EM assets draw investors as developed markets look riskier; Banco Safra taps bookrunners

By Christine Van Dusen

Atlanta, July 29 - Emerging markets assets continued to see solid price action on Friday, even as the impending summertime slowdown - as well as continued anxiety about the global economy - hampered issuance and thinned volumes.

"The eleventh hour brinkmanship over the U.S. debt ceiling overhangs the financial markets and continues to weigh on asset prices," according to a report from RBC Capital Markets. But "external debt and commodity markets showed little change."

The JPMorgan Emerging Markets Bond Index Plus spread was holding early Friday at Treasuries plus 265 basis points.

"Corporates are lagging this move in general as the majority of the move seems to be driven by crossover money plumping for brand names," a London-based trader said. "When the rest of the world looks bad, the rotation buyers come in. The rotation from developed markets is in full effect, and price action is simply stunning."

Some market-watchers were hesitant to share in the unbridled enthusiasm.

"This will either go down as the week EM broke free of the shackles imposed on it by the ongoing debt issues in Europe and the U.S., or the week of the biggest head-fake ever," another trader said.

Regardless, very little can get in the way of the doldrums of August, a New York-based market source said.

"The markets kind of shut down on the first of August, so investors are going on vacation and the bankers and lawyers will keep on working for the heavy opening of capital markets in September," a New York-based market source said. "Investors have put so much cash to work in EM in general that I think people are saying they don't have any hurry to continue to invest in August at the same pace. Things will restart in September."

Issuers are being advised to hold off on new deals until that time, he said.

"Issuers don't have any hurry. We're not recommending that anybody right now go and announce a roadshow," he said. "Some may do deals anyway, but those will most likely be the very frequent issuers that can print at any time. I'm doubtful that's a good strategy, since investors are not in their offices to make the decisions."

Banco Safra plans roadshow

Meanwhile, Brazil-based lender Banco Safra SA mandated JPMorgan and UBS Investment Bank in addition to Banco Safra for its real-denominated offering of notes due Jan. 5, 2015, a market source said.

A roadshow for the Rule 144A and Regulation S deal will begin Aug. 1 and take place in Latin America, Europe and the United States.

Proceeds will be used for general corporate purposes.

The notes will be payable in dollars.

Ukraine on pause

In trading on Friday, Ukraine took a pause from its high-flying outperformance.

Turkey, meanwhile, saw the sovereign curve move up a ¼ point to a ½ point on the day, despite the record trade deficit and weaker external markets.

"Corporates were the laggard today," a trader said. "But we've seen some activity on Yapi Kredi, Akbank's 2015s and Garanti Bankasi AS' 2021s."

Yapi Kredi was seen trading at about 98.75, Akbank at about 99.75 and Garanti at 97.625 in small amounts on the Street, he said.

All of this took place against the backdrop of political turmoil for the sovereign, where four military generals resigned due to conflict with the prime minister.

Lebanon trades up

Looking to recent new issues, the $1.2 billion notes due 2016 and 2022 that Lebanon priced late Thursday were up about 5/8 of a point on Friday, a trader said.

The deal included $500 million 4¾% notes due Nov. 2, 2016 that priced at 99.98 to yield Treasuries plus 327 bps. The deal was talked at 4¾%.

The second tranche was a $700 million add-on to the sovereign's 6.1% notes due Oct. 4, 2022, which came to the market at 99.195 to yield Treasuries plus 325.5 bps. The deal was talked at the 6.2% area.

Blom Bank and Citigroup were the bookrunners for the Regulation S deal.

Grupo Elektra sells notes

In another new deal from Thursday, Mexico-based financial and retail corporation Grupo Elektra SAB de CV sold $400 million 7¼% notes due Aug. 6, 2018 at 98.656 to yield 7½%, a market source said.

The notes priced in line with talk, which was set at the 7½% area.

BCP Securities, Jefferies and UBS were the bookrunners for the Regulation S-only deal.

The notes are non-callable for four years.

VEB, Qtel push market up

A specific set of EM bonds was driving the market higher on Friday, a trader said.

On that list was Russia-based VEB Bank's 2025 notes, which were seen at 104.40 bid, 106 offered.

South Africa's 2041s were trading at 109.65 bid, 110.15 offered, and Qatar's Qtel International saw its 2025s at 96.50 bid, 97.25 offered.

BTA Bank struggles

In other trading, Kazakhstan's BTA Bank lagged, with the 2018 dollar notes "still struggling" at 85, a trader said.

And the Middle East and North Africa were fairly quiet on Friday. "But they're still strong," he said," with long-time laggards like Islamic Development Bank catching a bid."

Most European, Middle Eastern and Asian benchmarks closed the week about 20 bps tighter, he said.

"And given that U.S. Treasuries are back to the year lows of 2.88%, the price moves have been even more impressive," he said. "In all the euphoria, even Belarus has performed, with the 2015 dollar notes back at 90, or 50 bps tighter on the week."

© 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.