Investors sidelined by Ireland, Portugal economic fears; flow of deals slows; inflows up

By Christine Van Dusen

Atlanta, Nov. 12 - Emerging markets investors were spooked Friday morning by speculation that Ireland and Portugal are next in line for banking bailouts, but the anxiety lessened on word that Irish bondholders won't have to take a haircut on their current positions.

"It was generally a very weak open but since then rebounded," a London-based trader said. "The positive comments and rumors had a slightly better effect on equities."

Spreads tightened slightly, but overall the day was "extremely quiet," he said.

Not even the better economic news from the United States - showing that consumer sentiment improved more than expected early this month and registered its best reading since the summer - could spice things up much.

New issuance stood at a standstill, in large part because the day was sandwiched between a holiday and a weekend.

So while "the Ireland stuff is affecting everything to a certain degree" and impacting emerging markets, "it's coming at a time when issuance has slowed down. It's mostly affecting secondary trading," a market strategist said.

"A lot of the long-only managers' funds have done very well. Why ruin it by taking on risk now? Just take some profits and sit on your hands and be happy with the year you had. That often happens in late November."

Polish Television sells notes

Another reason new deal activity was slow on Friday: So many issuers rushed to bring deals earlier in the week in order to meet a deadline.

"A lot of the issuance for the first days of the month was done in order to be eligible for 144A. They have to be settled within 45 days of their last reporting period. So that's why there's been a rush to get things priced by, say, Wednesday," the strategist said. "That's why the first 10 days of the month were so insane. Some deals rushed in even though they weren't 144A, though I'm not sure why."

Among the deals to sneak in earlier in the week was Polish Television Holding's €260 million 11% step-up notes due May 15, 2017, which came to market at 97.5 via Deutsche Bank, JPMorgan and Nomura in a Rule 144A and Regulation S transaction.

The notes include a 200 basis points step-up from Nov. 15, 2014 and are non-callable for three years.

Sky Vision oversubscribed

Also pricing just before the holiday was Indonesia-based Aerospace Satellite Corp. Holding BV - a special purpose vehicle of satellite pay television company PT MNC Sky Vision - with $165 million 12¾% notes due Nov. 16, 2015 at par, a market source said.

HSBC and Standard Chartered were the bookrunners for the Rule 144A and Regulation S transaction, which was talked in the 12¾% area and is non-callable for three years.

The final book for the deal was about $285 million from more than 60 orders, with 74% from Asia, 18% from Europe and 8% from the United States.

Fund and asset managers accounted for 55%, banks 27% and private banks 18%.

International Petroleum dips

Another deal that was oversubscribed was the $2.5 billion two-tranche notes from Abu Dhabi-based oil industry investment company International Petroleum Investment Co., which included $1 billion 3 1/8% notes due 2015 that priced at 99.642 to yield 3.203%. The second tranche totaled $1.5 billion 5% notes due 2020, which came to market at 99.108 to yield 5.115%, or Treasuries plus 245 bps.

The final book for the 2015 tranche was $4.5 billion with 275 orders, with 32% from Europe, 29% from the Middle East, 25% from the United States and 14% from Asia. Banks accounted for about 37%, asset managers 33%, central banks 12%, hedge funds and brokers 9%, private banks 5% and others 3%.

The second tranche attracted $6.5 billion with 325 accounts, with 51% from the United States, 23% from Europe, 14% from the Middle East and 12% from Asia. About 54% came from asset managers, 14% from banks, 9% from hedge funds and brokers, 8% from private banks, 5% from central banks and 10% from others.

Still, the deal "hasn't done well at all" in trading, a market source said. The 2015 notes were seen trading at 99.35 bid, 99.6 offered. The 2020 notes were trading at 99 5/8 bid, 99 7/8 offered.

"Today is the least liquid day for the deal in part because the Middle East isn't open, but also because it's just a little too tight and a little weak," he said.

Odebrecht trades well

Faring better on Friday were the $1.5 billion 6.35% notes due 2021 from Brazil-based Odebrecht Drilling Norbe XII/IX Ltd., a wholly owned subsidiary of Odebrecht Oleo e Gas SA.

The notes priced at 98.818 to yield 6 3/8%, or Treasuries plus 370.3 bps, in a Rule 144A and Regulation S transaction via Santander, HSBC, Deutsche Bank and BB Securities.

"That has done well," a London-based market source said. "It has more liquidity today since the U.S. is open."

At midday in London, the notes were seen trading at 103 bid, 103.5 offer. By mid-afternoon, they were seen at 102.6 bid, 102.9 offered

"That's shockingly good," he said. "I cannot get over it."

Vinacomin plans, BVA delays

In other news on Friday, Vietnam's state-owned coal production company Vietnam National Coal and Mineral Industries Holding Corp. Ltd. (Vinacomin) was planning a roadshow for the Nov. 15 week for a dollar-denominated offering of 10-year notes via Credit Agricole, a market source said.

And Brazilian lender Banco BVA SA is postponing and possibly canceling its planned dollar-denominated issue of bullet notes due 2013 with BCP Securities and UBS in a Regulation S-only deal.

Proceeds from the deal, which was talked at a yield in the 7½% area, were to be used for general corporate purposes and for credit portfolio growth.

To blame, sources say, is fallout related to the news that Brazilian lender Banco Panamericano SA has taken a government bailout. The bank also faces criminal charges for accounting inconsistencies.

Inflows rise again

Inflows into emerging market bond funds hit $1.28 billion for the week ended Nov. 10, up from $615 million the previous week, according to data tracker EPFR Global.

That brings the inflow streak to 24 straight weeks and the year-to-date inflow total to $48.36 billion.

When quantitative easing "became a fact rather than an expectation, flows rocketed into every fund group," said Cameron Brandt, senior analyst with EPFR.

"People were rushing in to try and get money out ahead of where the QE II money will go," he said. "Emerging markets are really high up on the list."

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