Outflows for EM bond funds; Poland bond ticks up; banks from Turkey, Russia perform in trading

By Christine Van Dusen

Atlanta, Jan. 10 - Emerging markets assets were "resilient" on Friday, with the new issue of notes from Poland among the bonds to realize gains during what was the first full week of trading in the new year.

Still, money continued to flow out of emerging markets bond funds.

"Fund flows were marginally negative at $70 million outflows, with $9 million of local-currency inflows, $117 million hard-currency outflows, and $38 million blended inflows," a London-based analyst said.

Turkey remained in focus at the end of the week, as bonds there continued to face pressure from December's corruption scandal, she said.

"The concern for investors is now the uncertain outcome from upcoming elections, economic growth pressure and how the Central Bank balances opposing forces, in particular dealing with a large current account deficit," she said.

Still, Turkish credit was tighter on the week, particularly for the country's banks.

Turkey's Turkiye Finans Katilim Bankasi AS (Finansbank) saw its 2016s move about 50 basis points tighter during the week while Turkiye Halk Bankasi (Halkbank) - whose chief executive officer was arrested as part of the scandal - was 27 bps tighter on the week.

"We believe, at this time, that the allegations are related to management and are not linked to the bank itself," the analyst said.

Asya Katilim Bankasi AS (Bank Asya)'s 2023s, however, bucked the trend. The notes widened as much as 13 bps by Friday on rumors of potential capital ratio problems, she said.

"In the Turkish corporate sector, [Turkiye Sise ve Cam Fabrikalari AS]'s 2020s were the top performer, 50 bps tighter, following a story in local press that they have hired advisors to sell land in Istanbul," she said.

Russian banks tighten

Meanwhile, activity for bonds from Russia was limited during the week due to a holiday at the start, though most names still performed well in trading.

"Banks are 15 bps tighter on average," a trader said.

Credit Bank of Moscow's 2018 subordinated notes and senior notes were outperformers, narrowing 72 bps and 41 bps, respectively.

"Russian Agricultural Bank also saw solid performance, making up three of the top five best performers," she said.

Among Russian corporates, Far Eastern Shipping Co. plc (Fesco) put in a strong showing, with its 2018 tightening 46 bps, she said.

Poland trades up

The recent new issue of notes from Poland - a €2 billion issue of 3% notes due 2024 that priced at 99.727 - traded up about 30 cents on Friday, a trader said.

The notes came to the market a spread of mid-swaps plus 87 bps with bookrunners BNP Paribas, Citigroup, Societe Generale and Unicredit in a Regulation S deal.

"The expectation is for a larger volume of issuance next week across EM countries as the market remains supportive," the analyst said.

Notes are expected to originate in Dubai and Turkey, she said.

Prices lower for Ukraine

Looking to Ukraine, bonds went into the end of the week with some profit-taking, said Svitlana Rusakova of Dragon Capital.

Prices were seen about a ½ point lower with little trading, she said.

"Small two-way flows in quasi-sovereigns," she said. "Mostly unchanged corporates."

Middle East in focus

Bonds from the Middle East tightened at the end of the week on limited supply, a trader said.

"Investors put cash to work to hit yield targets, although expectations are for a return to new issues next week," she said.

Abu Dhabi Commercial Bank stood out on Friday, particularly its 2023 notes, after buyers emerged late on Thursday.

"In terms of activity, there was a focus on Dubai, Qatar and Bahrain," she said.

Oro Negro sets talk

Mexico's Oro Negro Drilling Pte. Ltd. (Singapore) set talk at 7½% to 8% for its upcoming five-year issue of $725 million notes, a market source said.

Pareto Securities is the bookrunner for the deal.

The proceeds will be used to refinance all existing bonds in the issuer group and for general corporate purposes.

The notes include a change-of-control put if anyone but the current shareholders hold more than 50% of the shares in the parent.

The issuer is wholly owned by Integradora de Servicios Petroleos Oro Negro SAPI de CV, a developer and promoter of oil projects in Mexico.

KWG deal oversubscribed

The final book for China-based developer KWG Property Holding Ltd.'s recent $600 million issue of 8.975% notes due Jan. 14, 2019, which priced at par, was $2.5 billion from 128 accounts, a market source said.

Citigroup, Standard Chartered Bank and UBS were the bookrunners for the Regulation S deal.

The proceeds will be used to refinance existing debt and finance existing and new projects.

About 93% of the orders were from Asia, 5% from Europe and 2% from the offshore United States.

Asset managers accounted for 52%, private banks 38% and others 10%

Indonesia draws orders

Also oversubscribed was the new issue of 10- and 30-year notes from Indonesia, a market source said.

The $2 billion tranche of 5 7/8% notes due 2024 that came to the market at 99.441 to yield 5.95% attracted $10 billion of orders from 448 accounts.

About 66% came from the United States, 17% from Asia and 17% from Europe.

The $2 billion tranche of 6 ¾% notes due 2044 that priced at 98.734 to yield 6.85% drew 70% of its orders from the United States, 16% from Europe and 14% from Asia.

Fund and asset managers picked up 77%, insurance and pension funds 17%, banks 5% and private banks 1%.

Philippines sells bonds

On Thursday, the Republic of the Philippines priced $1.5 billion 4.2% notes due 2024 at par to yield 4.2%, a market source said.

Deutsche Bank, HSBC and Standard Chartered Bank are the joint lead managers for the Securities and Exchange Commission-registered transaction.

The joint lead managers and bookrunners are ANZ Securities, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley and Standard Chartered Bank.

The proceeds will be used to fund a tender offer and for expenses incurred in that transaction, as well as for general governmental purposes.

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