EM debt rallies on better news from Egypt, Ivory Coast; Mexico's Empresas ICA sells notes

By Christine Van Dusen

Atlanta, Feb. 1 - Emerging markets assets on Tuesday experienced a bit of a relief rally on several pieces of encouraging news from Africa: Egypt's army promised not to use violence against protestors, president Hosni Mubarak said he will step down at the end of his term this year, and the Ivory Coast was rumored to have made a payment on its debt.

But Mexico-based construction company Empresas ICA SAB de CV was alone in pricing a new deal.

And volumes remained below average for the day as investors remained cautious about turmoil in Egypt and the possibility that the chaos could spread to other countries on the continent and beyond.

"The Egyptian events are taking center stage," said Nick Chamie, head of emerging markets research for RBC Capital Markets. "There's just a general bit of apprehension flowing through the markets. So even though the markets are certainly rallying today and most assets are doing quite well and tacking on gains, there's still a relatively high degree of uncertainty."

The JPMorgan Emerging Markets Bond Index Plus finished the day 16 basis points tighter, with Argentina tighter by 30 bps, Venezuela by 36 bps and Ecuador by 61 bps.

Ivory Coast, Egypt get boosts

Though the Ivory Coast's deadline for paying $2.3 billion of debt passed without payment at midnight, the sovereign's bonds shot up on Tuesday on speculation that the coupon had indeed been paid, said Phillip Blackwood, head of emerging markets debt at Sydbank.

Ivory Coast's 2032 2½% notes went to 40 bid, 42 offered by the European close from 36 bid, 38 offered previously.

"That's a big move today on the rumors that the coupon got paid, but I'm not sure all of that is true," Blackwood said. "It seems far-fetched, but at least the price is higher."

Egypt's bonds were also stronger on Tuesday after Mubarak agreed to step down when his term expires in September and the army promised not to fire at protestors.

This news helped counter the day's negative headlines from Egypt, including a downgrade in its debt rating from Standard & Poor's and reports that the sovereign's economy has been paralyzed.

The army's stance is "obviously a change from previously and points to the fact that Mubarak may have lost a little support from the military, even though he's still embedded in the military," Blackwood said. "The pressure on Mubarak is just too strong now."

Egypt's bonds rally

Egypt's 2020 bonds rallied in response, trading at 94.50 bid, 95.50 offered - 5 points up from the open, a London-based trader said. And Egypt's five-year credit default swap spreads were trading down at 400 bps.

"I think we are moving higher on light-ish street inventory both ways and a little short covering," a London-based trader said. "There are plenty of headlines out of Cairo to keep an eye on."

Said Chamie: "There's still a relatively high degree of uncertainty, and these past couple of days could probably be put in the context of a relief rally given that the situation in Egypt hasn't intensified in a disorderly fashion. The markets are taking some solace in that.

"But there's still a relatively high degree of apprehension around this, the huge spike in commodity prices and the rate hikes taking place in emerging markets. There seems to be a lack of conviction among most investors."

Trading solid in Middle East

For other names in the Middle East, Tuesday was a fairly solid day. Jordan, for one, joined the rally.

"Having traded down at 90.50 this morning," the London trader said, "it's now bid above 91."

The 4.949% 2014 dollar bonds from Abu Dhabi's Tourism Development & Investment Co., meanwhile, were trading at 105.375 bid, 106 offered. That's up 2 bps over the week.

"[It's] another bond not to get too bearish or short on," the trader said. "Technicals are very strong."

And the recent $500 million sukuk notes due 2016 from Dubai-based developer Emaar Properties - which priced on Jan. 26 at par to yield 8½% - were off the lows at 97.87 bid, 98.37 offered.

Abu Dhabi National Energy Co.'s 2018s and 2019s remained solid on Tuesday, he said, with some decent shorts in the market on both bonds.

He also saw buyers of the 2015 bonds from International Petroleum Investment Co. and good street demand for Qatari Diar paper.

"The sellers this morning on Qatar's 2020s have since disappeared," he said. "Five-year Qatar CDS traded at 103 in decent size in the street."

Buyers were also seen for Qatar-based Qtel International's 3 3/8% 2016s at 95.75 bid, 95.875 offered. The notes originally priced on Oct. 6 at 99.243, and a tap priced Oct. 13 at 100.15.

Empresas ICA does deal

In the day's lone new deal, construction company Empresas ICA priced $400 million 8.9% notes due Feb. 4, 2021 at 98.545 to yield 9 1/8%, a market source said.

Bank of America Merrill Lynch, Morgan Stanley and Santander were the bookrunners for the Rule 144A and Regulation S notes, which are non-callable for five years.

The deal priced in line with talk, which was set at the 9 1/8% area.

Proceeds will be used to repay outstanding secured debt and for general corporate purposes, including equity contributions and for new and existing projects.

Deal flow is expected to remain slow, or even halt, on Wednesday given the global turmoil and the forecast for more inclement weather in New York City.

"I don't know if anything will come tomorrow, given all the snow storms," Chamie said.

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