Lithuania sells bonds as Italy's troubles make for busy but cautious day for EM assets

By Christine Van Dusen

Atlanta, Nov. 9 - The Republic of Lithuania sold notes on a busy but cautious day for emerging markets assets as Italy's troubles continued to amp up anxiety and inspired a sell-off of risky assets.

"It's been a busy morning," a trader said. "Overall the market is pretty nervous, though. The market tried to open on solid footing; however, it quickly turned around when the Italian BTP market took a turn south."

Of primary concern is the political turmoil in Italy, where prime minister Silvio Berlusconi agreed to resign but where chances are rising for a snap election, according to a report from Barclays Capital Markets.

Then there's Greece, where the prime minister's succession faces delays.

"Investors initially welcomed news of PM Berlusconi's resignation with a short-lived risk asset rally," Barclays said. "However, Italian 10-year sovereign yields soared above 7.45% ... equities and risk assets quickly followed suit by selling off sharply."

Still, flows were somewhat active for emerging markets assets, a trader said.

"As the market limps into the year-end, it's going to be a very interesting last few weeks," he said. "Dealing desks are, for the most part, probably lethargic and tired at best. Many have just recently had redundancies or are about to. Positioning over year-end will be, as usual, monitored and squaring up is likely to continue into year-end as funding and balance sheets are trimmed. Of course, the backdrop is anyone's guess."

Meanwhile, several issuers - including Abu Dhabi Islamic Bank PJSC (ADIB), the Republic of Romania, Russia-based OJSC Gazprom and Singapore's Cosco Corp. (Singapore) Ltd. - took steps toward the market.

"It feels like there are a good number of issuers in my world stuck in a holding pattern over the market, monitoring the situation so any sort of rally or pop will be met by more supply," a trader said.

Lithuania prints notes

In its new deal, Lithuania priced a $750 million increase of its existing 6 1/8% notes due March 9, 2021 at 101.249 to yield 5.947%, or Treasuries plus 390 basis points, according to a notice from the sovereign.

JPMorgan and UBS were the bookrunners for the Rule 144A and Regulation S deal.

Proceeds will be used to address Lithuania's forthcoming maturities and for general budgetary purposes.

ADIB mandates bookrunners

In other deal-related news, Abu Dhabi Islamic Bank PJSC has mandated ADIB, Citigroup, HSBC, National Bank of Abu Dhabi, Nomura and Standard Chartered Bank for a dollar-denominated offering of benchmark-sized notes, a market source said.

The Regulation S notes will be marketed during a roadshow starting Nov. 17.

"This kind of explains how sukuks were trading poorly this morning," a trader said. "I put it down to supply coming, backdrop poor, few Islamic banks letting go of paper, plus the Street isn't going to have many natural shorts to fill."

Still, decent selling was noted for some sukuks.

"Supply is on the horizon as everyone still sees sukuks as some sort of Holy Grail-type market," he said. "Plus, purely and simply there was some paper floating around."

Romania plans roadshow

Also on Wednesday, Romania mandated Citigroup, Deutsche Bank and HSBC to arrange a roadshow to market the sovereign's planned dollar-denominated notes, a market source said.

The Rule 144A and Regulation S deal will be marketed from Friday to Monday in London and the United States.

And Russia-based gas company Gazprom mandated BNP Paribas and JPMorgan for a dollar-denominated offering of notes, a market source said.

The Rule 144A and Regulation S transaction will be marketed during a roadshow in the United States starting Monday.

Cosco plans notes

Singapore-based shipping company Cosco Corp. (Singapore) Ltd. - a subsidiary of Beijing-based China Ocean Shipping (Group) Co. (Cosco Group) - has mandated BOC International and JPMorgan for a possible issue of notes that will be marketed during a roadshow starting Thursday, a market source said.

The notes are part of a RMB 2 billion multicurrency medium-term note program established in September.

Under the program, Cosco may issue notes in series or tranches from time to time. The notes may be denominated in renminbi or other currencies and will have various tenors. Interest may be fixed or floating.

Proceeds will be used for general corporate purposes.

IPIC active

In trading, the recent notes from Abu Dhabi-based International Petroleum Investment Co. were particularly active on Wednesday.

The deal included $1.5 billion of 3¾% notes due 2017 that priced at 99.669; $1.5 billion notes due 2022 that priced at 99.743 and $750 million 6 7/8% notes due 2041 that priced at 99.097.

Buyers were seen for the 2017s, which were trading at 98.80 bid, 100.05 offered. Buying was also seen for the 2041s, which were seen on Wednesday at 102.25 bid, 102.75 offered.

"We've had two-way flow on the 2015s and 2017s so far today," he said. "The IPIC 2020s are almost getting interesting, having been left behind versus demand for the 2017s. I think they are looking OK, having been beaten up this morning."

UNB trades up

Another trader was keeping an eye on the recent issue of $400 million 3 7/8% notes due 2016 from Abu Dhabi-based Union National Bank PJSC.

The notes priced at 99.05 to yield 4.087% via bookrunners Citigroup, Deutsche Bank, HSBC, National Bank of Abu Dhabi and Standard Chartered Bank in a Regulation S deal.

On Wednesday, the notes were seen at 99 bid, 99.15 offered.

"It can probably perform a little over time versus National Bank of Abu Dhabi and First Gulf Bank," he said. "National Bank of Abu Dhabi is moving back to the top of the list along with the HSBC sukuk."

Middle East, Africa in focus

Also from the Middle East, bonds from Dubai were about 10 bps wider against the sovereign.

"Emirates' 2016s are again holding well, now at 99.5 bid, 99.8 offered. Retail investors just adore that bond," a trader said. "The Qatar space is relatively quiet versus Abu Dhabi today, which is understandable."

Qatar National Bank, meanwhile, seemed "a little tired," he said. And demand was noted for Qatar-based Qtel International.

From Africa, most bonds were wider and felt a little bit heavy, a trader said.

Two-way activity was seen for African Export-Import Bank's 2016s, which were trading Wednesday at 97.62 bid, 98.37 offered. And demand was noted for Morocco.

Selling for Russia credits

Looking to Russia, selling was seen for quasi-sovereign names, a trader said.

Sberbank and VTB Bank were the widest on Wednesday.

"We are slightly better buyers of Gazprom's 2022s," he said.

And from Turkey, sovereign bonds were mostly quiet due to the Eid holiday.

"Banks have been trading but in thin volumes," he said. "Akbank papers are mainly active with Yapi Kredi also seeing retail interest in small amounts."

New deals oversubscribed

In other news on Wednesday, the final book for the Dominican Republic's $250 million add-on to its 7½% notes due May 6, 2021 was $2.1 billion, a market source.

The notes priced Tuesday at 103.952 to yield 6 7/8%, the low end of talk.

Citigroup and Deutsche Bank were the bookrunners for the Rule 144A and Regulation S deal.

And the final book for Peru-based Intercorp Retail Trustee's $300 million issue of 8 7/8% notes due 2018 was about $650 million, a market source said.

The notes priced at par to yield 8 7/8% via Bank of America Merrill Lynch and JPMorgan in a Rule 144A and Regulation S transaction.

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