Economic fears lead to wider spreads, poor liquidity for EM assets; ADIB, Sharjah tighten

By Christine Van Dusen

Atlanta, Sept. 22 - Emerging markets assets suffered through a difficult trading session on Thursday, with widening spreads, panicked dealers, rampant repricing and poor liquidity.

"EM assets have sold off extremely sharply overnight, extending the fall in U.S. equities following the release yesterday of the [Federal Open Market Committee] statement and its downbeat assessment of economic prospects," according to a report from RBC Capital Markets. "Negative sentiment was further exacerbated by the release of preliminary PMI data from China today, showing a fall in the headline index."

And where once emerging markets assets seemed shielded from the negative news, on Thursday the headlines hit home.

"EM is really starting to feel the global pain," a trader said. "News flow is just relentlessly negative, with bank downgrades, rumors of Japanese retail pain, Bernanke not giving any more free money yet, and Greece."

Though there was some tentative interest in adding risk toward the end of the session, few if any names experienced much of a bounce, a trader said.

"Spreads are totally beaten up, and traders and clients are exhausted," he said. "There was a real 2008 feel to the market today."

The Markit iTraxx SovX spread was 35 basis points wider at 340 bps.

"With external markets looking weak, emerging Europe, the Middle East and Asia have had a major repricing today," a trader said.

The selling has not been massive, he said.

"But buyers are rare, and with dealers going into panic mode, the moves have been big," he said.

He pointed to Vimpelcom's 2022s, which traded at 86.5 and finished the session 90 bps wider. Ukraine's 2021s were seen at 96 and ended the day 65 bps wider. Kazakhstan-based BTA Bank's 2018s were seen at 52.5.

Turkish banks outperform

Meanwhile, Turkey's 2030s were trading at 163.5 while most corporates were quiet.

"Rare outperformers remain Turkish banks, South Africa's FirstRand and some sukuks," a trader said. "Turkey didn't get decimated today. Feels like there is some squeeze on Isbank, YapiKredi and to some extent Garanti Bankasi AS' 2021s."

Still, Qatar-based Qtel International's 2019s saw some good size trading between 124.50 and 124.625. "Someone needs paper," he said.

Aldar Properties' 2014s were trading between 108.125 and 107.875, about 12 bps wider.

"Qatar's 2040s lifted higher," he said. "What an impressive performance from that bond. It's only 3 bps wider on spread over the month."

Emirates widens

Emirates airline saw its bonds open at 98.75 bid, 99.25 offered, about 4 bps wider, and ended Thursday as a relative outperformer. The squeeze on Dubai Water and Electricity Authority's 2016s continued, a trader said.

"It's staggering, really," he said.

DEWA's 2016s were seen trading at 104.37 bid, 105 offered on Thursday, about 20 bps wider on the month.

And some activity was noted for First Gulf Bank's 2016s and Abu Dhabi Islamic Bank's 2015s, which actually managed to close slightly tighter. Also a standout was Sharjah Islamic Bank, which traded up for most of the day.

"Kuwait's Kipco wasn't even sighted," he said.

IPIC, Lebanon

In other trading from the Middle East, International Petroleum Investment Co. was at least 10 bps wider at the open. And Lebanon was off the highs, closing 15 bps to 20 bps wider, though fairly stable versus its peer group, the London trader said.

"The tone is obviously poor and liquidity is testing, at best," he said.

And from Russia, "Sberbank and Vnesheconombank are the big losers today," he said.

Sberbank's 2021s ended the day 75 bps wider, while Gazprombank's 2022s were 90 bps wider.

Serbia finds some support

Some market-watchers were keeping an eye on the recent $1 billion issue of notes due 2021 from Serbia, which priced at 98.263 to yield 7½% on Wednesday.

The Rule 144A and Regulation S transaction was led by bookrunners Deutsche Bank and JPMorgan.

"It's opened 40 bps wider this morning, but then again, so have plenty of other cash bonds," a trader said.

Later in the day the notes dropped 4 points before finding support, he said.

"The flipping appears to have stopped now," he said during the European afternoon. "The market has stabilized a little. Let's see if it can hold."

Taesa, Gazprom set dealers

In deal-related news, Brazil-based electrical company Transmissora do Atlantico de Energia Electrica (Taesa) has mandated Banco Bradesco, Citigroup and Banco Santander for its planned issue of R$1.3 billion in global bonds, a market source said.

Issuance is likely to occur before the end of the year.

And Russia-based gas company OJSC Gazprom has mandated UBS for a roadshow in Switzerland.

A dollar-denominated Regulation S issue of notes is expected to follow.

© 2015 Prospect News.
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