Brasil Foods prices; risk sentiment 'fragile'; EM bonds 'resilient;' Jafza sets roadshow

By Christine Van Dusen and Aleesia Forni

Atlanta, June 1 - BRF Brasil Foods SA priced notes on a Friday that saw emerging markets suffer due to the continuing financial crisis in Europe, the upcoming long weekend in London and the weaker-than-expected unemployment report from the United States.

"It's a slightly weak tone on the open," a London-based analyst said.

Risk sentiment remains fragile, according to a report from Barclays Capital Markets.

"Sovereign 10-year interest rates in safe havens keep rallying and oil prices remain on a steep downtrend," Barclays said.

And trading activity was light, a London-based trader said.

"We have kind of a Mexican standoff this morning, with only a few brave souls trying to do anything," he said. "Flow-wise, it's the usual real-money selling while retail investors still buy."

The Markit iTraxx SovX index spread was up at 360 basis points over Treasuries.

"Given the pending four-day weekend in London and the reduction in liquidity it implies, price action suggests people are reducing risk into the weekend, despite spreads offering the most value since January," a trader said.

But overall, EM bonds remain "pretty resilient," another trader said.

Middle East bonds outperform

Gulf region bonds were outperformers during much of the week, with fairly strong liquidity, a trader said.

"If we look at Abu Dhabi's International Petroleum Investment Co.'s 2022s closing at 105.12 bid, 105.62 offered, this bond is 30 wider on the month versus Gazprom's 2022s, which are almost 95 wider on the month," he said. "Granted, there's a differential in rating, but this shows the outperformance."

Saudi Electricity Co.'s 2022 notes were seen Friday at 101.75 bid, 102.25 offered. And Abu Dhabi saw its 2012s at 100.62 bid, 100.77 offered while its 2014s were trading at 108 bid, 108.50 offered. The sovereign's 2019s were quoted at 124.62 bid, 125.37 offered.

"Solid liquidity is mitigating selling there," he said.

Said another trader, "The credit, on spread, still looks interesting. But again, having done so well, a few seem happy to let some go into strength versus declining asset prices elsewhere."

Middle East banks 'solid'

Banks from the Middle East also stood out on Friday.

"Bank paper remains super solid," a trader said. "There just doesn't seem to be paper that needs to be sold. It's also a pretty frustrating short, to bet against them."

Qatar National Bank was unchanged for the month, in z-spread terms. "Front-dated parts of the curve are merely places to park one's excess cash ahead of the summer and Ramadan," he said.

The uptick in Dubai's real estate, retail and tourism industries has given a small boost to sovereign bonds, as well as those from Emaar Properties, a trader said.

The government's 2017 bonds are well placed, he said.

"They will look rich versus the curve. Shorting will be futile," he said. "This week the regional bonds are wider, but they did not exhibit any significant selling pressure."

Jafza taps bookrunners

Also from the Middle East, Dubai's Jebel Ali Free Zone (Jafza) mandated Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Citigroup, Dubai Islamic Bank, Emirates NBD, National Bank of Abu Dhabi and Standard Chartered for a dollar-denominated sukuk issue of benchmark-sized notes, a market source said.

A roadshow will begin June 5 in the United Arab Emirates and travel to Singapore and Hong Kong before wrapping up on June 12 in London.

The proceeds will be used to refinance existing debt.

Jafza operates an industrial free zone outside of Dubai.

TMK bonds offer premium

Russia's OAO TMK was in focus on Friday as its first-quarter results came in line with expectations of an improved quarter but a weaker year overall, the London analyst said.

"The group remains comfortable with their liquidity and sees no difficulty in rolling forward its bank loans," she said. "We view the results as neutral for the credit but remain somewhat cautious on the credit given its sizable leverage and decreasing headroom under its maintenance covenant."

In a conference call, TMK's management said the company may consider small- to medium-sized acquisitions.

In response, the oil and gas steel pipe producer's 2018 bonds were trading at a z-spread of 800 bps, offering an 80-bps premium over Evraz Group's 2018s and "trading well inside KOKS Group's 2016s, Metinvest's 2018s and Ferrexpo's 2016s," she said.

Brasil Foods sells notes

In its new deal, food processing and beverage company BRF Brasil Foods priced a $500 million issue of 5 7/8% 10-year senior unsecured notes at 99.07 to yield 6%, according to a market source.

BB Securities, Itau BBA, HSBC and Santander were the bookrunners for the Rule 144A and Regulation S deal.

Brasil Foods is a food processing and beverage company based in Itajai, Santa Catarina, Brazil.

And the Philippines announced a non-deal U.S. roadshow beginning the week of June 11, according to a market source.

The roadshow will make stops in New York from June 11 to June 12, Boston on June 13 and June 14, San Francisco from June 14 to June 15 and Los Angeles on June 15.

The roadshow is being arranged by Citigroup, Morgan Stanley, JPMorgan and Goldman Sachs.

Zambia mandates leads

In other deal-related news, Zambia mandated Barclays and Deutsche Bank for a possible issue of $500 million notes, a market source said on Friday.

The deal is expected to carry a 10-year tenor.

And Poland-based oil and natural gas company Polskie Gornictwo Naftowe i Gazownictwo SA (PGNiG) announced plans to issue zloty-denominated notes sometime before the end of June.

Under a five-year and $4.5 billion bond program, PGNiG will be able to issue for private placement fixed- or floating-rate bonds with maturities of up to 10 years, a company statement said.

Bank Slaski SA and Bank Polska Kasa Opieki SA are the bookrunners for the deal.

Proceeds will be used for oil, gas and shale gas exploration; construction and expansion of production facilities; underground storage capacities and the distribution network; and projects in the power sector.

EM bond funds see outflows

Even though emerging markets assets have been outperforming their peers during the European banking crisis, EM bond funds are still seeing outflows as risk aversion remains, according to a report from data tracker EPFR Global.

Emerging markets bond funds reported outflows of $465 million the week ended May 30. During the previous week, the funds saw outflows of $478 million, the second-biggest outflow level in the 21 preceding weeks.

"Investors continued their search for safer places to park their money going into June as Spain struggled to avoid becoming the latest euro zone market to require bailing out and economic data in the US continues to disappoint," EPFR said.

Funds with a local currency mandate took the biggest hit, given that EM currencies have faltered significantly. Local currency bond funds saw outflows of $437 million.

Paul A. Harris contributed to this review

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