Global economic woes pound EM assets; primary market quiet; sukuks see continued demand

By Christine Van Dusen

Atlanta, Aug. 8 - Emerging markets assets continued to take a beating on Monday, following the downgrade of the United States' debt rating, the euro zone economic crisis and general concern about the world's economic picture.

"Euro-area bond spreads have narrowed sharply following an ECB statement last night which implied a preparedness to purchase Italian and Spanish government debt in the secondary market and newswire reports that such purchases had begun," according to a report from Barclays Capital Markets. "The G7 also issued a statement aimed at bolstering confidence but offered only consoling words and no new policy measures."

As a result of this and other market pressures, the session took on a cagey and defensive tone.

"The afternoon saw patchy liquidity and nervous dealers," a trader said. "Liquidity was really drying up into the close as the local bid disappeared."

Europe, the Middle East and Asia went "even more into defensive mode," a trader said. "Benchmark cash bonds are at least a half-point lower."

Said a New York-based trader: "The markets are bad ... I'm getting crushed."

The JPMorgan Emerging Markets Bond Index Global spread widened to Treasuries plus 351 basis points, wider by 28 bps.

Additional profit-taking is expected as a result of global risk aversion and selling pressure on U.S. asset markets, according to a report from RBC Capital Markets.

"For those who were looking for the value to be back in the market, it's here; however, as we all know the world these days is not about value or cheapness. It is about positions, technicals and risk appetite," a trader said. "Clearly it's very hard to see where we go from here."

IPIC, TAQA get interest

The cash markets were still quite thin on Monday, a London-based trader said. "But you can see quite a considered response in the credit default swaps space."

He reported seeing buying interest in International Petroleum Investment Co.'s 2015s.

"There are pockets of outperformance, which reflect the Street's position and some ongoing client demand, namely most of the sukuks," a trader said.

And buyers were seen fro Abu Dhabi National Energy Co.'s (TAQA) 2016s, 2017s, 2018s and 2019s.

"One star is TAQA's 2018 dollar notes, which at Libor plus 240 bps are actually 20 bps tighter on the month," he said.

First Gulf ticks up

Two-way action was seen for Dubai's Dolphin Energy Ltd. LLC and the recent issue of notes from Abu Dhabi's First Gulf Bank. The latter's notes - 2016 dollar bonds that priced at par on July 26 - opened Monday at par bid, 100.50 offered, wider by 7 bps, after Moody's Investors Service affirmed the company's ratings and changed its outlook to stable from negative.

"The start has been cagey and steady," he said. "Hesitate being caught short some of these sticky names here. Solid sovereigns and quasi-sovereigns in Abu Dhabi, Saudi Arabia and Qatar still appeal to me as some of the best places to invest."

Middle East in focus

Dubai, he said, was holding fairly well. The sovereign's 2021 notes were trading Monday at 100.5 bid, 101 offered, about 30 bps wider on the month.

And the 2016 notes from United Arab Emirates-based SIB Sukuk Co. II Ltd. were seen at 103.37 on Monday.

"Even Lebanon today was lower, not on any meaningful selling I saw, more a defensive sentiment," a trader said.

Also on Monday, the recent issue of 2016 notes from Emirates airline was trading at 99.25 bid, par offered - or 50 bps wider on the week - after news that the company could lose up to $1 billion as a result of the European Union's carbon emissions standards.

In other trading, Ukraine was weaker after some initial buying and Kazakhstan-based BTA Bank was seen at 81 while Russia's 2030s were at 119 and Turkey's 2030s were at 169.

Taking a closer look at Turkey, a "brutal sell-off" was seen on both the sovereign and corporate side, he said.

"Sovereigns are closing the day 20 bps and corporates 30 bps wider, which is not surprising," he said.

Ballarpur sees demand

The recent issue of $200 million 9¾% perpetual notes from India-based specialty paper manufacturer Ballarpur International Paper attracted $350 million of orders, a market source said.

The notes priced at par via HSBC and RBS.

About 77% of the orders came from Asia, 21% from Europe and 2% from others. Private banks accounted for 77%, fund managers 19% and banks 4%.

© 2015 Prospect News.
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