EM LATAM CREDIT: Raizen: Shell Capital Injection – Positive
(RAIZBZ; Baa3*-/BBBneg/BBB-*-)
• Raizen bonds are up about 4 points across the curve as Shell, 44% co-owner of the Brazil ethanol and fuel distribution joint venture with Cosan, said it was considering a capital injection of USD1bn if other investors would go along with them. Importantly, Cosan has been talking about a capital increase for Raizen all year, but this is the first time Shell has publicly expressed an interest in participating. We posted in September about a potential capital increase: https://mni.marketnews.com/47EqgHU and in February 2025 as well: https://mni.marketnews.com/4qZP0Uf
• The combination of a meaningful asset sale plus a capital raise could enable the company to preserve its investment grade ratings despite a rebound in profitability not likely for two more quarters. RAIZBZ 34s were last quoted at a 8.28% yield. In Comparison, 2033 bonds of Brazil based corn-based ethanol processor FS Bioenergia (FSBIOE; Ba3/NR/BB-) yielded 7.91% and 2032 bonds of Brazil sugar-based ethanol producer Adecoagro (AGRO; Ba2*-/BB*-/NR) 32s yielded 8.7%. AGRO levels also reflect an announced acquisition that will increase leverage and impair the credit profile if completed.
• A stabilization of Raizen’s credit profile with an asset sale and a capital injection could result in levels closer to Brazil ‘BB’ benchmark Minerva 2031 bonds (BEEFBZ; NR/BB/BB) at 6.05% yield, considering that Raizen still would need to substantially improve operational performance.
• Raizen’s leverage has risen substantially this year due to operational difficulties as well as the increased cost to term out debt. Asset sales were proposed but no major sales have yet been completed.
• The company appeared to be making progress with reportedly buyers of its Argentina assets for an estimated USD1.5bn now that the investment climate in Argentina has improved post the ruling party’s success in the recent congressional elections. Please see our post last week for more information: https://mni.marketnews.com/4ooYBlB
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USDCAD TECHS: Fresh Cycle High
- RES 4: 1.4111 High Apr 10
- RES 3: 1.4045 3.0% Upper Bollinger Band
- RES 2: 1.4019 38.2% retracement of the Feb 3 - Jun 16 bear leg
- RES 1: 1.3989 200-dma
- PRICE: 1.3953 @ 16:02 BST Oct 3
- SUP 1: 1.3897/3825 Low Sep 30 / 50-day EMA
- SUP 2: 1.3727 Low Aug 29 and a bear trigger
- SUP 3: 1.3689 Low Jul 28
- SUP 4: 1.3637 Low Jul 25
A bull cycle in USDCAD remains intact and yesterday’s break above the late September’s high, firms the bullish theme. This move higher also maintains the bullish price sequence of higher highs and higher lows. Note too that moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 1.4019, a Fibonacci retracement point. On the downside, first key support lies at 1.3825, the 50-day EMA.
AUDUSD TECHS: Support Remains Intact For Now
- RES 4: 0.6763 1.382 proj of the Jun 23 - Jul 24 - Aug 21 price swing
- RES 3: 0.6726 1.236 proj of the Jun 23 - Jul 24 - Aug 21 price swing
- RES 2: 0.6660/6707 High Sep 18 / 17 and key resistance
- RES 1: 0.6629 High Sep 30 & Oct 01
- PRICE: 0.6603 @ 16:01 BST Oct 3
- SUP 1: 0.6527/21 61.8% of the Aug 21 - Sep 17 bull leg / Low Sep 26
- SUP 2: 0.6484 76.4% retracement of the Aug 21 - Sep 17 bull leg
- SUP 3: 0.6463/6415 Low Aug 27 / Low Aug 21 / 22 and a bear trigger
- SUP 4: 0.6373 Low Jun 23
The AUDUSD uptrend remains intact and recent weakness appears to have been a correction. Support to watch lies at the 50-day EMA, at 0.6558. A clear break of this average would signal scope for a deeper retracement and expose 0.6527 once again, a Fibonacci retracement. For bulls, a stronger reversal higher would refocus attention on 0.6707, the Sep 17 high. Initial resistance to watch is 0.6629, the Sep 30 and Oct 1 high.
US TSYS/SUPPLY: September's Coupon Auctions Were Generally Solid (2/2)
September’s coupon auctions were generally solid, with three lines trading through, two coming out on the screws and two tailing slightly.
- Looking through the lens of MNI’s Relative Strength Indicator (RSI), five lines saw positive readings while two saw negative readings.
- The 3-year sale was the strongest auction of the month according to MNI’s RSI. The 3-year line traded through 0.7bps, the largest stop through in seven months. Meanwhile, the primary dealer take-up was just 8.4%, the lowest on record (data going back to 2003).
- The weakest sale of the month was the last – the 7-year line. This line saw the second consecutive 0.5bp tail, with the 12.0% primary dealer take-up above August’s 9.8% and July’s record low 4.1%.
September Auction Review:
- 2Y Note on-the-screws: 3.571% vs. 3.571% WI.
- 2Y FRN: 0.200% high margin vs. 0.195% prior
- 3Y Note trade-through: 3.485% vs. 3.492% WI.
- 5Y Note tail: 3.710% vs 3.709% WI.
- 7Y Note tail: 3.953% vs. 3.948% WI.
- 10Y Note trade-through: 4.033% vs. 4.047% WI.
- 10Y TIPS: 1.734% high yield vs. 1.985% prior
- 20Y Bond trade-through: 4.613% vs 4.615% WI.
- 30Y Bond on-the-screws: 4.651% vs. 4.651% WI.
