China's Citic Bank, Agricultural Bank and Poland's PGNiG eye deals; EM still 'very strong'

By Christine Van Dusen

Atlanta, June 14 - Though the election in Greece was looming and Spain's yields kept rising, emerging markets investors cast only a sideways glance at the continuing turmoil on Thursday and, in somewhat small numbers, focused their energies on buying blue-chip emerging markets bonds.

"While the Spain situation continues to deteriorate, EM investors have clearly moved on as spreads open up virtually unchanged from yesterday's close," a London-based analyst said. "Appetite for all the blue-chip EM names remains very strong, which is keeping spreads supported."

Greece's general election takes place on Sunday and includes a referendum on the sovereign's membership in the European Union.

"The Greek election at the weekend is hugely important but there is limited information given the blackout period for opinion polls," according to a report from Barclays Capital Markets. "Instead, Spanish government bond yields are the most-watched indicator, and the news remains concerning."

Spain's 10-year yield continued to climb and "is now very close to the 7% level, that, while arbitrary, is widely viewed as crucial," Barclays said.

Still, the tone for emerging markets assets remained positive on Thursday, and some issuers - including Hong Kong's China Citic Bank Corp. Ltd., Beijing's Agricultural Development Bank of China and Poland's Polskie Gornictwo Naftowe I Gazownictwo SA (PGNiG) - took steps toward bringing new deals to the market.

"Yes, there were some defensive bids and a few names got hit, but no real sign of panic," a trader said. "Technicals are strong, liquidity at local banks ample and growth remains in the Middle East region. So even if Spain goes to 10%, the money has to [go] somewhere, and what better place than a defensive-ish place to park cash, like the Gulf region?"

Activity dropped off a bit as the day went on, a trader said.

"Volumes are below average for a Thursday, which is normally a pretty active day," he said. "There was a little consolidation in the morning, with some selling. But nothing too major. The market is closing on the front foot as broader markets firm up. Greek elections this weekend are not spooking the market at the moment. There are still pockets of value out there on certain names, to my mind, especially on some longer-dated names on a spread basis."

Jafza bonds stay active

Bonds from Dubai-based Jebel Ali Free Zone (Jafza), which priced late Tuesday, remained popular in trading on Thursday.

The operator of an industrial free-trade zone sold $650 million 7% notes due June 19, 2019 at par to yield 7%, or Treasuries plus 588.9 basis points.

The notes opened Thursday at 101.5625 bid, 101.875 offered.

Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Citigroup, Dubai Islamic Bank, Emirates NBD, National Bank of Abu Dhabi and Standard Chartered were the bookrunners for the Regulation S deal.

"The success of the new Jafza deal, now 30 bps tighter, is giving a huge boost to all things Dubai, aside from Dubai Water and Electricity Authority, which is rumored to be on the road," the London trader said.

Added another trader, "Overall it's been a big week for Dubai names."

South Africa, KMG perform

Other solid performers included South Africa and KazMunaiGas, the London trader said.

"They remain unflinching, whatever happens," he said. "South Africa's long end has snapped back over 50 bps this month."

Abu Dhabi's Dolphin Energy was active, with two-way flow on the 2021 bonds, which closed at 109 bid.

"That's tighter on the month," he said.

Sukuk in demand

Sukuk continued to receive attention, a trader said.

"Dar al-Arkan's 2015 notes, for the high-yield hunters, on the offer side now comes with a 104 handle and is a cool 150 bps tighter on the month," he said.

Mubadala kept up its winning streak, with its 2021 notes trading Thursday at 111.50 bid, 112.50 offered.

"They're a month-on-month winner," he said.

International Petroleum Investment Co.'s 2015 notes - which closed Wednesday at 103 bid, 103.75 offered - remained unchanged on Thursday. IPIC's 2016 notes were trading at 109 bid, 109.75 offered, also unchanged.

Saudi Electricity Co.'s 2022 notes were quoted Thursday at 102.93 bid, 103.18 offered after trading earlier in the week at 102.70 bid, 103 offered.

Ukraine falls behind

In other trading, Ukraine was a laggard on Thursday.

"If you thought the euro situation would help Ukraine debt, you'd be wrong," the London trader said. "It's unusually quiet instead."

Looking to Kazakhstan, troubled lender BTA Bank floated a proposal for its second debt restructuring, the London-based analyst said.

"That the restructuring plan is set already, before a clearly established business plan, is ... dazzling," she said. "There is no active trading on the bonds, although the indicative bid side appears to have fallen several points."

Citic Bank talks notes

Hong Kong-based business conglomerate China Citic Bank set initial guidance for an issue of notes that will total RMB 20 billion and come to the market in tranches due 2022 and 2027, a market source said.

The 10-year tranche was talked at a yield of 4.8% to 5.05%. The 15-year tranche was talked at 5% to 5¼%.

Proceeds will be used to increase capital.

The company previously announced plans for up to RMB 30 billion of bonds by the end of 2013 with bookrunners HSBC and UBS.

Chinese lender gives guidance

Also from Asia, Beijing's Agricultural Development Bank of China set initial price guidance for its renminbi-denominated offering of two-, three- and five-year notes, according to a market source.

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

Earlier in the week, the bank mandated Bank of China, Standard Chartered Bank, ICBC, CCB International Capital, Agricultural Bank of China and Bank of Communications as the bookrunners for the Regulation S deal.

PGNiG sets deal size

Warsaw-based oil and natural gas company PGNiG set the size at 2.5 billion zlotys for its planned issue of five-year notes, a market source said.

Bank Slaski SA and Bank Polska Kasa Opieki SA are the bookrunners for the deal.

Proceeds will be used for oil, gas and shale exploration, construction and expansion of production facilities and other projects.

Gazprombank capital improves

From Russia, Gazprombank released its first quarter 2012 earnings on Wednesday, showing that slower loan growth and excess liquidity have affected the profit margin, the analyst said.

"Capital adequacy is currently thin but is expected to materially improve following the conversion of tier 2 capital into tier 1," she said. "The combined effect of the conversion and the newly issued $500 million subordinated eurobond will improve their capital adequacy ratio by 1%."

This is a good step for the company, she added.

"We view the capital increase as positive for the credit, although we note that the bonds are already trading at relatively tight spreads versus VTB Bank," she said.

Tingyi oversubscribed

In other news, the recent $500 million issue of 3 7/8% notes due 2017 from Tianjin, China-based food and beverage company Tingyi Holding Corp. attracted about $3.25 billion in orders, a market source said.

The notes priced at 99.573 to yield 3.97%, or Treasuries plus 325 bps, via Barclays Capital and Deutsche Bank in a Regulation S-only deal.

Proceeds will be used to finance capital expenditures relating to the company's alliance with PepsiCo., to repay loans and for working capital and other general corporate purposes.

Aleesia Forni contributed to this article.

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