Petrobras Sheds Some Gains in Wake of Rally

Latin America markets were giving back some gains Wednesday as Brazilian names led by state-controlled oil company Petrobras widened alongside broader markets.

After asset sale plans spurred a significant rally yesterday, Petrobras bonds were some 2bp-5bp weaker today amid headlines that Congress was pushing back against President Dilma Rousseff's austerity measures.

The news has soured the mood around credits in Brazil as investors once again turn their attention to the country's flagging economic growth, widening CDS spreads and pushing the Real to 2.97 per US dollar.

The country's state-owned banks are also seeing their bonds under pressure amid expectations they will bear the brunt of any support for Petrobras.

Petrobras' 3.875% 2016s, 6.25% 2024s and 7.25% 2044s were respectively being quoted at 515bp-470bp, 502bp-495bp and 512bp-502bp.

Petrobras extended its contract with auditor with PricewaterhouseCoopers but investors still fear that unexpected surprises from the widening corruption scandal threaten to upend any gains from the company's asset sale plans.

Reuters reported Tuesday that the country's top prosecutor is seeking to widen the probe into kickbacks among some high-profile politicians, raising expectations that more volatile price action is likely in coming weeks.

"While recent news have been positive, the unexpected consequences of ongoing investigations give us pause and make us believe that wider spreads are on the horizon," Jorge Piedrahita, CEO of broker Torino Capital, wrote to clients this morning.

Meanwhile, markets are awaiting any announcements from the European Central Bank tomorrow over the extent of its asset buying plans. That, plus the release of US payroll numbers on Friday, may just keep borrowers out of the market until next week unless banks decide to announce a drive-by today, say market observers.

"People are looking for operational specifics in regards to the ECB asset purchases and people don't want to sell aggressively into that because they expect markets to move another leg higher and tighter," said another trader.

Elsewhere, recently minted bonds have given back some gains but remain above reoffer prices. Mexican cement company Cemex's new dollar-denominated 2025s were off recent highs of 101.25-101.75 at 100.75-101.25 versus a 99.98 reoffer. Its euro-denominated 8NC4 was also well bid at 100.875-100.125 after pricing at par last week.

Mexico's new 30-year euro-denominated bond was quoted this morning at 100.10-100.60 versus a reoffer of 98.199.

PIPELINE
Mexican telco America Movil is soon expected to reopen its Global peso-denominated bond due 2024 for up to MXN7.5bn (US$502.5m) after filing with Mexican regulators on Tuesday.

Proceeds from the sale will be used primarily for debt refinancing as well as for general corporate purposes. The company wrapped up meetings with investors in Europe and the US last week via BBVA, Citigroup, Credit Suisse, Deutsche Bank, HSBC and Morgan Stanley (MS).

Mexican media company TV Azteca is bringing to market a rare project bond related to the development of the Andean country's fiber optic network.

Costa Rica has chosen Deutsche Bank and HSBC as lead managers on an up to US$1bn international bond sale.

Reporting by Paul Kilby