Dubai, RZD sell notes as Greece story slows activity; KOKS changes guidance for new notes

By Christine Van Dusen

Atlanta, June 15 - Dubai and Russia's RZD Capital Ltd. sold notes on Wednesday as liquidity improved but actual activity for emerging markets assets was hindered by fresh concern and confusion about the Greece situation and the global economic recovery.

"The close today is poor for broader markets as once again the euro situation spooks investors and stocks slip," a London-based trader said. "Flow-wise, it was moderately active."

Said another trader: "Street liquidity today is just amazing, with prices in nearly every asset and typically much tighter spreads than usual. Yet actual activity remains muted. The 10 basis points repricing of U.S. Treasuries has been utterly ignored by EM, so spreads are performing, which is impressive given that the Greece situation worsens by the day."

The debt-saddled sovereign was again in focus after Tuesday's meeting of euro zone officials failed to produce a definitive plan on burden sharing. The officials planned to meet again on June 19, sources said.

"There appears to be little support for Germany's bond-swap proposal," according to a report from Barclays Capital Markets. "A voluntary roll-over of maturing debt seems more likely, in our view, although this presents some non-trivial implementation challenges."

Dubai prints bonds

In its new deal, Dubai sold $500 million 5.591% notes due June 22, 2021 at par to yield mid-swaps plus 375 bps, coming in at the tight end of price whispers.

Emirates NBD, HSBC, RBS and UBS were the bookrunners for the Regulation S-only notes, which include a put option in five years. Proceeds will be used for general budgetary purposes.

Prior to pricing, the notes were at first "sluggish" in the gray market, a trader said, but caught a bid toward midday in New York.

"The key seems to be the issue size being restricted to $500 million and the put option after five years," he said. "The market took the $500 million issue size announcement very well, with secondary Dubai paper snapping 5 to 7 bps tighter on the news. However, we are since fading a little as socks slip and U.S. Treasuries bounce."

And some market-watchers remained puzzled by the issue's structure.

"The unusual structure seems to be complicating what should otherwise be an easy deal, given Latvia, Ukraine and Iceland placed paper with ease," a London-based trader said.

RZD does deal

In another new issue, Russia-based RZD Capital priced a £300 million add-on to its 7.487% notes due March 25, 2031 at 101.75 - in line with talk - to yield 7.317%, a market source said.

Barclays Capital, Goldman Sachs and VTB Bank were the bookrunners for the Regulation S-only notes, which include a change-of-control put at par if the Russian Federation ceases to own 66.67%.

The original issue of £350 million notes priced on March 18 at par to yield Gilts plus 325 bps after being talked in the low-300 bps area.

The borrower was OAO Russian Railways Co., a railway company based in Moscow.

KOKS tightens talk

Also from Russia, coke and pig iron producer and miner KOKS Group tightened initial guidance for its planned RUB 5 billion issue of notes due 2014 to 8%, a market source said.

The Rule 144A and Regulation S notes were first whispered at a yield in the 8½% area.

Bank of America Merrill Lynch, Credit Suisse, Troika Dialog and VTB Capital are the bookrunners for the deal.

"We believe that a ... 590 [bps] to 600 bps spread is needed to offer a compelling premium over existing B-rated comps in the sector," a London-based financial analyst said. "Given how well recent new issues in the metals and mining sector have performed on the back of current positive industry trends, regardless of its risks, the bond will likely be supported."

On Wednesday, the notes were seen trading up about a quarter-point in the gray market, a trader said.

"It will be high yielding, versus other names in the business," he said. "But again it's a much smaller and riskier business."

Dominican Republic eyes notes

In other deal-related news, the Dominican Republic is mulling a $500 million offering of notes, according to a market source.

And the final book for Ukraine's $1.25 billion notes due June 17, 2016 - which came to the market at par to yield 6¼% - was about $3 billion, a market source said.

JPMorgan, Morgan Stanley and VTB Capital were the bookrunners for the Rule 144A and Regulation S issue.

About 48% of the orders came from the United States, 29% from the United Kingdom, 20% from Europe, 2% from Asia and 1% from others. Asset managers accounted for 61%, hedge funds 18%, banks 8%, insurers and pensions 4%, private banks 3% and others 6%.

"An initial buying spree has passed now," a trader said, noting that the new notes were trading Wednesday at just above reoffer. "And with the new City of Kiev deal coming, there's a lot of focus on the sector."

HSBC trades up

In other trading on Wednesday, the recent 3.575% notes due 2016 from HSBC Bank Middle East that priced at par on May 26 were seen Wednesday at 101.37 bid, 101.62 offered.

"There was good two-way flow yesterday," a trader said. "Locals seem happy to pick up paper. It's a nice, defensive bond that is getting taken down. It's 14 bps tighter versus launch."

Also from the Middle East, the new issue of 5 1/8% 2016 notes from Emirates airlines traded Wednesday at 99.75 bid, 99.95 offered.

"Good two-way flow between 99.80 and 99.87 yesterday," he said. "It's holding right around the reoffer spread. If anything, it's a couple bps tighter."

Abu Dhabi opened the day wider by 1 to 2 bps, and the scene was solid for Qatar, with little supply sighted, while International Petroleum and Investment Co. was softer in the afternoon.

Africa activity muted

Trading of African names on Wednesday was fairly subdued, a trader said.

Some interest was shown for Nigeria-based GTB Finance BV's 2012 and 2016 notes, and Nigeria was holding firm at 20 bps tighter on the week. And South Africa was trading heavy on rumors of supply in the sector.

Looking to Turkey, the 2015 notes from Yuksel Insaat AS are putting in a compelling performance after lagging behind Yasar Holdings AS and other comparable names, the financial analyst said.

"Although we are constructive on Yasar and believe it is the strongest high-yield corporate credit in Turkey, we note that Yuksel's 2015s now trade at the widest premium since issuance," she said. "The bonds as a whole currently offer the highest premium in terms of rating notch and leverage across our coverage universe."

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