Venezuela's CAF does another deal; China Datang gives guidance; EM bond funds see outflows

By Christine Van Dusen

Atlanta, June 8 - Venezuela's Corporacion Andina de Fomento (CAF) returned to the capital markets on Friday with a dollar deal as early optimism gave way to caution from emerging markets investors trying to make sense of continuing economic turmoil across the globe.

Still, emerging market bond prices did tick up early in the session, and the asset class continues to outperform others amid questions about China's surprise rate cut and the United States' economic policy decisions.

"EM asset prices have risen on short-covering, rising expectations of counter-cyclical policy in the U.S. and the euro area, and China's rate cut," according to a report from Barclays Capital Markets. "Ahead of the Greek elections on June 17, the price gains are unlikely to be sustainable, although we do see room for further short-covering."

By the European afternoon, risky assets were suffering somewhat amid concern about the United States' monetary policy matters and how they will affect global risk.

Policymakers in developed markets still seem to be in a "reactive rather than pro-active mode," Barclays said. "Moreover, even if a new wave of quantitative easing is in the pipeline, such a move could slow the euro zone deleveraging process without addressing sovereign solvency issues or the weaknesses of many large European banks."

Many market-watchers are now viewing the rate cut in China as a sign that the sovereign's next batch of economic data, to be released this weekend, will be weak.

"Excitement from the Chinese rate cut has long passed, and we are back to focusing on Spain," a London-based analyst said. "With so much uncertainty over what happens next, and with politicians still just talking in hyperbole, the amount of activity is nevertheless impressive, as is the outperformance of emerging markets, given the renewed weakness in core equity markets."

EM sees some buyers

By Friday, the Markit iTraxx SovX index spread was at 330 basis points over Treasuries, just 7 bps wider.

"Wider, yes, but I'm seeing better buyers overall," a London-based trader said. "How about Dubai outperforming them all over the month? That wouldn't have happened a few years back."

Dubai's 2022 bonds were trading Friday at 103.12 bid, 103.62 offered.

"Spreads are holding relatively well, although there was some profit-taking on International Petroleum Investment Co.," another trader said.

The Abu Dhabi-based company's 2015 notes were quoted Friday at 103.25 bid, 103.75 offered after trading on Wednesday at 103 bid, 103.75 offered. IPIC's 2016 notes - which were seen this week at 108.62 bid, 109.62 offered - traded Friday at 109.12 bid, 109.87 offered.

Qatar, TAQA solid

Elsewhere in the Middle East, bonds from Qatar and Abu Dhabi National Energy Co. (TAQA) ended the week with solid spread performance, a trader said.

Qatar's 2022 notes were quoted Friday at 107.50 bid, 108 offered. TAQA's 2021 bonds were seen at 108.87 bid, 109.12 offered.

"Oil is still not looking too good from a chart point of view, but so far that's had no impact on these credits," he said. "It's still technical out there, but there are better buyers today."

Flows balanced

Overall, client flow was very balanced on Friday, even if prices were off about a ½ point from some of the more frenzied lifts, the London trader said.

"There are so many conflicting opinions, it's hard to see the forest for the trees," he said. "Net-net, though, we're still 30 bps to 40 bps tighter on the week and the tone is significantly improved. Let's hope the euro finance chiefs sort something out regarding Spain this weekend or it's back down on Monday."

Tax changes for Russian bonds

Friday saw some potentially good news for Russia's corporate issuers, the analyst said.

Tax code amendments were approved that could exempt eurobonds issued before 2014 from the withholding tax.

"This, if interpreted correctly, is good news for Russian corporates as it finally removes the uncertainty in the market for a potential call of the bonds at par when cash prices, for some, are above this level," she said. "Sovereign bonds will remain tax-free."

CAF prints notes

In its new deal, Venezuela-based lender CAF sold $600 million 4 3/8% notes due June 15, 2022 at 99.225 to yield 4.472%, or Treasuries plus 282.5 bps, according to a source close to the deal.

Deutsche Bank, Goldman Sachs and HSBC were the bookrunners for the Securities and Exchange Commission-registered transaction.

Proceeds will be used for general corporate purposes, including the funding of lending operations.

CAF recently priced a CHF 60 million add-on to its existing notes due Dec. 19, 2014 at par to yield Libor plus 145 bps, a market source said.

Credit Suisse was the bookrunner for the transaction.

The original issue of CHF 175 million also priced at par to yield Libor plus 145 bps.

China Datang talks notes

China Datang Overseas set initial price guidance for a two-tranche issue of renminbi notes due 2015 and 2017, a market source said.

The three-year notes are being talked at the 4½% area, while the five-year notes are being talked at 5% to 5¼%.

Barclays Capital, Morgan Stanley and Deutsche Bank are the bookrunners for the deal, which was marketed on a roadshow that ended June 7.

China Datang Overseas is part of Beijing-based China Datang Corp., a state-owned power-generation enterprise group.

South Africa in focus

Looking to South Africa, the sovereign's 2024 notes were 55 bps better, a trader said.

The notes were quoted Friday at 106.25 bid, 107.25 offered.

This came as South Africa-based electricity company Eskom Holdings SOC Ltd. pondered an issue of eurobonds that could come to the market in 2013, a trader said.

No other details were immediately available on Friday.

"It feels like there's good demand for Eskom's 2021s," he said.

The notes closed Friday at 106.12 bid, 107.12 offered.

EM bond funds pressured

In other news, emerging markets bond funds continued to see outflows, according to a report from data tracker EPFR Global.

"Higher risk asset classes were under pressure during the week," the report said. "Investors pulled back from emerging market bond funds for the third consecutive week."

About $563.8 million flowed out of emerging market bond funds for the week ended June 6.

"The damage centered mainly around the funds investing in hard currency EM bonds while those focused on local currency EM bonds fared better," EPFR said.

During the previous week, emerging market bond funds saw outflows of $465 million.

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