Bailout talks for Ireland spark optimism but not volumes, issuance; Yuzhou cancels deal

By Christine Van Dusen

Atlanta, Nov. 18 - Though there was a rally in risk appetite overnight on optimism about a bailout plan for beleaguered Ireland, most emerging markets bond investors and issuers sat Thursday out.

This cautious attitude was spurred not only by remaining anxiety about the global economic crisis and quantitative easing in the United States, but also because EM investors have had a banner year so far and want to protect the gains they've made, market sources said.

"Volumes are very, very thin," a Connecticut-based trader said. "We're really seeing a decrease, especially with the holiday next week. People are getting very defensive going into the holidays and year-end."

And the flow of new deals dried up, with yet another issuer - this time, China's Yuzhou Properties Co. Ltd. - pulling a deal.

"People are getting very cautious," a market source said.

Ireland in talks

European Union and International Monetary Fund officials are meeting with leaders in Ireland to look at the sovereign's banking system and determine an appropriate financial package, which could total tens of billions of euros.

In response, the JPMorgan Emerging Markets Bond Index Plus closed 5 basis points tighter, with Argentina and Ukraine both tighter by 35 bps.

Investors are "watching both the Ireland situation and the quantitative easing situation to get a sense of what's happening to the Treasury curve," the trader said. "Investors and dealers are getting more defensive by the day. Guys are sticking to levels and being inflexible on pricing, and they're quick to sell into strength, particularly on long-duration paper."

And recent issues are "struggling to move higher," he said.

With the Treasury sell-off of the last two weeks, along with the fact there have been "very, very few buyers of long-duration paper and dealers are getting skittish about getting hit with large positions, we started to see sovereign curves steepen significantly," he said.

Long paper suffers

The $1 billion 5¾% century bond that Mexico priced in October at 94.276 to yield Treasuries plus 235 bps "tightened in as far as 165 at one point about two weeks ago" as investors bought long-duration paper with the assumption that the Federal Reserve's bond-buying program would focus on the long end, the trader said.

But since the FOMC's announcement that its quantitative easing program would focus more on shorter-duration bonds, "we're seeing dollar price moves of 10 or 11 points on a lot of the longer-duration paper," he said.

Now the Mexico issue has "widened out almost 40 bps," he said. "It's trading around 205 [bps]."

Peru's $1 billion 5 5/8% notes due 2050 that priced earlier this month at 96.164 to yield Treasuries plus 160.3 bps were in a "similar situation," he said.

"It couldn't have come at a worse time for a 2050 bond," he said. "The deal was issued after Treasuries have come off significantly. So the deal was at 160 [bps] over and now we're seeing it about 10 wider, at about 170 [bps] over."

Yuzhou shelves deal

In other news on Thursday, China-based property developer Yuzhou Properties postponed its planned issue of $200 million to $300 million notes due 2015, a market source said.

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

Price talk was set at 13% to 13½%.

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

But at least one issuer made a move toward the market on Thursday. Mumbai-based Union Bank of India is planning a $200 million equivalent issue of Swiss franc-denominated bonds, a market source said.

This followed Thursday's pricing by Honduras-based lender Central American Bank for Economic Integration (Cabei) of CHF 150 million 2¼% notes due Dec. 13, 2013 at 100.443 via Credit Suisse.

Venezuela in focus

In other news from Latin America, market-watchers continued to whisper about a possible multibillion-dollar issue of notes from Venezuela's state-owned oil company, Petroleos de Venezuela SA (PDVSA).

Some say the corporation could issue as much as $3 billion in a deal similar to the $3 billion 8½% notes due 2017 that priced in October at par.

"In the meantime, we are of the opinion that the market will start to price in a higher probability of a peaceful and democratic transition in 2012" in Venezuela and that "the oil belt projects will start early production of about 400,000 barrels per day in 2013," according to a Barclays Capital research report.

Investors can also expect "a formal devaluation of the currency in first-quarter 2011," the report said, "instead of a disguised one."

Icici, Gazprom oversubscribed

The final book for India-based lender Icici Bank Ltd.'s $150 million notes due 2020 - which priced this week at par to yield 7% via Barclays, Deutsche Bank and HSBC - was more than $450 million with 60 accounts involved, a source said.

And the final book for Russia-based energy company Gazprom's $1 billion 5.092% notes due 2015 was $3.75 billion.

The notes came to market this week via JPMorgan and Credit Agricole at par to yield mid-swaps plus 340 bps.

About 270 accounts were involved, with 41% from the United States, 22% from Europe, 21% from the United Kingdom, 14% from Switzerland and 2% from Asia. Asset managers accounted for 65% while private banks were 14%, banks were 12%, hedge funds were 4% and others were 5%.

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