China's Agricultural Development prices notes on slower but solid day; Jafza notes rally

By Christine Van Dusen

Atlanta, June 15 - Agricultural Development Bank of China sold notes during a fairly quiet Friday - as all eyes were on Greece and this weekend's elections - but emerging markets bonds still managed to stand out from other asset classes.

"The Greek election at the weekend is hugely important but information remains limited, given the blackout period for opinion polls," according to a report from Barclays Capital Markets. "Risk assets and the euro advanced on reports that central banks were preparing for coordinated liquidity action if needed. The yield on the 10-year Spanish government bond declined 11 basis points on the news after rising eerily close to the 7% level [Thursday]."

But emerging markets have "cemented their status as the new flight-to-quality asset class," a London-based trader said. "The demand we have seen can only be described as impressive given all the event risk. All of our favorite names are going out on the highs of the week."

He pointed to KazMunaiGas, VTB Bank, Gazprom and Turkey.

"As before, it's not that there is heavy demand, but simply that inquiry is only buying," he said. "Safe to say at least we are going into this turbulent period with the market looking for excuses to buy and not sell."

Among the standouts on Friday were the new bonds from Dubai-based Jebel Ali Free Zone (Jafza), a $650 million issue of 7% notes due 2019 that came to the market on Tuesday at par to yield Treasuries plus 588.9 bps.

"All I know is that in my world it's been a banner week for Dubai names on the back of the Jafza deal," a trader said.

The Jafza notes rallied Friday about 25 bps to close at 101.50 bid, 101.75 offered.

"The weather in London may be bad, but the warm winds enjoyed by emerging markets credit persist," the London trader said. "The amazing calm ... is confirming the current confidence that either the Greeks will vote the right way, or we will get more bailouts."

The Markit iTraxx SovX index spread was at Treasuries plus 308 bps early on Friday, the tightest level so far this month, and closed at 305 bps over Treasuries.

Middle East unfazed

Market-watchers were whispering Friday about possible notes from Bahrain and a five-year sukuk issue from Islamic Development Bank.

The Middle East remains a strong and active region for emerging markets bonds, a trader said.

"Oil prices are holding for now, but worth keeping a close eye on," he said. "Not that the move over the past two months has really done anything to dent Gulf region spreads; we've already moved south by $25 a barrel and barely flinched."

Mubadala's 2021 bonds continued their rise, trading Friday at 112 bid, 113 offered.

"They have basically gone up every day on zero volume, closing a cool 23 bps tighter," a trader said. "It's a very solid effort, and leaving Abu Dhabi National Energy Co.'s (TAQA) 2021s, Dolphin Energy's 2021 and International Petroleum Investment Co.'s 2022s in its wake."

TAQA's 2012 notes - which previously traded at 101.12 bid, 101.62 offered - were quoted early Friday at 101.20 bid, 101.70 offered. The company's 2013 notes were unchanged Friday at 105 bid, 105.50 offered.

IPIC's 2022 bonds were trading at 106.25 bid, 106.75 offered.

"The Street still feels a little long on IPIC's 2022s," a trader said.

Dolphin's 2019 bonds were trading at 108.37 bid, 108.87 offered. The company's 2021 bonds were seen at 109.06 bid, 109.56 offered.

In other trading from the region on Friday, bonds from the Qatar sovereign were very solid, another trader said.

Though Qatar's 2014 notes were unchanged at 106 bid, 106.50 offered, the sovereign's 2015 notes were seen at 105.12 bid, 105.62 offered on Friday after trading Thursday at 105.25 bid, 105.50 offered.

African bonds see buyers

Some buyers were seen for African names, including Senegal and Ghana.

"But not the greatest week for Egypt, with Fitch cutting them to B+ and outlook negative," a trader said.

Egypt's 2020 bonds were trading Friday at 92.50 bid, 94.50 offered while its 2040 bonds were seen at 84.50 bid, 86.50 offered.

He was also keeping an eye on Ivory Coast, which will resume payments on its eurobond.

South Africa was "in a very defensive, technical, solid space," another trader said. "The five-year goes out at 160 mid, having been in the high 190s bid a few weeks back."

Demand for Russian bonds

Russia's bonds continued to garner attention in the secondary market after the sovereign kept its refinancing rate unchanged at 8%.

"There's huge interest from retail investors and real money," the London trader said. "It also fits with the broader trend of huge demand for liquid EM, while off-the-run names either don't trade or severely underperform."

Cash bonds, overall, are well supported, another trader said.

"Pretty much the only minor casualty of the Greek vote has been Bulgaria postponing its planned eurobond aimed at refinancing the 2013s," he said.

Agricultural Development sells

In its new deal, Beijing-based Agricultural Development Bank of China priced RMB 3 billion bonds in two-, three- and five-year tranches.

The deal included RMB 1.5 billion 2.98% two-year notes, RMB 1 billion 3.2% three-year notes and RMB 500 million 3.35% five-year notes.

Initial guidance was set at the 3% area for the two-year issue, 3.2% area for the three-year notes and 3.35% to 3½% for the five-year notes.

Bank of China, Standard Chartered Bank, ICBC, CCB International Capital, Agricultural Bank of China and Bank of Communications were the bookrunners for the Regulation S deal.

Inflows for EM funds

Emerging markets bond funds saw inflows totaling $361 million for the week ended June 13 amid hopes for further quantitative easing, according to a report from data-tracker EPFR Global.

"Emerging market bond funds ... benefited from the hope of a possible QE3 program, snapping their three-week outflow streak on the back of solid flows into funds with hard currency mandates," the report said.

Bond funds with a local currency mandate, however, did not fare as well. They reported outflows of about $110 million for the week.

Aleesia Forni contributed to this article.

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