Market firm, volumes up, but no new issuance; PSA International, KWG Property plan deals

By Christine Van Dusen

Atlanta, Aug. 3 - Trading volumes in emerging market debt increased, and the market remained firm on Tuesday as Treasuries rallied. But new issuance stalled on weaker economic data from the United States and the sense that the summer slowdown has begun to creep in.

Most market-watchers expected to see a spree of new issuance begin on Tuesday, in advance of the mid-August onset of the summer doldrums, with deals from Singapore's Stats ChipPAC Ltd., Chile's La Empresa Nacional del Petroleo, Russia's VTB and the Argentinean province Cordoba. But the day, surprisingly, saw no new issues.

"It's quiet on that front," a New York-based source said. "I'm surprised they haven't jammed anything in there."

A Connecticut-based source was similarly perplexed. "I haven't seen anything," he said. "I'm a little surprised myself."

Some sources are chalking this up to a sudden rise in risk aversion in response to reports that June U.S. new home sales declined, U.S. factory orders fell and consumer spending was flat. But other sources suspect the summertime blues have set in early for some market players.

"I think some guys are getting ready to go on vacation," the Connecticut-based source said. "So the issuance may be slow just because the primary desks are not as well staffed as normal."

Whether or not activity picks up again in the next few days and into next week, the market "won't be running on all cylinders again until September," he said.

PSA International, KWG plan notes

Some issuers did take steps toward the market on Tuesday.

Singapore-based port operator PSA International Pte. Ltd. plans to issue as much as $500 million in fixed-rate notes due 2020 via Barclays Capital, Credit Suisse and Goldman Sachs. The notes, part of the company's $3.5 billion medium-term note program, could price this week.

And China-based property developer KWG Property Holding Ltd. is planning to embark on a roadshow for a proposed issue of senior notes, according to a company announcement.

Morgan Stanley and Standard Chartered are the bookrunners for the Rule 144A and Regulation S deal, the proceeds of which will be used to finance existing and new property projects and for general corporate purposes.

Market sources also were whispering about a potential sukuk offering from Malaysia's Khazanah Nasional Bhd.

Volumes up, tone firm

The overall tone on Tuesday "continues to be firm," the Connecticut-based source said. "I think a bit of money keeps coming into the market, so prices continue to be well supported, generally, on the EM side."

The New York-based source saw a "fair amount of activity" during the day. "Volumes have been pretty good. There continue to be inflows and much better buyers across the board."

A trader concurred: "EM bonds have increased volumes over yesterday's low levels," he said.

Outperforming at mid-afternoon was Mexico. "That's the flavor of the day, trading very, very well," the New York source said. And high-beta names like Argentina continued to trade "heavily" during the day, "though I'm not sure why," he said.

Asian paper, meanwhile, was "well bid," a Connecticut-based market source said.

In particular, the Indonesia sovereign was up "about 3 to 4 points in London hours alone," the trader said. "I could not figure out why. There's no ratings increase, no buy recommendation from a top analyst or strategist. No news as well, which tells me it has something to do with index rebalancing."

Also up on the day was the recent $650 million 7 3/8% notes due 2020 from Indonesia's Indosat, which priced in July at 99.478 to yield 7.45%, or Treasuries plus 452.2 bps.

The Connecticut source wondered if the boost might lead to new issuance, for the sovereign at least, "because the curve has really tightened considerably over the last three trading days," he said.

And the recent two-tranche issue of $750 million bonds due 2015 and 2020 from Hong Kong shipping company Noble Group Ltd. - which included $500 million 4 7/8% five-year bonds that priced at 99.842 to yield 4.911% and $250 million 6 5/8% 10-year bonds that priced at 99.704 to yield 6.666% - was "trading well too," he said. "That's up about a point or so."

Russia, LatAm trade well

Also up on the day was Russia, the New York source said.

Meanwhile Latin American corporates experienced heavier volumes, "although there was a light sell-off into the close," another trader said. "But that's to be expected when the market trades basically one way over an extended time period."

Banks from Brazil were also trading well on Tuesday, as was the $150 million 11½% notes due 2020 from Argentina's IRSA Inversiones y Representaciones SA, which priced in mid-July at 97.838 to yield 11 7/8%.

"That deal has been very well supported," the Connecticut source said. "And Argentina continues to gain favor with investors with the sovereign outperforming over the last month. Really, there hasn't been a deal done in the past three weeks that's done poorly."

Though there have been a lot of new deals out of Latin America over the last few weeks, the market "continues to healthily digest the recent $13 billion of issuance," a trader said. "But we can expect liquidity to be spotty at best as we trudge through this month."

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