Emerging markets primary still quiet on Europe, Korea concerns; small buying in secondary

By Christine Van Dusen

Atlanta, May 25 - No new issuance - that increasingly familiar refrain was heard again on Tuesday as emerging market issuers hesitated to bring deals to market and investors favored lower-risk assets, sources said.

By mid-afternoon, yields on 30-year Treasuries had fallen 4.8 basis points to 4.061% and 10-year Treasuries had dropped 6.4 bps to yield 3.165%.

"The market is very jittery and nervous, basically," a London-based market source said.

This was due, of course, to the continuing European economic crisis. Also factoring in on Tuesday was mounting tension between South Korea and North Korea, as well as the weekend's news that a Spanish lender had failed and that the sovereign's banking industry was in trouble.

"There are global concerns regarding Spanish banks and Korea," the London source said.

All of this made this environment "tough for any new issue to come," he said. "It's a tough market out there right now."

Most deals are "on hold," an emerging markets strategist said.

Some deals moving forward

Even so, Saudi Arabia's Sabic Capital is still planning to issue $1 billion five-year senior unsecured notes via JPMorgan, HSBC and RBS, market sources said. The Regulation S-only deal from the fertilizer and metals conglomerate - which is 70%-owned by the kingdom and is based in Riyadh - is being talked at mid-swaps plus 175 bps, market sources said.

"It's expensive," a Europe-based trader said.

Also planning a new issue is Bahrain-based BBK. The retail lender is looking at a benchmark-sized eurobond via Deutsche Bank, HSBC and Citigroup. A roadshow wrapped up last week.

"I think they are waiting to see what to do regarding a deal," a market source said.

India's IDBI Bank also is looking to bring to market a dollar-denominated issue of bonds, a source said. Other details on the offering from the Mumbai-based lender were not available Tuesday.

And Turkey's Akbank TAS is planning a five-year dollar-denominated issue of bonds that could total as much as $1 billion, a market source said.

Akbank is an Istanbul-based banking company.

MTS deal in question

Meanwhile, debate continued over the fate of the planned 10-year eurobond from Russia's Mobile Telesystems with Bank of America Merrill Lynch, Credit Suisse and RBS.

The roadshow has ended, and the yield has been whispered at 8%, but the Europe-based trader said "it's our understanding that MTS is still on hold." Other sources, though, say the deal from the Moscow-based mobile phone company is still alive.

Another deal that had been reported as dead could have a chance: Macedonia's planned issue of euro-denominated bonds via Credit Suisse and HSBC. The sovereign wrapped up a roadshow last week but reportedly canceled the deal.

Now market sources say Macedonia is assessing market conditions and could decide this week whether to move forward.

One issuer that likely will not be coming to market soon is China Oriental Group Co. Ltd., a market source said. The integrated iron and steel manufacturer has delayed its plans for dollar notes with Deutsche Bank and ING, a source said.

Buyers few, buying small

On the secondary side, "investors are starting to step in. There have been a few buyers today," the strategist said. "It's encouraging that the U.S. equity markets have rebounded so strongly, but I don't know if it's really being reflected in any change on the risk horizon."

So even though the United States started to rally late in the day, "there hasn't been much progress today," he said. "I think that even though we're seeing the market rally, it's hard to argue that this is really a turning point because nothing has really changed, other than things are cheaper."

Investors are "buying in very small quantities," he said. "That was the same yesterday and today. At least some believe this is a buying opportunity, or maybe they have cash on the sidelines and are looking for a place to put it."

Popular names included Venezuela and Argentina and other high-beta credits, as well as Kazakhstan, Ghana and Iraq.

"The U.S. rally was very late in the day, so it may take time to make things move," the strategist said. "Maybe in the morning we'll see a turnaround."

China Oriental delays dollar notes

China Oriental has postponed a planned dollar-denominated issue of senior notes via Deutsche Bank and ING, a market source said.

Proceeds from the Rule 144A and Regulation S deal will be used to fund working capital, to fund capital expenditures and for general corporate purposes.

Other details were not immediately available.

China Oriental Group is an integrated iron and steel manufacturer.

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