EM activity muted as pipeline clogs up again; VTB, Yapi Kredi, Neuquen Province on tap

By Christine Van Dusen

Atlanta, Oct. 4 - Though it was a "very quiet day" in emerging market debt - with many a trader's attentions turned toward the Ryder Cup golf tournament - the market was generally strong and issuers such as Russia's VTB Bank, Turkey's Yapi Kredi and Argentina's Neuquen Province were seen taking steps toward market.

"It was a very quiet day," a London-based trader said. "In London there's also the tube strikes and trade strikes, so it's a nightmare to get into the office. But generally the market's a bit better. It feels pretty solid. There's just not a huge amount of activity."

European trading was marked by "a slight risk-off mood," according to an RBC Capital Markets report. "External debt spreads widened, with the (JPMorgan Emerging Markets Bond Index Plus) adding 6 basis points."

But EM sovereign credit spreads finished the day nearly unchanged, with most names closing up or down about 3 bps. The EMBI Plus ended Monday wider by just 1 bp.

"It's just quiet," an emerging markets strategist concurred, noting "sporadic flows."

A market source based in Brazil saw the same thing. "It's very quiet here," he said.

Volumes, overall, were "pretty light across the board," the London trader said. "But it's still pretty strong. Bonds are in demand."

Economy still a concern

Another distraction on Monday was the continuing economic saga in the United States. Monday saw news that the dollar had bounced against the euro on better manufacturing and housing numbers, and later in the week comes the September employment report - data that is likely to impact whether the Federal Reserve undertakes further quantitative easing.

"Everyone is watching what is taking place with equity markets and following the events with the euro versus the dollar," the strategist said. "The whole story in Europe has, to an extent, quieted down somewhat. But clearly I think some of it still resonates. We're watching to see where the U.S. economy is going and what effect that will have on the rest of the markets."

That's forcing investors to take a "cautious approach," RBC said. But still, "investor optimism toward EM assets generally remains high."

VTB plans notes

The London trader was mostly keeping an eye on Russian corporate names, like Gazprombank, which was "noteworthy," he said. "There wasn't a huge amount going through, but we've seen some buyers."

He also noted the planned issue of notes from VTB Bank, which is looking to issue two tranches of notes due 2015 and 2020. Both tranches are being whispered at a yield in the mid-swaps plus 400 bps area.

Citigroup, Deutsche Bank and VTB Capital are the bookrunners for the Rule 144A and Regulation S offering of senior unsecured loan participation notes.

"That should be coming tomorrow," he said. "There are a few things going on. I'm sure there will be some new stuff as the week goes on."

Reliance, others plan notes

The trend of fairly heavy issuance is continuing, the strategist said.

"We do have a lot of new issuance coming to the market," he said. "September was very heavy for issuance and a lot of entities are looking to go and issue now."

Among the new deals on the horizon are dollar notes due 2020 and 2040 from Reliance Holding USA, a subsidiary of India-based energy and petrochemical company Reliance Industries Ltd. via Bank of America Merrill Lynch, Citigroup, HSBC and RBS, a market source said.

A roadshow will begin Wednesday for the Rule 144A and Regulation S transaction.

Proceeds will be used for general corporate purposes, for business investments and to refinance bridge loans totaling about $765 million for initial acquisition costs related to Reliance Industries' shale gas joint ventures, according to a Moody's Investors Service report.

Also on Monday, Yapi Kredi talked its $750 million offering of five-year senior unsecured loan participation notes at a 5.1875% yield, according to a market source.

Citigroup, Deutsche Bank and Unicredit are the bookrunners for the Rule 144A and Regulation S deal, which was previously talked at a yield of 5.1875% to 5¼%.

The day also saw Argentina's Neuquen Province planning to issue $200 million in notes in order to repay debt. And Korea-based integrated steel producer Posco plans to issue up to $700 million in global bonds this month, a market source said.

IDB, Nigeria tap bookrunners

In other news on Monday, Saudi Arabia's Islamic Development Bank mandated CIMB, Citigroup, HSBC and Standard Chartered for a benchmark-sized dollar-denominated sukuk issue, a market source said.

The Regulation S offering will be marketed on a roadshow from Oct. 12 to Oct. 20 in Riyadh, Singapore, Dubai, Abu Dhabi, Zurich, Geneva and London.

Proceeds will be used to increase lending to member states coping with the economic crisis.

Also tapping bookrunners was the Federal Republic of Nigeria, which mandated Barclays and FBN Capital for a planned $500 million bond offering.

And Sri Lanka Telecom plc plans to issue up to $125 million in bonds to fund expansion plans, a market source said.

Votorantim Cimentos cancels deal

Meanwhile, at least one issuer took a step back from the market: Brazil-based Votorantim Cimentos Ltda.

The cement manufacturer has canceled plans for a $500 million issue of perpetual notes with Deutsche Bank, HSBC and SG CIB due to market conditions.

This follows on the heels of the not-so-great performances by recent Brazilian perpetual issues, including the 7 3/8% notes from petrochemical company Braskem SA, which priced at par, and the 7% perpetuals that priced at par from steel producer subsidiary CSN Islands XII Corp.

"It's just an aspect of supply in the market and trying to price securities appropriately across the board," the strategist said. "Investors are careful at these low interest rates not to start buying issues simply because they're coming out in the market. They're being careful as to what they buy. As a result certain issues that were priced a little tight see a negative reaction."

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