Unrest in Saudi Arabia halts issuance, inspires profit-taking; IPIC notes get attention

By Christine Van Dusen

Atlanta, March 10 - Risk sentiment took a hit on Thursday as tensions soared in Saudi Arabia and a ratings downgrade for Spain led to lag in new issuance and some profit-taking by emerging markets investors.

Also contributing to the weaker picture was weak data out of China, distorted by the timing of the Lunar New Year celebration.

"That and the geopolitical risk out of the Middle East and sovereign debt worries again coming to the fore with Spain's downgrade, there's plenty for the markets to chew on," said Nick Chamie, head of emerging markets research for RBC Capital Markets. "That acted to dampen market sentiment across the board and put downside pressure on the markets."

The JPMorgan Emerging Markets Bond Index Plus spread widened 2 basis points to Treasuries plus 255 bps.

"Activity does remain a little below average," a London-based trader said.

Most of the activity that did take place on Thursday focused on the new three-tranche issue of notes due 2016, 2021 and 2026 from Abu Dhabi-based oil investment entity International Petroleum Investment Co. (IPIC), which priced Wednesday.

Said Chamie: "All the different factors combined are forcing investors to take some profits up and forcing a number of sales through the market."

IPIC sees sellers

IPIC saw numerous sellers on Thursday for its Regulation S-only notes via Goldman Sachs, Banco Santander, BNP Paribas, Credit Agricole, Deutsche Bank and UniCredit.

"It's all about IPIC," the London trader said. "The back of the envelope reveals about 12 sellers for every one buyer. It's been an exceedingly busy morning. There's good interest on the 2016s at the 99.45 bid, 99.55 offered level. They're very fast markets, although they're trying to settle now that the loose bonds - and there were a lot - have come out."

The deal included €1.25 billion 4 7/8% notes due March 14, 2016 that priced at 99.379 to yield OBL plus 244.8 bps. The notes were seen Thursday at 99.75 bid, 100.05 offered.

"It's been a pretty good effort by the 2016s, which were very liquid most of the session," he said.

And a €1.25 billion tranche of 5 7/8% notes due March 14, 2021 came to market Wednesday at 98.737 to yield DBR plus 276 bps. The notes were trading Thursday at 99 bid, 99.30 offered.

"Initial prints were up at 99 before a bevy of selling pressure saw it trade as low as 98," he said. "The bond was very heavy for the first hour or so before some buyers dipped their toes."

Less pressure for other notes

The new IPIC deal also included £550 million 6 7/8% notes due March 14, 2026 at 99.506 to yield Gilts plus 270 bps, in line with talk of Gilts plus the 275 bps area. Those notes were trading Thursday at par bid, 100.50 offered.

"That's seen nowhere near as much selling pressure as the euro notes," he said. "That should attract some demand over time."

Meanwhile, the company's existing 2015 bonds were seen 96.60 bid, 96.90 offered after trading Wednesday at 96.62 bid, 97.12 offered. The 2020s were seen at 95.70 bid, 96 offered after Wednesday's levels of 95.75 bid, 96 offered.

"Perhaps some investors are waiting for headline risk from the region to subside," he said. "These are big deals, and certainly the biggest I can recall in euros from the Middle East and North Africa region."

In other news from Abu Dhabi, the emirate has scheduled a non-deal roadshow in Asia that will begin March 14, a market source said.

Bahrain trades up

In other trading on Thursday, Bahrain's 2020 notes were seen at 94.62 bid, 95.37 offered after trading Wednesday morning at 94.50 bid, 95.25 offered.

"Qatari Diar continues to trade pretty well," a London-based trader said. "Qatar's five-year credit default swaps are trading at 106 bps bid, 110 bps offered."

Meanwhile Egypt's five-year credit default swaps were seen Thursday at 307 bps bid, 385 bps offered, as the sovereign's credit rating was affirmed by Standard & Poor's. Egypt's 2020 bonds were trading at 92.25 bid, 93.25 offered, wider by 40 bps on the week.

"We've also seen some demand for bank names, like Commercial Bank of Qatar, Abu Dhabi Islamic Bank and Qatar Islamic Bank, and buyers again on Qatari Diar paper," he said. "It remains very well supported."

Dubai and the country's corporate names "continue to trade OK," he said. "I think you are paid to hold those names. We should see Dubai World signing its final debt deal next week, and tourism in Dubai should continue to pick up."

Five-year credit default swaps for Dubai remained in the 425 bps bid, 435 bps offered area.

Russian lenders set talk

Also on Thursday, Moscow-based OJSC Russian Agricultural Bank set price talk for its planned ruble-denominated issue of senior notes due 2016 at the 8.7% area, a market source said.

Deutsche Bank, JPMorgan and VTB Capital are the bookrunners for the Regulation S-only deal, which is expected to price Friday.

In another upcoming deal from Russia, Moscow-based Home Credit and Finance Bank LLC set price talk for its planned issue of $500 million three year notes at 7% to 7½%, a market source said.

Citigroup and Credit Agricole are the bookrunners for the Regulation S deal.

Yanlord, Indian Railway ahead

In other deal-related news, Singapore-based property developer Yanlord Land Group Ltd. is planning a dollar-denominated issue of bonds, a market source said.

HSBC, JPMorgan and RBS are the bookrunners for the Rule 144A and Regulation S notes.

And New Delhi-based Indian Railway Finance Corp. is planning a $200 million issue of five-year notes, a market source said.

No other details were immediately available on Thursday.

Hong Leong to issue bonds

Thursday also saw Malaysia-based lender Hong Leong Bank Bhd. looking to issue up to $300 million of senior bonds, according to a company announcement.

Barclays Capital, RBS and Standard Chartered Bank are the bookrunners for the notes. CIMB Investment Bank Bhd. and Hong Leong Investment Bank Bhd. are the co-managers.

Proceeds will be used for working capital and for general banking purposes.

Meanwhile, the Republic of the Philippines is planning to issue up to $1 billion of bonds during the second quarter of the year, a market source said.

And Lima-based lender Banco de Credito del Peru has set the tenor for its planned benchmark-sized issue of dollar-denominated senior fixed-rate notes at five years, a market source said.

Bank of America Merrill Lynch and JPMorgan are the bookrunners for the Rule 144A and Regulation S deal, which is expected to price by week's end.

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