Risk appetite returns, spreads tighten on better economic data; Middle East stays in focus

By Christine Van Dusen

Atlanta, Feb. 16 - Though the Middle East remained under close scrutiny on Wednesday as protests continued in Bahrain and picked up in Yemen and Libya, emerging markets assets had a better day, with spreads closing tighter and investors showing an increased interest in buying.

Also helping to improve the picture was a rise in U.S. housing starts and the Federal Reserve's optimistic comments about the economy.

The JPMorgan Emerging Markets Bond Index Plus spread ended the day down 8 basis points with Argentina tighter by 13 bps and Venezuela by 25 bps.

"Risk has been very much on," according to an RBC Capital Markets report.

Still, the primary market remained fairly quiet, with Ukraine, China's Country Garden Holdings, Russia's United Co. Rusal plc, Mexico's Petroleos Mexicanos SAB de CV and the Republic of Senegal taking steps toward the market.

Middle East stays tense

Anti-government demonstrations continued on Wednesday in Bahrain, where two people have been reported killed by security forces. A large protest is planned for Saturday and is expected to draw upwards of 50,000 people.

Bahrain's 2020 bonds - which opened Monday at 95.50 bid, 96.50 offered - were trading Wednesday at 93.50 bid, 94.50 offered.

In other trading Wednesday, Abu Dhabi National Energy Co.'s 2012 bonds - which were trading Tuesday at 104.62 bid, 104.87 offered - were seen Wednesday at 104.50 bid, 104.75 offered.

Alsacia weakens

One New York-based market source was keeping tabs on the recent new issue from Chile-based transportation company Inversiones Alsacia SA, which on Monday sold $464 million notes due Aug. 18, 2018 at par to yield 8%.

Bank of America Merrill Lynch and JPMorgan were the bookrunners for the Rule 144A and Regulation S deal, which priced in line with guidance of 8%.

"It started out OK but looks like it's weakening up," the source said. "So it's come back down a little bit. It's at 101¼ offered but looks like there was market at par and then par and a nickel and then 100.35."

Sovereigns struggle

Peripheral sovereigns had a "more difficult morning session" after a mediocre Portuguese T-bill auction, said Gavan Nolan, an analyst with Markit, in a report.

"The yield of 3.987% was higher than the 3.71% at the last auction, and the bid-to-cover ratio was lower at 1.9, compared to 2.6," he said. "Spreads duly widened after the news, with Ireland and Greece feeling the effects more than most."

This weakness was offset, though, by positive news from the corporate sector and the upbeat economic data from the United States, he said.

Country Garden sets talk

In deal news, China-based property developer Country Garden Holdings set price talk for its $900 million offering of seven-year notes at 11¼%, a market source said.

The size of the issue - via Deutsche Bank, Goldman Sachs and JPMorgan in a Rule 144A and Regulation S transaction - was raised from $750 million.

The notes are non-callable for four years, and proceeds will be used for general corporate purposes and to fund existing and new property projects.

Rusal, Ukraine talk notes

Also setting price talk on Wednesday was Russia-based Rusal. The aluminum company set guidance for its planned issue of RUB 15 billion notes at a coupon of 9% to 9½%, according to a company filing.

The notes - part of a plan to issue up to RUB 30 billion, CNY 1 billion and $1 billion bonds - are likely to include a put option of not earlier than three years.

Proceeds will be used to refinance debt.

And Ukraine set price talk for its planned dollar-denominated issue of 10-year notes at the 8% area, a market source said.

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

Market-watchers were also whispering Wednesday about Russia-based energy company OAO Gazprom, which is said to be considering a ruble-denominated issue of notes this year.

Senegal, Pemex plan deals

In other deal-related news, Senegal plans to issue $500 million of notes by April, a market source said.

No other details were available Wednesday.

And Mexico-based oil and gas company Pemex has mandated JPMorgan and Goldman Sachs for a roadshow starting Feb. 21, a market source said.

The marketing trip will begin in London and travel through Boston, Chicago and San Francisco before wrapping up on Feb. 24 in New York and Los Angeles.

ADB in demand

In other news, Philippines-based development finance institution Asian Development Bank on Wednesday announced it had sold $2.75 billion 2½% notes due March 15, 2016 at 99.603 to yield Treasuries plus 24.65 bps, according to a company announcement.

Goldman Sachs, HSBC, JPMorgan and RBC Capital were the bookrunners for the deal, which came to market on Monday.

"We are very satisfied with the transaction and the wide sponsorship from investors globally, which resulted in an oversubscribed book of around $3.1 billion," said Thierry de Longuemar, ADB Treasurer, in a statement.

About 30% of the bonds were placed in the Americas, 35% in Asia and 35% in Europe, the Middle East and Africa. Central bank and government institutions accounted for 52% while 28% went to banks, 16% to fund managers and 4% to others.

The company plans to raise about $15 billion this year, according to the announcement.

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