EM active amid caution; Bahrain, ADCB, Banco do Brazil, African Development Bank price

By Christine Van Dusen

Atlanta, Nov. 16 - Bahrain, Abu Dhabi's ADCB Islamic Finance (Cayman) Ltd., Tunisia's African Development Bank and Brazil's Banco do Brasil SA sold notes on a Wednesday that was active for emerging markets assets, even as concern about the European debt crisis continued.

"A sharp weakening of French, Italian and Spanish bond markets left European equities moderately lower but other risk assets largely untouched," according to a Barclays Capital report. "We may enjoy a brief respite from European contagion in the days and, perhaps, weeks to come, but the fundamental threat to the world economy and financial markets remains.

"If new governments in Greece, Italy and Spain falter, we would expect contagion to return with a vengeance."

For now, sukuk issues are ruling the roost.

"Finally the outperformance throughout the middle part of the year for sukuks has reaped fruit as the seeds planted in issuers' heads by the bevy of debt capital markets desks see the sukuk issuance pick up," a trader said. "Of course a by-product of this is the secondary sogginess of the existing sukuks. Most of them traded heavy all day, even previously hard-to-source Qatar Islamic Bank and Sharjah Islamic Bank."

Most bonds from the Middle East and Africa were wider on Wednesday for the month, a trader said. Abu Dhabi Islamic Bank was wider by 45 basis points, Sharjah Islamic Bank by 46 bps and First Gulf Bank by 55 bps.

"Mind you, when new issues are coming they are repricing a lot of these previously squeezed bonds," he said. "A combination of thin markets, lethargic trading desks and probably a lack of decent Street shorts to be filled in has seen the bonds suffer.

"Still, if you believe in the sukuk story, then a bit more value is being thrown into the market here."

Bahrain prices notes

In its new deal, Bahrain priced $750 million notes due Nov. 22, 2018 at par to yield 6.273%, or mid-swaps plus 450 bps, a market source said.

The notes came in line with talk, set at mid-swaps plus 450 bps, via BNP Paribas, Citigroup and Standard Chartered Bank in a Regulation S deal.

Proceeds will be used to finance the sovereign's budget deficit.

"Gone are the days of Bahrain trading like a rock; the events of the past 12 months have changed all that," a trader said. "Personally I can't get too excited about Bahrain anymore. It may have been the historic financial hub of the Middle East some 30 years ago, but this is 2011. Dubai will continue to draw commerce and trade away from Bahrain."

Still, he said, the credit should get some support from regional investors.

"Despite the wall of supply now hitting the market in sukuks, this deal is still a sukuk," he said.

ADCB does deal

In another new deal, Abu Dhabi's ADCB Islamic Finance sold $500 million notes due Nov. 22, 2016 at par to yield 4.071%, or mid-swaps plus 275 bps, a market source said.

The notes - guaranteed by Abu Dhabi Commercial Bank PSJC - came in at the low end of talk, set at mid-swaps plus 275 bps to 287 bps.

Abu Dhabi Commercial Bank, Bank of America Merrill Lynch, JPMorgan and Standard Chartered Bank were the bookrunners for the Regulation S transaction.

"There's light activity in the gray market," a trader said. "I expect both this and Bahrain to hit the ground running in the morning."

Said another trader, "This new ADCB, given it is a sukuk, should compress versus the 2014s, albeit the latter is better placed. Amazing to think that the 2014s were trading near 210 about a week ago. It's all about yield rather than spread, because on spread it is hard to get too excited on many of these bonds."

Banco do Brasil sells bonds

Wednesday also saw Brazil-based lender Banco do Brasil price a $500 million issue of 3 7/8% notes due 2017 at 99.413 to yield 4%, a market source said.

The notes - which were talked at a yield in the 4 1/8% area - came to the market via BB Securities, Bradesco BBI, Citigroup, HSBC and JPMorgan.

And regional lender African Development Bank priced a $250 million tap of its 1¼% notes due Sept. 2, 2016 at 100.54 to yield 1.134% via Credit Suisse, a market source said.

The original $1 billion issue priced on Aug. 24 at 99.942.

In trading from Africa, Morocco was solid, with its 2017s seen at 104 bid, 105 offered and its 2020s at 90 bid, 90.75 offered.

Middle East in focus

From the Middle East, Abu Dhabi-based International Petroleum Investment Co.'s bonds continued to get attention on Wednesday, particularly the 2015s and 2017s.

Some sellers emerged on Kuwait-based Kipco while two-way interest was reported for Emirates' 2016s, a trader said.

"The recent Union National Bank deal had a good day and has moved 15 bps tighter on the week, trading as high as 99.5 before closing at offered," he said.

Other sukuk issues were getting leaned on, a trader said.

"Week-on-week moves show how these bonds are being leaned on ahead of supply," a trader said. "Paper is around, and in this thin, illiquid and front-running environment we live in, we are moving lower."

He noted better selling of Ras-al Khaimah's 2014s, Qatar Islamic Bank and Dar al-Arkan's 2015s.

Gazprom offers value

Looking to Russia, the recent 41/2-year and nine-year bonds from Gazprom were offering some value as compared to the company's existing curve, a trader said.

"When the new issue price guidance levels were announced, the 41/2-year and nine-year notes were initially offering circa 60 bps and 30 bps premium to the curve," he said. "As the paper started coming and bids were hit, at these current levels, the 41/2-year deal still seems to offer a relatively decent premium while the nine-year looks to be at fair value. It could be defensive play going into year-end for what is still a strong credit."

Akbank active

From Turkey, bonds from Akbank were among the most active in the corporate sector on Wednesday.

"The 2018s are doing good work around the 100.75 area," a trader said. "Isbank is also seeing better retail [investor] buying in scrap amounts."

Yapi Kredi was lagging, following the news that Moody's Investors Service was reviewing the company's rating for a downgrade.

Market-watchers were also whispering about Halk Bankasi's planned issue of notes, which could total about $500 million and carry a five-year tenor when market conditions improve.

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