Sabic, Sun Hung Kai, Korea Gas, Axis print paper; ADIB, Albania debt offerings advance

By Christine Van Dusen

Atlanta, Oct. 26 - Demand for emerging market bonds remained strong on Tuesday, as evidenced by new deals from Saudi Arabia's Sabic, Hong Kong's Sun Hung Kai Properties Ltd., Korea Gas Corp. and India's Axis Bank Ltd.

But the trading environment remained mixed and, as one source put it, unremarkable.

A New York-based trader noted that the perpetual notes from Brazilian steel producer Companhia Siderurgica Nacional - which priced at par - were trading at 99¾ before ending the day at 99.60.

The $3 billion 8½% notes due 2017 from state-owned oil company Petroleos de Venezuela SA (PDVSA) that priced at par were seen trading at 71, he said.

And the 5¾% notes due 2021 from Brazil-based lender Itau Unibanco, which priced at 99.886 to yield 5.766%, traded at 102 before finishing the day at 106.

"It's a quiet day," a California-based market source said. "There was nothing major going on."

Currency concerns continue

Contributing to the tone on Tuesday was the market's continued digestion of news from the weekend meeting of the Group of 20. There, officials agreed to cease the so-called currency war in which some sovereigns have sold their currencies and bought dollars in an attempt to slow gains from the inflow of foreign investment.

Indeed, Brazil's central bank president on Tuesday said the sovereign would not undertake any further tax hikes on foreign investment, given that the real has reacted well to previous measures.

But in a recent report, RBC Capital Markets deemed the G20's policy direction as minimal.

"The only policy direction agreed to was that countries should allow currencies to be 'market-determined'" and there was "no agreement on the underlying economic imbalances and policy settings that are driving the global capital flows responsible for the escalating tensions," RBC said.

Therefore, the markets should expect further "dollar weakening and EM capital inflows" with the "ever-present risk of new capital taxes or controls implemented by emerging nations facing significant appreciation pressure," RBC said.

This trend will likely continue until the U.S. dollar rebounds. "In the meantime, EM asset markets will continue to outperform developed markets on a structural basis, thanks to impressive fundamentals" and "impressive inflow of funds from global investors raising EM allocations on a long-term basis," the report said.

Sabic, Sun Hung print notes

Meanwhile, Tuesday's primary market saw several new deals.

Saudi Arabia-based petrochemical, fertilizer and metals conglomerate Sabic priced $1 billion 3% senior notes due Nov. 2, 2015 at 99.357 to yield mid-swaps plus 165 basis points, a market source said.

JPMorgan, HSBC and RBS were the bookrunners for the Regulation S-only transaction, which was talked at a spread of mid-swaps plus 175 bps.

The company postponed a similar offering in May after being unable to achieve internal price targets and determining there was no immediate need for funding, a source said.

In another new deal on Tuesday, Hong Kong-based developer and real estate company Sun Hung Kai Properties priced $300 million 4% notes due Nov. 2, 2020 at 99.365 to yield 4.078%, a market source said.

HSBC and Standard Chartered were the bookrunners for the Regulation S notes.

Korea Gas, Axis do deals

Also pricing notes on Tuesday was state-owned natural gas company Korea Gas, with $500 million 4¼% notes due Nov. 2, 2020 coming to market at 99.501 to yield Treasuries plus 170 bps, a market source said.

Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Goldman Sachs and UBS were the bookrunners for the Rule 144A and Regulation S transaction.

And India-based lender Axis Bank priced $500 million 4¾% notes due May 2, 2016 at 99.599 to yield 4.834%, or Treasuries plus 360 bps, a market source said.

Bank of America Merrill Lynch, Citigroup, Deutsche Bank, JPMorgan and RBS were the bookrunners for the Rule 144A and Regulation S transaction, which was talked at yield of Treasuries plus 255 bps to 365 bps.

Proceeds will be used for overseas operations and general corporate purposes.

Issuance hits $36 billion

"There's been a heavy amount of issuance," an emerging markets strategist said. "That's reflective of strong demand in the market."

There has been $36 billion of issuance so far this month, which is "quite a lot," but not as much as the $43.25 billion seen in September, he said. "But who knows what we'll see in the next couple of days?"

Certainly this does "draw down on investors' cash positions a little bit," he said. "But inflows have been pretty heavy. We've had over $4 billion so far this month into dedicated real-money funds. So that's positive. We'll see how long it lasts."

Much of the focus lately has been on local-currency deals. But so far about $3.8 billion of the year-to-date new issuance has been in local currency, the strategist said. That may seem like a lot, but it pales in comparison to the nearly $16 billion of local currency issuance seen in 2007 and $7.8 billion in 2008, the strategist said.

This year, "it's just a very teeny, tiny portion of total issuance so far," he said. "Local currency in local currency markets is certainly a trend, but otherwise it's much ado about nothing."

Issuers set guidance

In other news Tuesday, Philippines-based tourism conglomerate Travellers International Hotel Group set price guidance for its planned issue of $300 million to $500 million seven-year bonds at the 7½% area, a market source said.

Deutsche Bank and UBS are the bookrunners for the Regulation S transaction.

Also from the Philippines, oil refining company subsidiary Petron Fuel Success has mandated Credit Suisse, Deutsche Bank, HSBC and Standard Chartered to arrange a roadshow for a peso-denominated offering of notes, a market source said.

The Regulation S offering will be payable in dollars.

The day also saw Abu Dhabi Islamic Bank whisper its planned sukuk issue of notes due 2015 to yield 3 5/8%, or the mid-swaps plus the low-200 bps area, a market source said.

Barclays Capital, HSBC and Standard Chartered are the bookrunners for the Regulation S-only deal.

Albania on tap

And Albania set guidance for its planned issue of up to €400 million in five-year bonds at 7½%, in line with recent price whispers, a market source.

Deutsche Bank and JPMorgan are the bookrunners for the Regulation S-only deal, which is expected to price Wednesday.

The offering follows the sovereign's May announcement that it would delay a dollar-denominated issue of notes via JPMorgan and Deutsche Bank. At the time, a source said current market conditions were to blame.

Also on Tuesday, market-watchers were whispering that Russia-based lender Sberbank's planned issue of four-year Swiss franc-denominated bonds will be priced to yield between 3.45% and 3.55% for a deal equivalent to $200 million.

And some sources say Belarus is primed to offer bonds at the end of the year or in early 2011.

© 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.