Emerging markets 'much calmer' but underachieving; trading flat; Kexim prices $1.5 billion

By Aaron Hochman-Zimmerman

New York, Oct. 10 - Emerging markets ended flat, but maintained the healthy tone of the last few sessions.

Despite the optimism, some were still left hungry at the end of the session for big gains that never materialized.

Work was done in the primary, as over $1.8 billion managed to price. Export-Import Bank of Korea was responsible for the bulk of that with its $1.5 billion deal.

Quiet trading did not show any big winners other than the state of mind of investors themselves, who are more confident in the market's stability.

"The market was much more stable, much calmer," a trader said.

The new confidence in the market may have raised hopes too high, which led to the disappointment over the recent mediocre gains.

"The market wants to go higher," said Enrique Alvarez a Latin America debt strategist at think tank IDEAglobal, who added that the market is just looking for positive news to help the sector along.

Without causing much concern on the part of investors, the VIX index was on the rise again. The standard measure of market volatility gained 0.55 to end the day at 16.67.

In lock-step with an underactive and underwhelming day, JP Morgan's EMBI+ index was unchanged at a spread of 186 basis points. The index determines the amount of extra yield investors required to hold emerging markets debt.

$1.8 billion through pipeline

The primary was back at full strength pricing over $1.8 billion in three deals.

Planned new deals also stepped out from the shadows, including a benchmark-sized euro deal from OAO Gazprom.

The Export-Import Bank of Korea priced $1.5 billion five-year senior unsecured notes (Aa3/A/A+) at 99.909 with a coupon of 5.5% and a spread of Treasuries plus 116 basis points.

The size of the deal grew from $1 billion and priced at the tight end of its talk in the Treasuries plus 120 bps area.

BNP Paribas, Merrill Lynch, Morgan Stanley and ABN Amro shared the books.

Proceeds from the sale will be used for general operations and the repayment of maturing debt.

Kexim is a Seoul-based state owned bank.

The oversubscribed deal tightened in trading to 115 bps bid, 113 bps offered after the break, an informed source said.

Mexico's Grupo KUO SAB de CV priced $200 million 10-year senior notes (BB-/BB-) at 99.217 with a coupon of 9¾% to yield 9 7/8%.

The deal priced at the tight end of initial guidance of 10%.

Credit Suisse and Citigroup brought the deal to market.

Proceeds will be used to refinance existing indebtedness.

Grupo KUO is a Bosques de las Lomas, Mexico-based holding company which manufacturers auto parts, chemicals and food products.

China's Hang Fung Gold Technology Ltd. priced $170 million seven-year senior notes (Ba3/BB/) at par with a coupon of 9¼%.

The deal grew from its original size of $150 million.

HSBC had the books.

Proceeds will be used to repay existing debt and to expand the number of retail outlets in China.

The jewelry manufacturer and retailer is based in Hong Kong.

Russia's Gazprom has asked Citigroup and Societe Generale to act as bookrunners for its upcoming euro-benchmark issue.

A roadshow will be held the week of Oct. 15.

Gazprom is a government owned oil producer.

Also, Colombia's Empresa de Telecom de Bogota announced Deutsche Bank and Merrill Lynch will manage its upcoming issue expected in Colombian pesos.

Europe willing to say 'recovery'

Market watchers in the European emerging markets sector are hesitantly admitting that there is a "recovery" in the sector.

"It feels like it for now ... until otherwise; it's a fairly decent recovery overall," a trader said.

Banks in Kazakhstan have dominated headlines in emerging Europe as a result of their own liquidity crisis, but it is their recovery which "has been more remarkable than anything," the trader said, although he conceded: "They did collapse more than anything."

Yields from Kazakh banks have been through extreme wides, but have narrowed back in recently.

As a benchmark, Kazkommertsbank began the year with a spread around 235 bps, the trader said, but that widened out to as much as 810 bps at the height of concerns about the nation's financial system. Wednesday the spread was in to 525 bps, "still north of double what they were back at the beginning of the year," he said.

Kazakhstan has been "a particular weak spot of concern for the markets," he said, but buyers are drifting back into Russia, Ukraine and even Kazakhstan.

The benchmark Russian sovereigns due 2030 were traded off 0.25 at 112.375 Wednesday.

In Turkey, a policeman was killed by a bomb on a day when the Turkish air force struck suspected Kurdish rebel camps in towns along the Iraqi boarder. Still, the clashes and questions over a possible Turkish incursion into Iraq to pursue Kurdish separatists did not bother the market, the trader said.

"The market's too mature for that," he said, adding: "In the old days there would have been a reaction."

The Turkish government bonds due 2030 traded up 0.15 at 157.50 Wednesday.

Grupo KUO prices

The Latin American new issue market was active, pricing one deal with others on the verge. The secondary was content to stand still.

The primary is opening to high yield names like Mexico's Grupo KUO, which priced a $200 million deal, a market source said.

But while new deals found a welcome Wednesday, trading in "Latin America has been doing rather nothing," Alvarez said.

Issues have been floating back and forth within a narrow range, he said.

"The market is sputtering along ... in a positive sense," he said.

This period of comfortable calm will continue "unless we see some highly negative news on the U.S. side," he said.

When Latin America does move, it will likely be because of an external catalyst, and probably from the United States. Whether the catalyst is good or bad in the short-term, it can still be seen as a positive, Alvarez said.

Either negative news makes hopes for a Federal Reserve Bank rate cut more realistic, or positive news makes the market less in need of a rate cut, he said.

Brazil took the top honors among the high-beta credits with a modest gain of 0.30. Its 11% government bonds due 2040 were seen trading at 134 bid, 134.5 offered Wednesday.

Argentina, normally consistently volatile, was seen trading unchanged from Tuesday's close at 93.25 bid, 93.65 offered.

Venezuela's 9.25% sovereigns due 2027 fell 0.15 to trade around 106.10 bid, 106.75 offered.

Mexico still refused to show any enthusiasm for Monday's ratings upgrade from Standard & Poor's which took the country up to BBB+ from BBB.

The 5.675% Mexican government bonds due 2017 were only seen up 0.10 from Tuesday's session at 100.35 bid, 100.45 offered.

There was little reaction to S&P's announcement on Tuesday either.

Asia not great, but 'decent'

In Asia, there was a "decent tone" in the secondary, but it was the primary which made the most noise to the tune of $1.5 billion from Kexim, which upsized its deal from $1 billion.

Asia traded well but, was disappointing in a sense to a trader who said that "we failed to continue on the strength of the overnight session."

Cash curves in Indonesia and the Philippines performed well in overnight trading, but on Wednesday the lack of enthusiasm in U.S. equities discouraged a true breakthrough to new levels, he said.

Indonesian sovereigns due 2017 traded up about 0.65 to close at 105.125 bid, 105.625 offered.

The Philippines government bonds due 2030, which have recently followed the peso upward, gained about 0.35 to close at 133.00 bid, 133.50 offered.

The peso closed at 44.350 to the dollar.

Pakistan's sovereign bonds, which turned in a strong performance last week leading up to Saturday's elections, have been "subdued" ever since, the trader said.

The Pakistani bonds due 2017 closed at 92.50 bid, 94.50 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.