African Bank, PKO, Ukraine sell bonds; risk aversion rises, but EM paper gets absorbed

By Christine Van Dusen

Atlanta, June 10 - South Africa's African Bank Ltd., Poland's PKO Finance AB and Ukraine priced notes on Friday, and emerging markets investors absorbed the supply, even though they were spooked by a lack of consensus about a resolution to Greece's debt troubles.

"You have to be impressed by this market's ability to take down supply," a London-based market source said. "Poland, Romania, Iceland, Latvia and Sberbank have, between them, raised over $5 billion, and then Ukraine ... that's one hell of a week. And yet it's all gone well."

Still, spreads widened, with the JPMorgan Emerging Markets Bond Index Plus spread higher by 6 basis points to Treasuries plus 289 bps at the start of the day.

"Financial markets worldwide, EM included, remained stuck this week, lacking any real sustained direction as uncertainties over the health of the global economy and Greece's fate continue to run high, feeding investor caution and defensive positioning," according to a report from RBC Capital Markets.

Said a London-based trader: "While talking about the big picture, it's hard not to be a little nervous."

African Bank, PKO print notes

In its new deal, African Bank priced $300 million 6% notes due June 14, 2016 at 99.796 to yield 6.048%, or mid-swaps plus 425 bps, a market source said.

Credit Suisse, Goldman Sachs, Standard Chartered and Rand Merchant Bank were the bookrunners for the Regulation S-only transaction.

And Poland's PKO Finance priced CHF 250 million 3.538% notes due July 7, 2016 at par to yield mid-swaps plus 220 bps, a market source said.

BNP Paribas and Credit Suisse were the bookrunners for the deal.

PKO Bank Polski SA, a Warsaw-based lender, was the borrower.

Ukraine does deal

In another new deal on Friday, Ukraine's $1.25 billion notes due June 17, 2016 came to the market at par to yield 6¼%, a market source said.

The notes - via JPMorgan, Morgan Stanley and VTB Capital - priced in line with talk, which was set at the 6 3/8% area.

Before the deal came to the market, the Regulation S notes were trading up 5 to 15 cents in the gray market, a trader said.

"Ukraine has lagged in the last month, despite the IMF chatter," he said. "I am not overly excited about this deal, given the economic situation in the Ukraine, but the market seems to be as I hear there was a $3 billion book."

Romania struggles

These new deals followed the pricing of Romania's €1.5 billion 5¼% notes due June 17, 2016, which came to the market on Thursday at 99.794 to yield mid-swaps plus 255 bps, a market source said.

The notes priced in line with guidance, which was set at the mid-swaps plus 260 bps area.

Erste Group and Societe Generale were the bookrunners for the Regulation S transaction.

On Friday the notes opened at 99.60 bid, 99.80 offered and later were seen at 99.70 bid, 99.90 offered.

"These are very fast markets," a trader said. "Romania is struggling a little. I've only been asked to bid that one."

Latvia shines

Another recent issue - $500 million 5¼% notes due June 16, 2021 from the Republic of Latvia that priced at 98.164 to yield 5.491%, or mid-swaps plus 237.5 bps - opened Friday at 99.37 bid, 99.75 offered, a market source said.

Later the notes were seen at 99.50 bid, 99.75 offered. "Latvia has a good feel to it," a trader said. "It's doing well in the face of weak markets."

The notes priced below talk, which was set at the mid-swaps plus 250 bps area, via Citigroup and Credit Suisse in a Rule 144A and Regulation S transaction.

By the end of the session, the notes were trading at 99.54 bid, 99.56 offered.

"Latvia is the star name," another trader said. "The relatively small issue size is helping it to perform."

Trading light for Africa

Looking to Africa, most of the action was centered on corporate issues, a trader said. Some buying was seen for Nigeria's 2021 notes and some selling for Afreximbank and Nigeria-based GTB Finance BV's 2016s.

"Volumes were light as it was a Friday and people were focusing on the slew of new deals from other parts of the world," he said.

Meanwhile, the new $1 billion 5.717% notes due 2021 from Russia's SB Capital SA, which priced at par, were trading at 100.05 bid, 100.30 offered on Friday. The borrower is Sberbank, a lender based in Moscow.

"With the 10-year Sberbank credit default swaps spread trading at 170 bps, this looks attractive," a trader said.

Deutsche Bank, JPMorgan, RBS and HSBC were the bookrunners for the deal, which came in line with talk of mid-swaps plus the 265 bps area.

"This looks to be about 10 bps cheap, but it's got the usual wall of flippers to work its way through first," a market source said.

Dubai pauses ahead of deal

In other trading, some profit-taking was seen for Dubai ahead of its planned 10-year issue of notes, which is expected to price in the June 13 week.

"They're hitting the pause button after a decent two- to three-month move," a trader said. "We'll see how the market behaves ahead of the new issue next week, with a view to picking up some paper in the secondary if people start to lighten up."

The recent 2016 notes from Sharjah-based SIB Sukuk Co. II Ltd. were ticking along, a trader said.

"Lebanon has been catching a bid recently as news flow from the ground appears to be improving," he said. "The recent 2019s and 2022s are only a couple wider on the week, which is a solid effort."

IPIC plans roadshow

Also from the Middle East, Abu Dhabi-based oil investment company International Petroleum Investment Co. mandated BNP Paribas, Goldman Sachs, Societe Generale and UBS for a roadshow, a market source said.

The marketing trip for a possible issue of notes will take place in London on Tuesday and Wednesday.

This would follow the company's £550 million and $2.5 billion notes that were issued in March.

"I'm still licking my wounds from buying a slew of paper on the break of the last issue," a trader said. "There is plenty of supply and there will probably be more next week. I'm still keeping some powder dry as I am sensing next week we could be in for some choppy times."

Inflows increase

In other news, inflows into emerging markets bond funds totaled $1.36 billion for the week ended June 8, up from the previous week's $432 million, according to a report from data tracker EPFR Global.

The focus has shifted back to funds with a hard currency mandate, said Cameron Brandt, senior analyst with EPFR.

"This week's inflows have, I think, more to do with the belief that equities are fully valued and then some, given energy prices, recent macroeconomic data and the less accommodative stances being taken by the Fed and European Central Bank," Brandt said.

RBC Capital Markets weighed in on the EPFR results. "This week's flows data confirm investors' clear preference this year for EM bonds, both local and external, over equities."

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