Edcon sells notes as Middle East tensions make EM investors nervous; Indian deals on tap

By Christine Van Dusen

Atlanta, Feb. 22 - Emerging markets investors were skittish and issuers cautious on Tuesday in response to escalating tensions in Libya, where leader colonel Moammar Gadhafi is refusing to step down amid growing casualties and weakening support from the military and police.

South Africa's Edcon Pty. Ltd. was among the very few issuers to bring deals to market during the volatile day.

"Risk aversion permeated the markets today as investors grappled with the implications of turmoil in the Middle East and North Africa," said Gavan Nolan, an analyst with Markit, in a report. "The unrest had a predictable effect on other MENA sovereign spreads, i.e. widening."

Not even a positive economic report from the United States - showing a better-than-expected increase in consumer confidence - could offer much encouragement.

Contributing to the day's sense of risk aversion were an outlook revision for Japan from Moody's Investors Service, an earthquake in New Zealand, the news that Iranian naval vessels had entered the Suez Canal and hawkish comments from the European Central Bank, RBC said.

Spreads widen

The JPMorgan Emerging Markets Bond Index Global spread widened 11 basis points, with most sovereigns up by 5 bps to 15 bps and Venezuela wider by 26 bps.

Libya doesn't trade in the credit default swaps market, but nearby Morocco does and saw its spreads widen more than 200 bps during the European session, Nolan said.

That's "approaching the levels it reached at the peak of the Jasmine Revolution in Tunisia late last month," he said.

Also under pressure on Tuesday was the Ivory Coast, where clashes over recent election results have resulted in deaths and injuries, and cocoa prices have climbed due to a ban on exports.

"That situation seems to continue to deteriorate," a Connecticut-based trader said. "A couple of the long-time bondholders are starting to lighten up as the situation drags on. But there do seem to be three or four distress players willing to buy."

He also noted that Dubai was active on Tuesday, with some names down 4 or 5 bps. Qatar's prices on the long end were off 10 to 12 bps.

Volumes down

Volumes, in general, were modest on Tuesday, the trader said.

"There's been a small pick-up in the last two weeks but not back to the kind of real volumes we'd like to see," he said. "But it's definitely better than most of January."

In trading, some of the recent deals from sovereign issuers are faring well in the market, he said.

The $1.5 billion senior notes due 2021 that Ukraine brought to market Feb. 17 at par to yield 7.95% saw some selling at first but since then have done well.

"It has continued to be very well bid," he said. "It's trading today, for the first time, below fixed reoffer but just modestly. It's at 99¾ when the deal came at par. That's done better than most."

Another sovereign deal that was performing strongly on Tuesday: the $1 billion tap of Mexico's 5 1/8% 2020 bond, which priced on Feb. 14 at 102.01 to yield 4.844%.

"It seemed like the leads must have had deep shorts because it was very strongly bid for the first two days in the street," he said. "And although on a spread basis it's trading where the deal was tapped, bids are consistently strong there."

Jamaica notes 'sluggish'

The trader was also keeping an eye on the recent notes from Jamaica, a $400 million add-on to the sovereign's 8% notes that priced on Feb. 14 at 100.256 to yield 7.95%.

"Originally the deal was well received by the market, but a lot of the bids in Jamaica are locally driven," he said. "So a lot of the ammo for those bonds won't be available until the 2011 bond matures in mid-May. So the deal has traded sluggishly for the last few days, just below fixed reoffer. If the rest of the world is on even footing, that should trend higher as we get closer to May."

Also on radar screens were recent corporate issues, including the $750 million 8¾% notes due 2018 from Ukraine's Metinvest, which priced on Feb. 7 at 98.722 to yield 9%.

"That saw some selling and is trading modestly below where it came. It's nothing too outrageous, but definitely a little bit soft," the trader said. "The corporate side deals seem to be smaller, and guys are becoming a little more cautious. We're seeing less interest on the corporate issues."

Edcon prints notes

In the primary market on Tuesday, South Africa-based dry goods retailer Edcon priced €317 million and $250 million notes due March 1, 2018 at par to yield 9½%, a market source said.

Goldman Sachs, Deutsche Bank, Barclays Capital and Morgan Stanley were the bookrunners for the deal, which came in line with talk of a yield in the 9½% area.

The Rule 144A and Regulation S notes are non-callable for three years.

Proceeds will be used for refinancing debt and for hedging obligations.

Also from South Africa, branded food manufacturer Foodcorp Ltd. is on a roadshow for a €415 million issue of seven-year notes, a market source said.

JPMorgan and Barclays are the bookrunners for the Rule 144A and Regulation S notes, which are non-callable for three years.

The roadshow started Tuesday and will run until Friday, with pricing to occur soon after.

Proceeds will be used for general corporate purposes and to refinance existing senior secured notes, settle existing hedging arrangements and fund the repurchase or redemption of certain securities issued by parent company New Foodcorp Holdings Ltd., according to a company announcement.

Roadshows from Capex, Fibria

In other deal-related news, Argentina-based energy company Capex SA is planning a roadshow from Thursday to March 1 for a $200 million offering of seven-year notes, a market source said.

Deutsche Bank and JPMorgan are the bookrunners for the Rule 144A and Regulation S notes, which will be non-callable for four years.

The roadshow will start Thursday in Zurich and Geneva and travel to London and Boston before wrapping up on March 1 in New York.

Also from Latin America, Brazil-based paper and pulp company Fibria Celulose SA is on a non-deal roadshow with Citigroup, Deutsche Bank and Santander, a market source said.

The marketing trip, which began Monday, will travel from Singapore to Hong Kong, Geneva and Zurich before finishing up on Thursday in Los Angeles and Boston.

Indian lenders plan deals

Indian Overseas Bank plans to offer $500 million note due 2016 by the end of the first quarter, a market source said.

Citigroup, HSBC, JPMorgan, RBS and Standard Chartered have been linked to the transaction.

In another potential deal from India, Mumbai, India-based Export-Import Bank of India has mandated BNP Paribas, Deutsche Bank and UBS for a roadshow, a market source said.

The marketing trip will take place in Switzerland and begin in early March.

And Bangalore, India-based Canara Bank set out on Sunday for a roadshow to market a possible issue of notes, a market source said.

Bank of America Merrill Lynch, Citigroup, Deutsche Bank, HSBC and RBS have been linked to the transaction.

Romania, Russia mull notes

Also on Tuesday, Romania set the tenor for its planned issue of €500 million notes at five or 10 years, a market source said.

The deal is expected to price during the first quarter.

And Russia is planning a $3 billion-equivalent offering of ruble-denominated notes, a market source said.

Deutsche Bank, HSBC, JPMorgan, Renaissance Capital and VTB Capital are the bookrunners for the deal.

In other news, the final book for China-based developer Country Garden Holdings' upsized $900 million issue of 11 1/8% seven-year senior notes - which came to market on Wednesday at 99.405 to yield 11¼% - was $3.7 billion with more than 225 accounts, a market source said.

Goldman Sachs & Co., J.P. Morgan Securities and Deutsche Bank were the joint bookrunners, and proceeds will be used for general corporate purposes and to fund existing and new property projects.

About 51% of the orders came from Asia, 28% from the United States and 21% from Europe. Funds accounted for 57%, retail 36%, banks 5% and others 2%.

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