Gazprom sells notes, spreads tighten even as economic concerns continue; PDVSA eyes bonds

By Christine Van Dusen

Atlanta, Nov. 17 - Risk aversion lessened a little but still remained on Wednesday amid continued concerns about Ireland and the global economic crisis, as well as monetary policy tightening in China, market sources said.

"The tone continues to be a little bit cautious," said Luz Padilla, portfolio manager for the DoubleLine Emerging Markets Fixed Income Fund.

Flows were light, and the new deal pipeline dripped to a stop, with just Russia's Gazprom printing notes and few other issuers taking baby steps toward the market.

"It's been unusually quiet," a market source said. "With the current volatility, everything is slowing down. There's not a lot of price action, so you get the feeling that people are very much sitting on their hands."

But "after a couple of days of relatively heavy losses," there was something of a recovery on Wednesday, said Nick Chamie, global head of emerging market research for RBC Capital Markets.

"I think that we're facing a number of fundamental headwinds in the near term and the market is slowly adjusting," he said.

Economy weighs on market

Among those headwinds: China's government on Wednesday said it would increase commodity supply and take other steps to rein in inflation and consumer prices if the need arises. The intervention measures aren't seen as particularly severe but could pave the way for stricter monetary controls.

The day also saw weaker-than-expected consumer prices and housing data from the United States, which sources viewed as further confirmation that the Federal Reserve will go through with its plan for further quantitative easing.

And Greece added further austerity measures while Ireland's prime minister reiterated the sovereign's assertion that it has not sought a bailout for its troubled banks but is having preliminary conversations with the European Union.

"That is weighing on the market," Padilla said.

Still, spreads managed to tighten as much as 9 basis points on the JPMorgan Emerging Markets Bond Index Plus on Wednesday before closing down 2 bps, with Venezuela tighter by 21 bps and Argentina by 13 bps. Russia lagged slightly, tightening by just 1 bp by mid-afternoon.

"A bit of breathing room is being opened up," Chamie said. "That said, we haven't given back the significant gains that materialized over the past two or three months. There's still a significant amount of those gains still there in the market. So there's still some reasonable prospect for profit-taking to continue in the coming weeks."

Gazprom does deal

In the primary market, Russia-based energy company Gazprom priced $1 billion 5.902% five-year notes at par to yield mid-swaps plus 340 bps, an informed market source said.

JPMorgan and Credit Agricole CIB were the bookrunners for the Rule 144A and Regulation S deal, which was talked at a spread in the mid-swaps plus 240 bps to 350 bps area.

"That's actually trading well in the gray," a market source said.

This followed the Tuesday pricing of India-based lender Icici Bank Ltd.'s $150 million 7% notes due Nov. 23, 2020 at par to yield 7%, a market source said.

Barclays, Deutsche Bank and HSBC were the bookrunners for the Regulation S-only transaction.

And China-based developer Yuzhou Properties Co. Ltd. talked its planned issue of $200 million to $300 million five-year notes at a yield of 13% to 13½%, a market source said.

BOCI, Nomura and RBS are the bookrunners for the Rule 144A and Regulation S notes, which are non-callable for three years.

Proceeds will be used for general corporate purposes, to repay certain existing loans and to fund the acquisition of land for residential and commercial property development.

"Most issuers have probably filled most if not all of their 2010 financing needs," Chamie said. "And of course you've got the Thanksgiving holiday next week, which is going to make it difficult. But there's still a possibility that if everything calms down, a couple of deals could get off next week."

PDVSA mulls notes

Also on Wednesday, market-watchers were whispering about a possible issue of up to $3 billion of bonds from Venezuela's state-owned oil company, Petroleos de Venezuela SA (PDVSA). This would follow the October pricing of $3 billion bonds due 2017 from the issuer, which came to market at par to yield 8½%.

"You hear often of supply coming from either PDVSA or Venezuela, and you keep hearing it, over and over again," a market source said.

"The problem is there doesn't seem to be any end. They'll say they're not going to do it and then they move forward. It's hard to take it seriously. But it is a real possibility, I guess."

If such an issue is placed, the market will be able to handle the supply, Padilla said.

"It will probably get placed locally and then get leaked out into the global market, which can handle it," she said.

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