EM spreads tighten for firm start to 2013; volumes stay light; Romania, Kaisa plan deals

By Christine Van Dusen

Atlanta, Jan. 2 - Emerging markets kicked off the new year with a positive tone on Wednesday, buoyed by the news that the United States' House of Representatives had approved a fiscal-cliff deal.

"On the first trading day of the year we are seeing some more spread tightening with prices in Russia and Turkey marked up broadly ¼ to 3/8 higher," a London-based market source said. "Middle East prices are generally flat but tighter."

The Markit iTraxx SovX index spread started Wednesday about 7 basis points tighter while the corporate index narrowed by 2 bps.

"With the US news overnight and the 10-year Treasury back to 1.83%, keen followers of this space will realize this means only one thing: spread tightening," a trader said. "Net-net, a solid tone."

But volumes remained somewhat underwhelming, he said.

"At least there were more prices around and a degree of liquidity," he said. "There are certainly still a few bonds that offer value and can still perform. There are plenty of others that don't offer much value at all. I suspect this year will be more about individual selections and managing duration exposure, rather than last year, where the tide of liquidity lifted every boat in the harbor."

In deal-related news, Romania hinted that it would like to raise €2.5 billion with its upcoming issue of notes via Barclays, Citigroup and HSBC.

"A little supply would be welcome," a trader said.

And China-based property development company Kaisa Group Holdings Ltd. announced plans for an issue of dollar-denominated notes with bookrunners Citigroup, Credit Suisse, JPMorgan and UBS.

The proceeds from the Regulation S deal will be used to refinance debt and for general corporate purposes.

ADIB in demand

In trading on Wednesday, Abu Dhabi Islamic Bank's recent issue of perpetual notes traded with a 107 handle before closing at 107 1/8 on the bid side.

"Continues to see demand," the London trader said.

The $1 billion issue of 6 3/8% notes recently priced at par with Abu Dhabi Islamic Bank, HSBC, Morgan Stanley, National Bank of Abu Dhabi and Standard Chartered Bank in a Regulation S-only sukuk deal.

The final book was $15.5 billion.

"ADIB's perpetuals continue their march," the analyst said.

Dubai, Bahrain trading well

Also on Wednesday, bonds from Dubai were trading well while notes from Bahrain saw some demand. And Kuwait-based Kipco's 2020s were well supported, a trader said.

"One name that still feels well offered is Saudi Electricity Co.," he said.

Meanwhile, Qatar-based Qtel International's 2023s were bid at Treasuries plus 140 bps after pricing at Treasuries plus 175 bps.

"Impressive," he said. "Lower-beta names from Qatar and Abu Dhabi were tighter but obviously not running away, price-wise, given the moves they had in December and the underlying levels. Still, they are tighter."

IPIC notes 'squeezed'

Offers were hard to come by on Wednesday for the euro-denominated bonds from Abu Dhabi-based International Petroleum Investment Co.

"They're already into squeezed territory," a trader said.

Demand was also noted for notes from Morocco and Lebanon, as well as from Hungary, a trader said.

Morocco's 2017s were seen Wednesday at 108.62 bid, 110.12 offered after Monday's 108.62 bid, 109.87 offered.

The sovereign's 2020s traded Wednesday at 102½ bid, 104½ offered. On Monday the notes were seen at 101¾ bid, 102¾ offered.

And the 2022s, which traded Monday at 100.55 bid, 101.05 offered, were quoted Wednesday at 102½ bid, 103½ offered.

Investors like MAF, Jafza

Investors were also attracted to Dubai-based Majid al Futtaim Holdings and Jafza Holdings, a trader said.

"What's left of higher-yielding names is feeling solid," he said.

And the 2016 notes from Emirates Airlines tightened on Wednesday by about 15 bps, a trader said.

"This bond is still lagging the government bonds," he said. "I must admit, looking through the levels [for Middle Eastern bonds] on a spread basis I might be looking to take some chips off the table, given this one- to two-month move."

Africa in focus

In trading from Africa, Nigeria's Access Bank plc saw its 2017 notes trading at 105.37 bid, unchanged from Monday.

Tunisia's 2013 euro notes - which traded at par bid, 100.70 offered on Monday - were spotted Wednesday par bid, 100.65 offered.

Angola's 2019s were quoted Wednesday at 111 bid, 112 offered after Monday's 110¾ bid, 111¾ offered.

And Egypt's 2040s traded at 94½ bid, 98½ offered after trading Monday at the same level.

Spread compression continues

Wednesday's spread-narrowing was a continuation of the trend that began toward the end of 2012, a London-based analyst said.

"Leading into the end of the year we saw interest in picking up most EM names in thin liquidity," she said. "Spread compression was dramatic for the last three weeks of the year, particularly when the new issue tap stopped."

Names from the corporate space in Russia outperformed at the end of the year.

"We have seen decent take-out in Turkish sub names and longer-dated Middle Eastern bonds," she said.

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