SM Investments, China South City do deals during constructive EM session; Dubai in demand

By Christine Van Dusen

Atlanta, Oct. 10 - SM Investments Corp. and China South City Holdings Ltd. printed new deals on a mostly neutral and somewhat busy Wednesday for emerging markets bonds.

"On Wednesday morning markets saw neutral external background," according to a report from UFS Investment Co. "Most markets are flat."

Said a London-based trader, "Flow-wise, today was fairly active. Spreads, overall, did well today with United States Treasuries lower."

Bonds from issuers in Dubai saw two-way inquiries from retail investors while Street buyers were seen for International Petroleum Investment Co.'s dollar bonds, which closed out 7 basis points to 10 bps better.

"One name that felt a little heavy was Saudi Electricity Co.'s 2022s, trading between 108.25 and 108.375 most of the day," he said. "It does also still feel like some Street players are happy off-loading DPWorld paper despite credit default swaps being hit at 225 and the pick-up to the sovereign on the 2017s."

Dubai Holding's 2014s were "ticking along," he said. "Retail is still looking at the offer side."

Bahrain's 2022s were trading with a 107 handle, 7 bps tighter on the day and 40 bps tighter on the month.

"Some bonds were very tricky to source and replace and others are proving liquid and acting as good barometers of Middle East and North Africa risk appetite," he said. "Constructive day and tone, for the most part, today."

In other trading on Wednesday, Dubai Electricity and Water Authority (DEWA) saw some curve steepening, and bonds from Russia were mostly flat.

"In the absence of important news in the coming days market dynamics will remain largely unchanged," UFS said. "Flat trend will prevail."

Asian developers price notes

In its new deal, Philippines-based retail and tourism property developer SM Investments printed $500 million 4¼% notes due Oct. 17, 2019 at par to yield 4¼%, a market source said.

Citigroup, JPMorgan and Deutsche Bank were the bookrunners for the Regulation S deal.

And China South City Holdings - which develops and operates logistics and trade centers in China - priced a $125 million issue of 13½% notes due Oct. 17, 2017 at 97.381 to yield 14¼%.

UBS, Bank of America Merrill Lynch and HSBC were the bookrunners for the deal with UBS as global coordinator.

Proceeds from the offering will be used to fund property development, to refinance existing debt and for general corporate purposes.

Gulf banks trade up

Recent sukuk from the Gulf Region received some attention in trading on Wednesday.

The new 2017 notes from First Gulf Bank were seen at 100.30 bid, 100.40 offered after pricing at par. And the 2017 notes from Qatar Islamic Bank, which also priced at par, were quoted Wednesday at 100.10 bid, 100.20 offered before trading at 100.12 bid, 100.25 offered.

The 2022 notes from VTB Bank - another deal that came to the market at par - were sighted Wednesday at 101.76 bid, 101.89 offered.

DEWA curve steepens

One trader was particularly interested in bonds from DEWA, which is planning a new issue of Islamic bonds.

"Interesting to see some long-overdue steepening in DEWA," he said. "The 2015s are trading very well of late, and the curve has in a way become normalized after a long period of time when the 2016s always traded rich. They have a [dirham] bond coming due next June, so there are some mumblings they may turn to this market to refinance that bond."

The 2015s were seen early Wednesday at 113 bid, 113.50 offered and later traded at 113.06 bid, 113.56 offered.

The 2016s were quoted at 110.37 bid, 110.87 offered and then 110.43 bid, 110.93 offered.

Dubai corporates favored

Taking a broader look at assets from the Gulf region, quasi-sovereigns have been benefiting from higher oil prices and corporates are deleveraging, making some bonds particularly attractive, according to a report from Barclays.

While Qatar and Abu Dhabi are unlikely to see further spread compression, Bahrain's 2020s and 2022s have "catch-up" potential and corporates form Dubai could be a good bet.

"The key Dubai corporates have moved beyond debt restructuring and benefited from the improved local economy and a shift in investor sentiment," the report said. "Given their solid stand-alone fundamentals, excellent liquidity positions, reduced reliance on external funding and strong technical support, we believe that Dubai's BBB corporates offer a sweet spot within the [Gulf region] corporate universe."

Among high-yielding names from Dubai, property companies offer interesting opportunities, Barclays said.

"Outside the UAE and Qatar space, the poor liquidity of paper limits relative-value opportunities, in our view," the report said. "However, we view the paper of Burgan Bank and BBK Bank as attractive at current levels."

Africa in focus

South Africa's Investec Ltd. saw its 2017 notes trading at 98 1/8 bid, 98¾ offered, about 7 bps wider on the month.

Five-year credit default swaps for the sovereign were seen at 160 bid, 165 offered.

"The rand is slightly firmer and banks are holding firm. Sovereign bonds moved lower in line with Treasuries," a trader said.

"Small demand for Senegal, African Export-Import Bank's 2016 and Namibia sighted," a trader said.

He is now looking ahead to the $1 billion issue of notes expected from Morocco, which could come to the market in November.

Ukraine weakens

Looking to Ukraine, sovereign eurobonds have been weakening this week, said Svitlana Rusakova of Dragon Capital.

The sovereign's 2020 notes were seen at 99 bid, par offered, while the 2021s were quoted at 99.75 bid, 100.75 offered.

"The Naftogaz saga is still ongoing, with bonds hit at 101 on the screen and then rebid," she said.

The company's notes were later seen at 100.75 bid, 101.75 offered.

"We saw some activity in Oschadbank at 94 bid, 96 offered and Ukreximbank 2015s at 96.25 bid, 97.25 offered," she said.

Hungary faces debt challenge

Investors were also keeping an eye on Hungary after the prime minister's recent remarks, according to Erste Group Research.

"Hungarian Prime Minister Viktor Orban said yesterday that Hungary will face the second-biggest debt challenge in the world next year in terms of debt servicing costs in percentage of GDP," the report said. "Investors are accustomed to the rhetoric and aware of the risks."

In other news, market-watchers were whispering about a possible issue of notes from Chile.

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