Emerging market debt off on commodities, Treasuries; TuranAlem sells $1 billion; funds add $581 million

By Reshmi Basu, Paul Deckelman, and Paul A. Harris

New York, Jan. 11 - Emerging market debt was lower on a dollar basis as investors confronted a spate of headaches such as lower commodities, weaker U.S. Treasuries and market-unfriendly developments on the local front.

In the primary market, two deals priced as both the dollar and euro markets were tapped.

Kazakhstan's JSC Bank TuranAlem placed $1 billion in a two-part notes sale (Baa1/BB/BB+) on Thursday.

The issuer sold $250 million of two-year floating-rate notes at 99.578 to yield a spread of three-month Libor plus 160 basis points.

The book order was $850 million with 80 orders.

More than half of the demand for the two-year notes came from the United States, according to an informed source. U.S. investors grabbed 56% of the paper, followed by the United Kingdom with 18%, and then Asia with 10%. Switzerland and Germany/Austria each took 5% while others nabbed 6%.

Breaking down the distribution, asset managers took 75%, followed by banks with 15%, and retail with 10%.

The tranche of 30-year notes came at 99.165 to yield 8 3/8%, or a spread of 10-year Treasuries plus 366 basis points.

For the 30-year notes, the books stood at $1.5 billion with 110 orders. Of final allocations, U.S. investors nabbed 65%, the United Kingdom followed with 25%, Asia with 4%, Switzerland and Germany/Austria each took 2% and others took 2%.

Breaking down the distribution, 90% went to fund managers, 5% went to banks and 5% to retail.

The 30-year notes will be puttable on Jan. 22, 2017.

Credit Suisse and JP Morgan managed the Rule 144A and Regulation S deal.

Poland taps euro market

On the sovereign side, the Republic of Poland sold €1.5 billion in 10-year bonds (A2/BBB+/BBB+) at 99.70 to yield 4.528% via Deutsche Bank.

In other primary developments, the Trade and Development Bank of Mongolia (Ba2) lowered price guidance for its offering of up to $75 million in three-year senior bullet bonds to 8¾% to 8 7/8% from initial guidance of a yield in the 9¼% area.

ING is the bookrunner for the Regulation S offering, which will come off the issuer's $150 million medium-term note program.

Pricing for the company's inaugural issue is expected to take place following the completion of investor presentations, which is scheduled to wrap up on Friday, Jan, 12 in London.

Hitting the road, China's GITI Tire Pte. Ltd. will start a roadshow on Friday for its $200 million offering of five-year senior secured notes (B-).

The roadshow is expected to conclude on Tuesday, with the notes pricing after that.

Credit Suisse and Lehman Brothers are leading the Regulation S offering.

And out of Brazil, ISA Capital do Brasil SA plans to start a roadshow for a $554 million offering of short- and intermediate-dated senior secured notes.

Marketing will begin in London on Monday, Jan. 15, followed by visits to New York and Sao Paolo on Tuesday, Jan. 16, Boston on Wednesday, Jan. 17 and wrapping up in Los Angeles on Thursday, Jan. 18.

ISA Capital is a holding company that owns 89.40% of the common stock of CTEEP, which is Brazil's second largest electricity transmission company.

ABN Amro and JP Morgan are joint bookrunners for the Rule 144A and Regulation S transaction.

EM sees $580.5 million inflows

Emerging market debt opened the session with a better tone Thursday as spreads were a tad tighter. But on a dollar basis, the market traded lower.

This week, investors have been wrestling with a host of headaches such as lower commodities, weaker U.S. Treasuries as well as recent developments on the local front.

But despite a bearish start to the new year, emerging market dedicated funds have scored two consecutive weeks of positive inflows.

Emerging markets saw $580.5 million enter the asset class for the week ending Jan. 10, reported EmergingPortfolio.com Fund Research.

Venezuela sees better price action

Turning to Venezuela, the country saw a reprieve from selling as its bonds posted gains. In trading Thursday, the country's bonds due 2027 added 0.10 to 123 bid, 123.80 offered.

A trader in Latin American debt said he saw Venezuela's bonds pretty much unchanged on the session, as investors "were still trying to sort out" recent developments, including newly re-inaugurated president Hugo Chavez' promise to nationalize the country's telecommunications and electricity industries, as well as other parts of the economy, on the way to building a socialist state.

The trader said that there was "no new news" and the bonds "if anything were slightly positive."

The trader spotted the Venezuela's 2027 bonds at spreads over Treasuries in a 122.80-123.30 context.

Ecuador firmer

Ecuador was spotted "doing better today [Thursday]," noted the trader, adding that recent trading in that country's debt was "like a crapshoot, moving all over the place," but with "no specific changes" that he could point to.

During the session, the Ecuadorian bond due 2015 gained 2.50 to 81.50 bid, 83.0 offered.

Elsewhere, the Brazilian bellwether bond due 2040 gave up 0.10 to 132.35 bid, 132.40 offered. In terms of flows, the 2040 bond saw better selling by locals while the Brazilian curve continued to steepen on real money selling in the long end, according to a market source.

On the Latin American corporate side, one trader noted that corporates were a little more firm.

Watching Venezuelan corporates

He added that the market closely focused on Venezuelan corporate paper, including Electricidad de Caracas, which is owned by AES Corp., and the Orinoco oil project joint ventures Petrozuata and Cerro Negro.

"ELECAR better by about ½ today to 101-102, while PETROZ and CERNEG pretty much remain unchanged, about 1 point below pre-nationalization speech levels," he noted.

On average, Brazilian corporates were probably a quarter point better.

Treasury drop dominates

Overall, the big story of the day in the EM sphere, the first trader quoted above observed was "Treasuries getting killed," which was essentially the only story of the day.

"Other than that, spreads were unchanged to slightly tighter across the board. There was nothing really to report, other than oil and Treasuries."

Otherwise, not much was going on, he said, "nothing out of the ordinary."

ICICI's new bond firm

A trader in Asian issues meantime said that the new ICICI Bank deal "continues to trade very well," with the upper tier 2 subordinated notes due 2022 trading 7 to 8 basis points tighter than the 174.8 bps spread at which the bonds came on Tuesday, while the floating-rate senior notes due 2010 were 9 basis points tighter than issue.

"It's very good performance, considering the size of the deal. That's been pretty impressive, and has helped to set a more constructive tone on the high-grade side of things in Asia."

ICICI announced Thursday that the $2 billion total deal had $8 billion in orders. Of the bonds sold, 58% went to the United States and 21% each to Asia and Europe.

The deal is the largest bond offering to date by an Indian bank, according to ICICI.

Otherwise, the trader said that the market had seen "some impact from the sell-off in Treasuries [Thursday]."

He said there had been some selling in the long end of the Philippine and Indonesian curves, but added that prices were "pretty much just running in line with Treasuries, not seeing much movement in spreads either way."

He said that five year credit-default swaps contracts were actually "a couple of basis points or two tighter, so it's probably a better indicator of how the overall market is trading - it's definitely holding pretty well, considering the volatility we're getting in some of these other markets; it anything it was actually trending a little bit tighter."

Thai profit taking

He also said there had been some profit-taking in short positions in Thailand's debt, "so that's taken tight Thai spreads in off their wides, about 4 or 5 basis points as well."

On Tuesday, investors were spooked by news that Thailand's military government proposed new restrictions on foreign ownership in the country's companies.

On Thursday, there were rumors that Indonesia would implement similar controls, which did not bode well for the credit, noted another source.

In trading, the Indonesian bond due 2035 slid 0.75 to 123.50 bid, 124 offered.

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