant that things are a bit trickier (though it's too early to say the bull run is over). Russia's 2047s are trading as low as 100.5, according to a trader, while he's spotted the South Africa 2047s at 99.75 and the Ukraine 2032s at 99.40.

Russia's trade was a bit of a strange one. The combined order book was US$6bn, which was ok. It less than the demand achieved by Ukraine and Bahrain but a bit more than by South Africa. Both taps priced in the middle of their price range.

On the make-up of the investor base, Andrey Solovyev, global head of DCM at VTB Capital, stressed the Asian element.

"Notably, there was a lot of interest from Asian pension and insurance companies, investors from Hong Kong and Taiwan, hedge funds, private investors and real money accounts also actively participated in the deal."

On the tender, the government decided not to buy back any of the 2018s but US$6.5bn of the 2030s. Last week Alexander Kudrin, an analyst at Sberbank CIB, did say the incentives for investors on the 2018s weren't great.

"We think that most of the holders of the Russia 18 will decide to maintain their positions, given that the new papers will have a longer duration and that a premium is not being offered. In our view, if the ministry buys back US$1bn of the Russia 18, this would be a big success," said Kurdrin last week.

The main holder of the 2030 notes is Otkritie Holding, Russia's biggest private financial group, and whose bank had to be rescued last month.

"The sides seem to have reached a compromise on the price, agreeing that the papers would be bought back at 250bp below the market price. We think that Otkritie will sell the paper but not participate in the placement," said Kudrin.

There is one deal in the primary today - a Eurorouble offering from RusHydro. The leads have announced IPTs of 8.25% area for a five-year deal.

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