Halyk Bank prices quickly shopped $500 million deal; market meanders; new Georgia bonds stay strong

By Paul Deckelman

New York, April 9 - Emerging market bonds were seen mostly mixed to easier in generally featureless trading on Wednesday, participants said, although the primaryside remained busy as Halyk Bank of Kazakhstan brought an opportunistically timed $500 million issue of 5.5-year notes to market. The quickly shopped deal priced at a discount to par but then was heard to have firmed smartly in aftermarket dealings.

New-deal players were also watching the progress of Korea Southern Power's upcoming $300 million issue, which was still on the road Wednesday. And Georgia's new bonds continued to hold onto the handsome games which they notched after having priced earlier in the week.

Elsewhere, traders reported that while Ecuador's bonds did well, given a boost by pumped-up oil prices - with investors ignoring the latest political row in the Andean country, between the government and its military - the same could not be said for its regional ally and fellow oil producer, Venezuela, whose sovereign bonds were seen in retreat on market angst about president Hugo Chavez's latest efforts to extend the power of his socialist government.

In Asia, not much was seen happening beyond the wait for the Kospo deal, although Indonesia's credit-default swap spreads were seen continuing to narrow. Malaysia's AmBank Bhd. sold an issue of 15-year notes priced in the local currency, the ringgit.

Spreads widen as Treasuries come in

Generally speaking spreads widened out, as yields on U.S. Treasuries declined markedly, the benchmark 10-year notes, for instance, tightening to a yield of 3.48% from 3.56% on Tuesday. The widely followed EMBI+ index of emerging market performance, which gauges the average EM spread, was quoted having widened about 4 or 5 basis points, to the high 280 bps area. The index measures the amount of extra yield that investors will require to keep assets in emerging markets debt.

Halyk main highlight in Europe

A trader in Europe said that there was "not a lot going on" in his market. "Monday was a strong day for us, Tuesday was a weak day, and today [Wednesday] was a little bit mixed and trying to decide which way to go."

The big news was Kazakhstan's Halyk Bank rapidly bringing an offering of 5.5-year notes to market via joint bookrunning managers JP Morgan and UBS Investment Bank.

"It was all done pretty quickly," observed another trader who was watching the proceedings.

When that Rule 144A/Regulation S deal surfaced on Wednesday morning, it was talked of in terms of a $300 million issue, although market sources heard that it could be upsized if the demand was there. It was, and sure enough, the bank ended up pricing $500 million of the new 9¼% senior unsecured notes due Oct. 16, 2013 at 98.948 to yield 9.50%. That price represented a spread of 692 bps over the comparable U.S. Treasury issue.

The second trader said that when they broke into the secondary, the newly priced bonds traded as well as 101.25 bid - a more than 2 point gain on the day.

Georgia hangs onto gains

The first trader said that apart from the Halyk deal - which he said "looks in theory cheap to where existing bonds are," and thus, likely to do well in the aftermarket, which it did - things were pretty quiet, neither strong like Monday's session nor weak like Tuesday's but "somewhere in the middle, reasonably neutral."

But one area of strength remained the new Georgia 7½% notes due 2013, which had priced at par on Monday and then, he said, "went up 2 points almost instantly." He said that "in the last 24 to 48 hours, they've been trading almost 2 points up," in a 101.75-101.875 context.

"They've done very well," he said. "It's a new name, a new sovereign, it's in the index.

"Technically, it had a lot going for it - they didn't grow it in size past $500 [million]." He said that the new bond had "a huge novelty value" that attracted buyers. "It hasn't put anything on top of those 2 points - but it hasn't come off either."

Turkish bonds quiet

Elsewhere, he said that although the market for Turkey's bonds "tends to be a bit more volatile," especially given the renewal of tensions between the country's strongly Islamist president, Abdullah Gul and his ruling AK party on the one hand, and Gul's vocal secularist critics on the other, there was "nothing special [going on] today, for sure."

The benchmark issue due 2030 was last seen hovering around 151.5 bid, 151.75 offered. Russian and Eastern European bonds, outside of the Halyk deal were also seen as quiet.

