Euro zone fears stunt deal flow for EM; spreads widen; IDBI, Egypt, VTB plan new notes

By Christine Van Dusen

Atlanta, May 23 - As concerns about the euro zone's economic health increased on Monday - with news that the rating outlooks for Italy and Belgium had been downgraded amid continued uncertainty about Greece - investors sold off risky assets and emerging markets issuers stayed on the sidelines.

"Euro-area news over the weekend has been the main focus at the start of the week," according to a report from RBC Capital Markets. "Ongoing uncertainties in Europe - Greek debt, Spanish local elections, Italy's rating outlook, etc. - have conspired to produce a long shadow."

The JPMorgan Emerging Markets Bond Index Plus widened by 3 basis points to Treasuries plus 280 bps, with Argentina and Venezuela wider by 9 bps and Ukraine wider by 20 bps.

"It was a very different mood in the open today, with the market in full defensive mode as words like 'austerity,' 'Greece' and 'deficit' all of a sudden find resonance," a London-based trader said. "The abrupt sell-off on the open seems to have dented any interest to do much."

Said another London-based market source: "This is one slow-moving train wreck. We are taking a wait-and-see approach, having been pretty cautious the last one to two weeks."

In the middle of all this uncertainty, a few emerging markets issuers did take steps toward the market, including Industrial Development Bank of India Ltd. (IDBI Bank), Egypt and Russia's VTB Bank.

Deals ahead for IDBI, others

In its planned deal, India-based lender IDBI Bank is seeking to issue up to $300 million equivalent of Swiss franc-denominated notes, a market source said.

Also, Egypt plans to issue $1 billion notes due 2016, a market source said, as the sovereign's 2020 notes and 2040 notes saw good week-over-week moves in the secondary market.

And Russia-based lender VTB Bank plans to issue Singapore dollar-denominated notes with a tenor of between three and five years later this week, a market source said.

OCBC and VTB Capital are the bookrunners for the notes, which are being marketed on a roadshow that ends Tuesday.

Russian names trade wider

In trading, Russian banks were a bit weaker on Monday, with thin volumes, a trader said.

He reported better buying of Alfa Bank's 2017s and 2021s in the morning and then saw better bids as the day went on.

"Russian corporates and quasi-sovereign names are so far just off a half-point, which is 10 bps wider, given the U.S. Treasury move," the London-based market source said. "In Russia the focus is back on the OJSC Russian Agricultural Bank 10-year, non-call five subordinated deal, with the 150 bps step-up not really doing it for me, given where spreads are."

Barclays Capital, JPMorgan and VTB Capital are the bookrunners for the Rule 144A and Regulation S deal.

Turkey softens

Turkey's corporates started off the week softer. "We've seen relatively good volumes trade on Turkey's 2030s in the morning around 168.25, and we're still seeing the last of the loose Finansbank AS papers being shown around," the trader said.

Finansbank's 5½% notes due 2016, which priced at 99.384 on May 5, were seen Monday at 96.25 bid, 97 offered.

"Turkey is off 1 point in the long end," the London-based market source said.

The 2021 6¼% notes from Turkey's Turkiye Garanti Bankasi AS (GarantiBank) - which came to the market on April 14 at 98.086 - saw some retail demand on Monday.

"But it was pretty much a quiet session for everything else," he said.

Ukraine, Belarus suffer

In other trading, Ukraine was the hardest hit, a trader said, with the long end down 1½ points on thin volume.

Belarus saw its 2018 dollar notes move 45 bps wider on the news of a 55% devaluation in the sovereign's currency.

Kazakhstan, meanwhile, was mixed.

"Names like BTA Bank are 1 point weaker, but JSC Kazkommertsbank is unchanged," he said.

IPIC, Sharjah stay strong

Looking at the Middle East, most names were about 10 bps wider, though issuers like International Petroleum Investment Co. and Sharjah Islamic Bank were "still remarkably strong," the trader said.

Sharjah, which on May 18 sold $400 million 4.715% notes due 2016 via SIB Sukuk Co. II Ltd. at mid-swaps plus 270 bps, saw the spread tighten to 235 bps over mid-swaps.

"I must admit it's done exceedingly well from the initial rumor of coming to the market at 300 bps over," he said. "That will continue to get soaked up, but spread tightening from here might be pausing a little. Pretty good volume went through today. I felt like it was local demand, versus international selling."

Only Dubai and some other high-beta names were showing any weakness, he said.

"It was wider, but there was no panic selling," he said. "The rally takes a breather."

Middle East in focus

Bahrain saw two-way retail interest in its 2015 notes while its 2020s were heavy in the Street, the trader said.

Also getting attention in the region were the recent notes from Islamic Development Bank, which on May 18 sold $750 million 2.35% sukuk notes due 2016 at par to yield mid-swaps plus 35 bps.

"The bond priced and immediately traded down a few times at reoffer with plenty of paper around," the trader said. "The cash price we are at now is 99.75 bid, 99.95 offered. Over time these bonds get taken down, but post-pricing it's always wider."

He said some market-watchers were speculating that the issuer could do another deal, most likely in 2012.

And Lebanon's new issue of $650 million 6% notes due 2019, which priced May 18 at par, were trading Monday at 100 bid, 100.20 offered.

"Flow-wise there's interest in the Lebanon 2019s," the trader said.

South Africa stands out

South Africa was "a clear winner today, only about 5 bps wider as it sees none of the selling prevalent elsewhere," the London-based market source said.

The recent issue of 7½% notes due 2016 from Nigeria's GTB Finance BV - which priced on May 12 at 98.981 to yield 7¾% - managed to trade well as compared to the broader markets, another trader said.

The notes were seen at 101.37 bid, 101.87 offered.

"Africa in general was wider and defensive, with light activity," the trader said.

Pertamina oversubscribed

The final book for Indonesia-based oil and gas company PT Pertamina Persero's $500 million 6½% notes due May 27, 2041 - which priced Friday at 98.38 to yield 6 5/8%, or Treasuries plus 231.8 bps - was more than $5 billion from 250 investors, a market source said.

Citigroup, Credit Suisse and HSBC were the bookrunners for the Rule 144A and Regulation S notes, which were talked at a yield of 6¾% to 6 7/8%.

Proceeds will be used to finance the company's planned acquisition of Exxon Mobil Corp.'s 25% stake in an Angolan oil block.

About 40% of the orders came from Asia, 37% from the United States and 23% from Europe.

Fund and asset managers accounted for 75%, banks 6%, private banks 4% and insurance, pension funds and central banks 15%.

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