State Bank of India sells notes as Egypt tensions ease; other deals on tap; sukuks eyed

By Christine Van Dusen

Atlanta, Feb. 8 - Middle Eastern credits were fairly well supported as tensions eased a bit in Egypt and the stage was set for a risk-on trade Tuesday. But emerging markets investors remained somewhat shell-shocked by the volatility, and corporate issuers kept to the sidelines as their earnings-related quiet periods approached.

Still, State Bank of India priced new notes while Argentina-based energy company Capex SA was among the few issuers to plan new deals.

"It's been the quietest few days I've seen in a while," a market source said. "With Treasury spreads getting a little softer, there are some sellers out there but not real panic selling or wholesale selling."

Names like Argentina were "mildly well bid," he said. "But there are some frustrated longs out there, frustrated that Argentina is not doing better in this environment where dealers are supposed to be adding risk."

Said a New York-based market source: "The market continues to feel, other than the bank names, a little bit undersupplied. Things today are pretty much flat."

Contributing to the slow pace on Tuesday, he said, was that many corporate issuers are preparing to release their quarterly earnings.

"They're also about to enter a period where, from a legal perspective, they can no longer use third-quarter 2010 numbers in offer memoranda for new issues," he said. "It typically takes a couple of weeks to be able to incorporate end-of-year numbers. So that leads to a slight drought in supply."

State Bank of India prices

Despite this, the day saw Mumbai-based State Bank of India sell CHF 325 million 3 3/8% notes due Feb. 22, 2016 at 99.955 to yield mid-swap plus 185 basis points, a market source said.

The deal, which was upsized from CHF 250 million, priced in line with talk of a spread in the mid-swaps plus 185 bps area.

Barclays Capital, Deutsche Bank, HSBC, RBS and Standard Chartered were the bookrunners for the Regulation S deal.

In a planned Swiss franc-denominated deal, Abu Dhabi Commercial Bank set price talk for its offering of CHF 150 million notes at mid-swaps plus 162 bps, a market source said.

UBS and RBS are the bookrunners for the 43/4-year notes.

And Argentina-based energy company Capex plans to issue $200 million notes due 2018, a market source said.

Also from Latin America, Chile-based transportation company Inversiones Alsacia SA continued its roadshow for an issue of notes via Bank of America Merrill Lynch and JPMorgan.

"That's pricing Friday," a market source said.

Metinvest, Votorantim results

The final book for Ukraine-based Metinvest's recent 8¾% notes due 2018 - which priced Monday at 98.722 to yield 9% - was $2.5 billion with 200 investors, a market source said.

About 40% came from the United States, 32% from Europe, 18% from the United Kingdom, 8% from Switzerland and 2% from other regions.

Fund managers accounted for 60%, banks 20%, hedge funds 10% and retail 10%.

Also oversubscribed was the $750 million issue of 5¼% notes due 2016 from Brazil-based lender Banco Votorantim SA that priced Monday at 98.834 to yield 5.52%, or Treasuries plus 325 bps.

"Voto went well," he said. "We're seeing it trading about 30 bps tighter, which kind of highlights that it was very cheap."

The final book was about $2.6 billion, with 45% of the orders from the United States, 4% from Asia, 9% from others and 42% from Europe, the Middle East and Africa.

Middle East sees support

Dubai and Dubai Water and Electricity Authority were well supported on Tuesday, a London-based trader said. "Five-year government Dubai credit default swaps are zeroing in on the key 400 level."

He traded Commercial Bank of Qatar's 2014 dollar bonds in Asia. "The bond looks OK versus the sovereign's 2014s," he said.

He also saw buying in Qatar's 2020s and selling in Qtel International's 2021s.

"Once again sukuk buyers are out and Qatar Islamic Bank is well sought after," he said.

Tuesday also saw movement for the Emirate of Ras Al Khaimah's 2016 bonds.

"That's one of my old favorites," the trader said. "The bond is now on the move. It held in very well during the Egypt situation - with the 2014s nicely squeezed in trading with a 115 handle - and now seeing decent demand from the region."

EM corporates stand out

In taking a look at the performance of emerging market debt so far in 2011, corporate bonds have fared best, said Luz Padilla, portfolio manager for DoubleLine Emerging Market Fixed Income Fund, in a conference call.

Those assets saw a 0.4% return in January, she said. EM external debt from sovereign issuers saw a return of minus 0.6%.

Local currency issues from EM sovereigns fared worst, with a minus 1.08% return, she said.

"The EM corporate sector continues to deliver superior returns," she said. "This is a sector of our market that has the potential to deliver continued credit improvements while still offering attractive valuations."

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