Emerging markets debt performs amid global economic uncertainty; Russian names stay strong

By Christine Van Dusen

Atlanta, May 24 - Despite the continued turmoil in Greece and a lack of progress at Wednesday's European Union summit, emerging markets bonds stabilized somewhat on Thursday after the release of decent economic data, with notable demand seen for Russia's quasi-sovereign banks and Turkey's lenders.

"You can't keep a good credit market down," a trader said. "The moment you stop getting poor data, the bid for EM comes right back."

The Markit iTraxx SovX index spread opened at Treasuries plus 330 basis points, about 7 bps tighter. And most emerging markets bonds opened 1/8 point to ¼ point firmer, a London-based trader said.

The Russian names that stood out during the session were Evraz Group's 2017 bonds, Vimpelcom's 2022 bonds and Sberbank's 2022 bonds.

"They're still displaying huge liquidity," the London trader said. "Retail investors continue to go for the recent Gazprombank, driving it to 30 bps through VTB Bank."

Lenders from Korea also captured the market's eye on Thursday as Korea Development Bank planned notes and Korea Exchange Bank mandated leads for a roadshow.

But overall, most emerging markets sovereigns and corporates aren't expected to issue notes until after the June 17 election in Greece. And much depends on the results, which could roil markets further.

So some market-watchers are recommending that investors show caution.

"While all policy alternatives face challenges, European issues require significantly bigger fiscal transfers and backstops than those currently in place," according to a report from RBC Capital Markets. "Therefore, we prefer to stay in 'risk-off' mode."

Liquidity is expected to dry up a bit by the end of the week, a trader said.

"As we head into a long weekend in the United States, get ready for a drop off," he said.

Korean issuers plan deals

For its planned ¥30 billion minimum issue of notes, Seoul-based Korea Development Bank mandated Bank of America Merrill Lynch, Citigroup, Daiwa, Mizuho and Nomura Securities as bookrunners, a market source said.

The notes are expected to carry tenors of two, three and five years and come to the market within the next few weeks.

Also, Seoul's Korea Exchange Bank has tapped Bank of America Merrill Lynch, Citigroup, HSBC, ING, KEB Asia Finance and Morgan Stanley as bookrunners for a roadshow from May 28 to June 1.

The marketing trip will travel to Hong Kong, Singapore, Los Angeles, London and Boston. A Rule 144A and Regulation S offering may follow.

Slovakia prices notes

In other news from Seoul, Industrial Bank of Korea on Tuesday priced a CHF 150 million issue of 1¼% notes due June 19, 2015 at 99.903 to yield 1.283%, or mid-swaps plus 110 bps, a market source said.

Deutsche Bank and Credit Suisse were the bookrunners for the deal.

Also on Tuesday, Slovakia priced a CHF 75 million add-on to its existing 2¾% notes due April 25, 2022 at 100.126 to yield mid-swaps plus 179 bps, a market source said.

RBS and UBS were the bookrunners for the Regulation S deal.

The total size for the issue is now CHF 175 million.

Roadshows ahead

Several other issuers took small steps toward the market on Thursday. Among them, Kuala Lumpur's Export-Import Bank of Malaysia Bhd. mandated BNP Paribas, CIMB, Maybank and Nomura Securities to arrange a roadshow during the week of May 28.

The marketing trip will take place in Malaysia, Singapore, Hong Kong and London.

Food and beverage processing company BRF Brasil Foods SA has tapped BB Securities, HSBC, Itau BBA and Santander for a roadshow from May 28 to May 29, a market source said.

The roadshow will be held in Europe and the United States.

Meanwhile, South Africa took a step away from the market, postponing its planned sukuk issue.

Severstal could refinance debt

Among Russian names, Severstal was in focus as the steel and mining company reported weaker-than-expected first-quarter earnings as a result of a one-off change in their working capital management approach, a London-based analyst said.

"We remain constructive on the name relative to its [peers] as these results are among the strongest in the industry," she said. "Severstal's CFO was quoted as saying in an interview that the company has no plans for major acquisitions or divestments. However, he added that if markets permit, they could refinance existing debt."

This isn't surprising, she said, given that $700 million matures in 2012 and $1.6 billion matures in 2013.

Ukraine's bonds illiquid

From Ukraine, agricultural company Mriya Agro Holding also reported earnings, with revenues more than doubling.

"We note, however, that the bonds remain highly illiquid in the current environment," the analyst said.

The sovereign is still expected to issue domestic bonds worth $1 billion to refinance a loan from Russia's VTB Bank.

"We've seen demand across the board today as we get lifted in the Ukraine sovereign," a trader said.

Ukraine's 2021 notes were trading Thursday at 88.75 bid, 89.50 offered.

From Turkey, the sovereign's 2022 notes were trading at 107.35 bid, 107.75 offered.

"Hats off to Akbank, which has actually managed to tighten over the last month, versus the typical 30 bps widening elsewhere," he said.

IPIC sees buyers

Looking to the Middle East, most bonds were fairly illiquid on Thursday, a trader said.

"Front-dated bonds have a very solid bid, helped by local banks flush with liquidity and front-end U.S. Treasury rates," he said. "The down trades generally have proven not bad entry points on a spread basis as the market does have bouts of grab attacks."

Some action was seen for Abu Dhabi's International Petroleum Investment Co. and its 2022 bonds and 2041 bonds. Both saw buyers and were trading higher, with the 2022 bonds trading at 104.25 bid, 104.75 offered before closing at 104.12 bid, 104.62 offered. IPIC's 2041 bonds were quoted at 107 bid, 108 offered before closing at 106.75 bid, 107.50 offered.

"There was also good interest in IPIC's 2017s today," he said. "They traded as high as 102.625 and 102.70."

Those notes ended the European session at 102.20 bid, 102.70 offered.

Middle East in focus

Bahrain's bonds remained "soggy" on Thursday, a trader said.

Lebanon repriced lower, with its 2026s closing at par bid, 101 offered.

"Generally this region remains fairly technical," a trader said. "Oil is approaching levels of some interest. Breakeven for Kuwait and Bahrain are the highest in the region."

Qatar's 2022 notes traded at 106.06 bid, 106.81 offered early Thursday and closed at 106.25 bid, 107 offered.

Dubai bonds mixed

Names from Dubai also garnered attention in the secondary market on Thursday.

The sovereign's 2022 notes were quoted at 100.75 bid, 101.25 offered. Later, the notes were seen at 101.13 bid, 101.38 offered.

Dubai Water and Electricity Authority's 2015 notes traded at 109.12 bid, 109.87 offered before closing out the European session at 109.50 bid, 110.25 offered.

Dubai's DP World, however, didn't have a great day, a trader said.

"It's not the best month of spread performance for DP World," he said. "The 2037s are down almost five points from high prints."

Those notes were trading at 94 bid, 95 offered and finished Thursday at 94 bid, 95 offered.

The recent $500 million issue of 4.752% five-year notes that priced at par from Dubai Islamic Bank had a quiet session.

HSBC, Deutsche Bank, Dubai Islamic Bank, Emirates NBD and National Bank of Abu Dhabi were the bookrunners for the Dubai, United Arab Emirates-based bank's deal.

The notes opened Wednesday at 100.45 bid, 100.60 offered and were later quoted at 100.40 bid, 100.55 offered.

"The bank closed at 100.25 bid side on Thursday, with the high print 100.60 in its short life," a trader said.

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