Choppy day for EM assets as new deals trickle out; Dubai, Philippines, Hyundai, KTZ price

By Christine Van Dusen

Atlanta, Sept. 29 - Emerging market assets were mixed on Wednesday as the clogged deal pipeline stayed open at a steady drip - with new issues from Dubai, the Republic of the Philippines, Hyundai Motor Corp. and Kazakhstan's KTZ.

Meanwhile, investors cautiously embraced risk while keeping an eye on global economic concerns.

The JPMorgan Emerging Markets Bond Index Plus tightened on Wednesday, as did the spreads for several emerging market sovereigns: Venezeula finished the day down 33 basis points, Turkey down 21 bps, the Philippines down 18 bps and Indonesia down 16 bps.

"We've seen some buying of Venezuela, not quite as much buying of Argentina," a New York-based market source said. "Mexico was higher, and now it's lower. It's just kind of choppy. I think we're going to see this kind of tone as we finish the month and the quarter."

Meanwhile, the list of potential new deals grew on Wednesday, with Indonesia-based coal exploration and exploitation company PT Bumi Resources Tbk. planning a dollar-denominated benchmark-sized issue of notes due 2017.

"We just keep getting a longer list because there are more companies and countries that feel that they can come to the market," said Luz Padilla, portfolio manager for the DoubleLine Emerging Markets Fixed Income Fund. "The list doesn't seem to get any shorter because we see more names getting added."

Philippines, Hyundai print notes

So the calendar is getting "rather heavy," she said. "I think the technicals of the market continue to be very strong, and there is more money being put to work in this asset class."

Dubai priced a $1.25 billion two-tranche issue of five- and 10-year notes via Deutsche Bank, HSBC and Standard Chartered in a Regulation S transaction, a market source said.

The $500 million tranche of notes due Oct. 5, 2015 priced at par to yield 6.7%. Price talk was set at the 6¾% area.

The $750 million tranche of notes due Oct. 5, 2020 priced at par to yield 7¾%. Price talk was set at the 7 7/8% area.

Proceeds from the notes, which are part of an existing euro medium-term note program established in April 2008, will be used for general budgetary purposes.

The deal from the Philippines - $200 million 4% notes due Jan. 15, 2021 - priced at 99.248 to yield 4.091%, or mid-swaps plus 155 bps as part of the sovereign's exchange offer, an informed market source said.

Citigroup, HSBC and UBS were the bookrunners for the Securities and Exchange Commission-registered deal, which included a reopening of the sovereign's 6 3/8% bonds due 2034. The tap priced at 114.879 to yield 5.276%.

And Korea-based Hyundai Motor Corp.'s Hyundai Capital America priced $500 million 3¾% notes due 2016 at 99.793 to yield 3.792%, or Treasuries plus 250 bps.

KTZ does deal

Also pricing on Wednesday was Astana, Kazakhstan-based railway company Kazakhstan Temir Zholy, which sold $700 million 6 3/8% notes due 2020 at par to yield Treasuries plus 387.5 bps, according to a market source.

Barclays, HSBC and RBS were the bookrunners for the Rule 144A and Regulation S deal.

Other new issues are in the works, including the deal from Indonesia's PT Bumi, which could price as soon as this week, according to a market source. Credit Suisse, Deutsche Bank and JPMorgan are the bookrunners.

Market sources also were talking about a possible 15-year transaction from Hong Kong Land Holdings.

The pipeline is filling up at a "fast and furious" pace, a source said. "We're just trying to keep up with it."

The New York-based market source expects to see several new issues coming out of Asia, particularly Korea, and continued issuance out of Brazil's corporates. "There's been a slew of issuance from those sectors," he said.

It's a good time to bring new deals, a source said, because they are by and large "well absorbed and mostly doing well."

Perpetuals still falter

The exception remains the perpetual note issues that have printed so far this month, including the 7 3/8% notes from Brazil-based petrochemical company Braskem SA and the 7% perpetuals issued by Brazilian steel subsidiary CSN Islands XII Corp.

"They seem to be the underperformers relative to almost all the other bonds outstanding," Padilla said. "The underperformers tend to be the deals that come at what seem to be reasonably good levels and then they get tightened and end up pricing significantly lower. Those don't trade as well. That's been the trend we're seeing, that issuers are now pricing toward the tighter end of the range."

Investor appetite is "not what it was like earlier in the year," the New York-based source said. "They're being more selective at this point in the year and at these levels."

Sovereigns stand out

Sovereigns were in focus on Wednesday, sources said.

Mexico, for one, "was higher and then lower," the New York-based market source said. "It's just kind of choppy. It seems like a lot of guys got short in front of the rumored 100-year deal. That deal never materialized. I have a hard time believing that would happen. I don't see the appetite for that."

The sovereign "saw some profit taking," according to a report from RBC Capital Markets.

Venezuela's assets, meanwhile, got some "momentum" from the recent elections, which gave a boost to the opposition party, "but this is perceived as short-lived since the catalysts for a prolonged asset appreciation are not present in the country yet," wrote Alejandro Grisanti of Barclays Capital Emerging Markets Research.

"Clearly the principal problem in Venezuelan assets - the run of issuance - was not resolved, and these electoral results basically maintain incentives for authorities to continue their high indebtedness strategy," he wrote.

The sovereign's bonds are "too cheap to ignore," and the upcoming planned issuance of as much as $3 billion in bonds from state-owned oil company Petroleos de Venezuela SA (PDVSA) "could have some positive effect since we do not expect that the amount of issuance will be incremented."

Also boding well for Venezuela is that the Central Bank is likely to buy at least $1 billion of the bonds.

Asia rallies

Asian names saw a rally overnight on the news that HSBC's China Purchasing Managers' Index climbed to a five-month high.

Indonesia benefited while the Philippines was "lagging a little bit," a source said.

Europe, on the other hand, was "less upbeat" as concerns about "debt problems in the fringe euro countries still weighed on investors' minds," according to a report from RBC Capital Markets.

South Africa saw its consumer price index fall, and inflation now stands at its lowest level since mid-2006, RBC said. "This should provide further support for the shorter end of the bond market."

And Turkey has seen foreign investors "aggressively" increase their "exposure to Turkish government bonds" over the last six months, RBC said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.