Risk appetite improves, buying picks up for EM assets; Banco BMG, Rusal, others plan notes

By Christine Van Dusen

Atlanta, April 4 - Risk appetite for emerging markets assets improved on Monday and buying picked up while the primary market stayed quiet, though several issuers - including Brazil's Banco BMG SA, the Province of Buenos Aires, Russia's United Co. Rusal plc, Russia's CJSC Tinkoff Credit Systems Bank and South Africa's Sappi Papier Holding GmbH - advanced deals.

"The market remains very well supported. There's decent risk appetite across the board," a London-based market source said. "Credit default swaps bids are wilting, and the market has closed on a firm footing."

The JPMorgan Emerging Markets Bond Index Plus spread tightened about 4 basis points to Treasuries plus 253 bps at the start of the day, down about 40 bps since the peak of 290 bps seen in March.

"External debt spreads have narrowed a touch, continuing the steadily improving trend," according to a report from RBC Capital Markets.

BMG picks leads

Brazil-based lender Banco BMG has mandated Barclays Capital, BCP Securities, Bradesco BBI, BTG and Morgan Stanley for a dollar-denominated issue notes due 2018, a market source said.

The Rule 144A and Regulation S deal will be marketed during a roadshow starting Tuesday in Boston and ending Wednesday in New York.

The bonds will begin amortizing in year five and have an average life of six years, the source said.

Also from Latin America, Buenos Aires is planning to issue $500 million of bonds, a market source said.

Rusal talks notes

Russia-based aluminum company Rusal set price talk for its planned RUB 15 billion of notes at 8.7% to 9%, according to a company filing.

Placement of the notes - which include a put option of not earlier than four years - is expected to occur around April 18. Proceeds will be used to refinance debt.

This is part of the company's plan to issue a total of RUB 30 billion, 1 billion renminbi and $1 billion bonds by May. On March 1 the issuer sold RUB 15 billion notes due 2018 with an 8.3% coupon.

Also from Russia, Moscow-based credit card and consumer lending company Tinkoff Credit Systems Bank has mandated Citigroup and Goldman Sachs for an issue of dollar-denominated notes, a market source said.

A roadshow for the Regulation S notes will begin Thursday and travel through Asia and Europe.

Sappi eyes euro, dollar bonds

In another upcoming deal, Sappi Papier Holding - the European subsidiary of a Johannesburg-based producer of coated fine paper - is planning a two-tranche issue of $680 million-equivalent senior secured notes, a market source said.

The deal is expected to include euro-denominated notes due 2018, which will be non-callable for four years, and 10-year dollar notes that will be non-callable for five years.

Citigroup, Credit Agricole, JPMorgan, KBC, RBS and Unicredit are the bookrunners for the deal, which is being marketed on a roadshow until Wednesday.

Proceeds will be used to redeem the company's outstanding 6¾% notes due 2012 and to repay €200 million of bank debt, according to a company announcement.

Longfor oversubscribed

The final book for China-based developer Longfor Properties Co. Ltd. - $750 million notes due April 7, 2016 that priced Thursday at par to yield 9½% - was more than $7 billion with more than 300 orders, a market source said.

Citigroup, HSBC, Morgan Stanley and Standard Chartered were the bookrunners for the Rule 144A and Regulation S notes, which priced at the tight end of talk, set at 9½% to 9 5/8%.

About 76% of the orders came from Asia, 14% from the United States and 10% from Europe. Funds accounted for 46%, private banks 43%, banks 7% and corporates 4%.

Buyers plentiful

In trading on Monday, the London-based trader noted that most of the activity was seen on the buying side.

"Not many bonds have been left out of the rally," he said. "As much as valuations had tremendous value three to four weeks ago, the reverse is true with most valuations looking a little rich to me. In saying that, locals have their buying boots on, and the technical position got a lot cleaner after the early year unrest. And higher oil and gas prices are a positive for the region."

He noted some value in Dubai, which recorded a solid start on Monday with its 2014 notes trading at 103.50 bid, 104 offered. "That's a cool 113 bps tighter on the month," he said.

Later in the day the sovereign's 2020 bonds were seen back at par. "They are catching up to the 2014s and 2015s, which are both 110 bps tighter on the month," he said.

Dubai Water and Electricity Authority, however, hasn't been able to match those gains. "Over the month it has lagged the sovereign by almost 40 bps," he said.

MENA in focus

The trader also saw some value in long-dated paper from Qatar, on a spread basis.

"Qatar's five-year traded at 100 today, or 25 bps tighter from the wide panic lift in the first quarter," he said.

The Emirate of Ras al Khaimah remained "a rock," he said.

Bahrain names were seeing buyers, he said. "That paper is 35 bps to 45 bps tighter on the week," he said.

And bonds from International Petroleum Investment Co. have "seen a little reversal of late, with the recent issues catching a bid and the existing dollar bonds lagging," he said. "It's taken some time but it feels like the loose bonds are being soaked up."

Meanwhile, Africa was relatively quiet, though the Ivory Coast had a choppy day, closing at 49.75 bid, 50.50 offered.

"There's still good support for Ghana, Gabon and Egypt bonds," he said.

Turkey sees activity

Turkey remained on radar screens on Monday after reports showed that the consumer price index in March touched a 42-year low, year over year, lessening the pressure to raise interest rates for the sovereign.

"Amid Syrian and MENA contagion worries, Japan's radiation and resurrected euro zone issues, we have moved on to positivism as Turkey was announced as the third-fastest growing G20 country with a declining inflation," a London-based trader said. "There is a lot of activity both on the sovereign curve and on the banks."

During the European morning, a trader didn't see much reaction to the news. But as the day went on, he noted some activity.

"It's only bid on the street," he said. "The sovereign curve has tightened 5 to 7 bps on the long end, and banks are firmer too."

In response, some selling was seen for Turkey-based Akbank's 2018 bonds.

"With this much of a strong rally within only a couple of days, one can't help but wonder if the market is currently overbought," he said.

Bullish approach encouraged

Looking ahead in the quarter, emerging markets investors should remain bullish in the near term, according to another report from RBC.

"Keep some powder dry in the mid-cycle correction," RBC said. "Focus on bullish stories: Brazil, Colombia, Mexico, China, Indonesia, South Korea, Poland [and] Turkey."

RBC also noted that investors remain long-term underexposed as EM allocations and inflows continue to rise.

"The growth rebound, declining volatility and strong appetite for EM are all bullish," the report said.

EM is "no longer cheap on a risk-adjusted and cross-market basis. Rising U.S. Treasury yields and the dollar will weigh on valuations," RBC said. "Recent position cleaning will help rally through May."

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