Commodity prices boost most LatAm bonds

In Latin America, said Enrique Alvarez, debt strategist at the IDEAglobal think tank, "you've primarily had another dollar-induced rally in the commodities complex, and that has, to an extent, taken center stage for Latin America," boosting the prices of oil, a key lynchpin to the economies of countries like Mexico, Venezuela and Ecuador, and copper, a mainstay of Chile's economy, among others.

Investor risk tolerance, he said, "continues to increase apparently in the category, at least as you can judge by the action in Ecuador, more than anything."

While he noted that some of Ecuador's fellow high-beta names like Venezuela and Argentina "are still disfavored in this environment," the Ecuadorian bonds have still "been able to muster a lot of interest over the last couple of weeks, and obviously this relates tightly to what's been going on in the crude oil markets."

He saw Ecuador's 2015 benchmark bond up ½ point at 104 bid, 105 offered.

The continued comforting impact of high oil prices allowed investors to "sidestep" the latest political turmoil going on in Quito, where president Rafael Correa abruptly sought and got the ouster of four top generals and appointed a new defense minister. Alvarez opined that the conflict between the administration and the military, "which still flexes a pretty firm muscle," could somewhere down the road lead to Correa himself being run out of town by the military - a not uncommon occurrence, historically, in that part of the world - a development which "would not be a negative for the market overall, so that's why there was no real shock value added, although its anyone's guess what happens over the ensuing weeks."

Investor unease with Venezuela

Correa's friend and ally in Venezuela, Hugo Chavez, seems to be in firm control of his country's military and is unlikely to be forced to make a sudden exit any time soon - much to the dismay of many investors upset with the fiery populist leader's latest moves to extend the reach of his socialist-oriented government, which just recently gobbled up the country's cement industry.

In apparent reaction to Chavez's promises that the country's largest steelmaker, Ternium, would be the next target on his list of assets to be nationalized, spreads on Venezuela's bonds were seen having widened, on average, by 10 or 11 bps on Wednesday to 618 bps over Treasuries - while most regional peers, including Ecuador, were going the other way and tightening up. Economists have said that the constant flow of news about parts of the economy to be nationalized have sapped the flow of investment to the country.

Asia stays quiet

A trader watching the Asian market said that things were fairly quiet in that arena.

"The overall tone of the market has been soft, pretty much taking its cue from other credit markets and from the weakness in equities," although he allowed that "there have been pockets of relative strength."

The most notable of these, he said, were the sovereign cash bonds of Indonesia and the Philippines, which "both saw pretty good buying today" - although he said that at the same time, "we were seeing good demand for Indonesia credit protection," two seemingly irreconcilable developments.

"That was something of an anomaly," he continued, "but there was definitely good money going into the cash markets."

He saw the cost of a CDS contract protecting a holder of Indonesian bonds at 240 bps bid, 245 bps offered, and noted that this had widened about 20 bps over the past three or four sessions, relative to Philippine CDS costs.

In the new-deal arena, he figured the Kospo would likely not price till Friday at the earliest, discounting market chatter that the deal might price sooner rather than later. Other than that, he said "there really isn't a lot of supply in the market - I'm a bit surprised, but there really hasn't been that much coming through the pipeline on the Asian side yet,"

AmBank brings local deal

One bit of new-deal business which did get done Wednesday was AmBank Bhd.'s sale of Malaysian ringgit-denominated 6.25% notes on Wednesday. The RM 600 million of 15-year notes priced at par. They are callable on each anniversary of the issuance beginning in 2018.

The interest rate will step up by 50 basis points after 10 years and will continue to step up by 50 bps every year until maturity.

This issue is the sixth under the Kuala Lumpur, Malaysia-based retail and commercial bank's RM 2 billion medium-term note program and raises the amount of notes issued under the program to RM 1.46 billion, the release stated. Proceeds will be used to refinance the bank's subordinated debt and for general working capital.

Little impact from IMF report

A trader said that a new report from the International Monetary Fund warning that the United States is sliding into a recession, and could drag other parts of the world along with it, including emerging-market countries, did not have much of an impact on EM bonds Wednesday, "but I wouldn't expect it to."

He said such reports are largely the work of "intellectuals theorizing in these papers," and said the financial markets usually don't pay much attention to such things on a day-to-day basis. "Those sort of more philosophical papers may warrant discussion in the longer term - but I don't think it's the sort of thing that's going to move the market intra-day, really."

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