OTP Mortgage Bank prints bonds on slightly weaker day for EM; Banco Safra launches notes

By Christine Van Dusen

Atlanta, Aug. 3 - Hungary-based lender OTP Mortgage Bank Ltd. sold notes on Wednesday as emerging markets investors remained fairly upbeat even as the once-unstoppable asset class continued to show some weakness in light of global economic concerns.

"Technicals and flows still feel mildly positive," a trader said. "But they are showing cracks."

Said a London-based trader: "Euro zone concerns are very much back at the forefront."

Buyers were seen for Dubai Water and Electricity Authority and Bahrain's BBK while South Africa stayed strong and Lebanon's recent issue of notes traded up.

"The cash has to go somewhere, and yes, debt ratios look OK, but if we get a combination of summer and Ramadan and client selling, it's not going to be a good combination," a trader said. "The powder is dry."

The JPMorgan Emerging Markets Bond Index Plus spread tightened 4 basis points to Treasuries plus 273 bps, with Argentina tighter by 11 bps, Indonesia by 15 bps and South Africa by 10 bps.

The day also saw Brazil-based Banco Safra SA launch a real-denominated offering of notes while New Delhi-based Indian Railway Finance Corp. Ltd. tapped bookrunners for a dollar deal.

OTP Mortgage Bank does deal

In its new deal, Hungary-based lender OTP Mortgage Bank sold €750 million floating-rate notes due Aug. 10, 2014 at par to yield Euribor plus 300 bps, a market source said.

BNP Paribas was the bookrunner for the deal, which priced in line with talk, set at Euribor plus 300 bps.

And Brazil-based lender Banco Safra launched its R$800 million issue of notes due 2016 to yield 10¼%, a market source said.

Banco Safra, JPMorgan and UBS are the bookrunners for the Rule 144A and Regulation S deal, which was talked at 10¼% to 10 3/8%.

The notes will be payable in dollars, and proceeds will be used for general corporate purposes.

Indian Railway taps leads

In other deal-related news, New Delhi-based Indian Railway Finance mandated Bank of America Merrill Lynch, Barclays Capital, Citigroup, Deutsche Bank and JPMorgan as the bookrunners for a dollar-denominated offering of fixed-rate notes, a market source said.

A roadshow for the Regulation S deal will begin Aug. 5 and take place in London, Singapore and Hong Kong.

Mixed flows seen

"Flow-wise, it was a mixed bag," a trader said, giving "special mention to Lebanon's 2022 dollar notes."

The notes were seen at 99.87 bid, 99.93 offered on Wednesday after pricing on July 28 at 99.195.

And the 2016 notes that Abu Dhabi's First Gulf Bank priced at par on July 26 were trading Wednesday at 101.30 bid, 101.45 offered before finishing the day closer to 101.37 bid, 101.47 offered.

Names from Abu Dhabi were getting positive attention.

"The money pouring into Abu Dhabi names has seen National Bank of Abu Dhabi power to the top of the charts here, although for me valuations look more appealing elsewhere."

Said another trader: "Qatari paper is still holding pretty well, with loads of people and brokers chasing the Qatar 2040 dollar notes higher - about 117.37 in the last trade. Egypt and Dubai are both lifted. Bahrain names are holding OK without much volume, with Bahrain's 2020 dollar notes at 99."

DP World trades up, Kiev lags

In other trading from the Middle East, Dubai-based DP World's 2037s were back to par on the bid side while Dolphin Energy Ltd. LLC was seen at 109.62 bid, 109.87 offered.

"The Europe, Middle East and Asia love is not universal, though," a trader said.

He noted the following names as laggards during the last month: City of Kiev's 2016s, Evraz Group's 2015s, Russia-based Gazprombank's 2015s and the Republic of Hungary's 2041s.

"We have not been asked to bid on any paper," another trader said. "Not even retail clients are spooked. They're choosing just to add Russian quasi-sovereigns."

South Africa stays strong

Looking to Africa, South Africa was "strong like a bull" while most other names in the region looked like "a patch of relative calm," a trader said.

And Turkey's banks had a relatively active day, with Akbank the most liquid and busiest at about the 100.75 level while Garanti Bankasi AS and Yapi Kredi were drifting lower.

"After better-than-expected consumer price index numbers, the sovereign curve is up around a half-point across the curve, with benchmarks like Turkey's 2041s and 2030s seeing good demand on the Street," he said. "Most of the trades were between foreigners."

This came against the backdrop of solid earnings reports from Garanti and Yapi Kredi, as well as a successful refinancing for Yasar Insaat, a London-based analyst said.

Poland gains favor

Taking a broader look at the emerging markets landscape, one strategist is recommending longer duration paper and a focus on local currency debt in Poland.

"The macroeconomic environment is supportive of longer duration," wrote Natalia Gurushina, director of emerging markets strategy at Roubini Global Economics, in a report. "On a country-specific level, in Europe, the Middle East and Africa, we prefer local currency debt in Poland over Turkey."

In Asia, Malaysia and Indonesia are recommended over the Philippines, Taiwan and Thailand.

"And we stay on the sidelines in Latin America for now," she said. "We remain overweight EM external debt and neutral vis-a-vis inflation-linked debt."

Looking to the fall and into 2012, given the expected economic picture, investors are urged to focus on local currency debt performance.

The sovereign that gives Gurushina the most pause is Turkey.

"Macroeconomic imbalances remain significant and are likely to continue dampening investors' appetite for Turkish assets," she said. "We therefore recommend underweight positions in Turkey's local currency debt."

Poland, meanwhile, is expected to rally by 25 bps to 40 bps on the back of more benign inflation and fiscal outlooks, she said.

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