Issuers continue filling pipeline as volumes shrivel; Gerdau, Impsa sell notes; Braskem on tap

By Christine Van Dusen

Atlanta, Sept. 23 - The new issuance pipeline continued to fill up on Thursday - with new deals from Brazil's Gerdau Trade Inc., Argentina's Industrias Metalurgicas Pescarmona SAIC and Korea Gas Corp. - and recent issues fared well even as volumes remained light and investors continued to lack conviction.

"It's been busier than it was in August, but a large percentage of the volumes have been these new issues," a Connecticut-based trader said. "Overall the volumes are lighter than the spring but busier than the summer. Unless there's some sort of event, I think they're going to stay very thin."

Most buyside accounts "have done pretty well so far this year, and they're not really looking to rock the boat," he said. "A lot of the spread levels, particularly in EM, are close to the tights of the year. They're getting new money, so they don't want to sell."

A New York-based market source agreed. "They don't want to do much to upset the apple cart," he said.

Volumes dry up

The sellers he has seen have primarily been offloading Mexico, mostly in reaction to speculation that the sovereign might issue a 100-year bond, in order to "fund some of these corporate new issues."

He described the day's price action as "very, very choppy. The market is continuing to try to figure out what's going on. It's up and down violently on not a lot of volume. It's just gapping around," he said. "There's a lot of uncertainty out there."

Volumes are drying up, he said. "You do a client trade and try to find another one to do the other side of it and nobody cares," he said. "Liquidity is being drained from the system."

To blame, sources said, were continued concerns about the United States and European economies.

"These are old problems, but they're still out there. It's not like things have resolved in terms of Europe and deficits," he said. "People are waiting for the next sign and looking for direction."

Recent issues fare well

Argentina had a good run until "the last day or two, with new buyers coming in and prices moving to the highs of the year," the Connecticut trader said. "At these levels, we're seeing local banks selling some positions they've held, so it's been balanced flows on Argentina."

Venezuela "had been very sluggish and rallied a couple of points over the last two days," he said. "The new Venezuela 2022s that are held locally rallied close to 4 points. We're starting to see some local sellers there now."

Meanwhile, several recently priced issues were doing well on Thursday. The $750 million 6 5/8% perpetual notes from Mexico City-based oil and gas company Petroleos Mexicanos SAB de CV (Pemex), which priced at par, were "trading right around fixed reoffer," the Connecticut trader said. "They've come to the market twice in the last 90 days, so there's been a lot of issuance in Pemex."

The $650 million 5 7/8% notes due 2021 from Brazilian pulp and paper company Suzano Papel e Celulose SA that priced at 98.116 to yield 6 1/8% have done "very very well," he said. "It's started to come back a little bit now with a little bit of profit-taking, but we've still seen a steady stream of buyers with that deal."

Latin America remains busy

The $400 million 8 7/8% notes due 2020 from Brazil-based lender Banco Cruzeiro do Sul SA, which came to market at 99.187 to yield 9%, also were performing "very well," he said. "There's been a fair amount of buying. It's up 3 points."

And the $450 million 8% notes due 2017 from San Salvador-based telecommunications firm Telemovil El Salvador SA, which recently priced at 98.684 to yield 8¼%, did well too. "That came at a nice discount versus the sovereign, and it's up about 2 points," he said. "We continue to see ongoing demand for that deal."

Also in demand: The $400 million 12 3/8% notes from Argentina's Cordoba province that priced at par, boding well for the planned dollar benchmark notes due 2015 from Buenos Aires. That deal was marketed during a roadshow this week with Bank of America Merrill Lynch and Deutsche Bank.

"There's been interest in the Argentine provinces on the back of the upgrade to Argentina a week ago," he said. "Anything Argentina-related is now attracting more interest."

Gerdau, Impsa price notes

Another market source called Thursday's tone "constrictive, with lots of supply in the visible and invisible pipeline."

As far as new issues go, the day saw Brazil-based steelmaker subsidiary Gerdau Trade price $1.25 billion 5¾% senior notes due 2021 at 99.051 to yield 5 7/8%, or Treasuries plus 333.8 basis points, according to a market source.

HSBC, Santander and JPMorgan were the bookrunners for the Rule 144A and Regulation S notes, which are non-callable and were talked at the 6% area.

Proceeds will be used to repay debt and for general corporate purposes.

Also pricing a deal: Argentina-based wind and hydropower equipment company Industrias Metalurgicas Pescarmona (Impsa), with $275 million 10 3/8% notes due 2020 coming to market at 97.736 to yield 10¾%, according to an informed market source.

UBS and Bank of America Merrill Lynch were the bookrunners for the Rule 144A and Regulation S transaction, which is non-callable for five years and was talked at 10½%.

Proceeds will be used to purchase notes tendered in an offer for any and all outstanding 11% notes due 2014.

And state-owned utility Korea Gas increased by CHF 100 million the size of its existing CHF 200 million 2¼% notes due 2015, which priced at 100.287 to yield mid-swaps plus 108 bps, a market source said.

UBS was the bookrunner for the original transaction.

Braskem, Interbank on tap

"We're expecting the pipeline to continue to grow," the Connecticut trader said. "As the market continues to attract new money, the corporate and sovereigns should benefit for the foreseeable future."

Among those making moves toward market: Brazil-based petrochemical company Braskem SA, with a planned issue of up to $350 million perpetual notes that was whispered Thursday to yield 7¼% to 7½%, according to a market source.

Deutsche Bank, HSBC and Itau are the bookrunners for the deal.

Also from Latin America, Lima-based financial institution Banco Internacional del Peru (Interbank) has mandated Bank of America Merrill Lynch and JPMorgan for up to $400 million in bonds due 2020, a market source said.

The deal is being marketed on a roadshow from Monday to Wednesday.

Brazilian developer BR Properties has mandated Credit Suisse and Itau Unibanco for a non-deal roadshow from Monday to Wednesday, a market source said.

The roadshow will travel from Hong Kong and Switzerland to Singapore and New York before wrapping up in London and Boston.

QIB, Dubai coming soon

In other news Thursday, Poland-based lender PKO Bank Polski SA is considering an issue of euro-denominated five-year bonds totaling as much as €800 million via bookrunners HSBC, Societe Generale and PKO, a source said.

And Doha-based lender Qatar Islamic Bank will embark on a roadshow from Friday to Thursday for its planned sukuk offering of up to $750 million, a market source said.

HSBC and Credit Suisse are the bookrunners for the deal.

Also from the Middle East, Dubai is planning to issue as much as $1 billion in bonds with a five- to seven-year maturity, a market source said.

The deal, via HSBC and Standard Chartered Bank, could price as soon as next week.

No other details were available Thursday.

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