African Bank, Essar advance deals as Greece, Bernanke hurt risk appetite; spreads widen

By Christine Van Dusen

Atlanta, June 8 - Emerging markets assets stayed relatively stable Wednesday - though spreads did widen as much as 10 basis points and some profit-taking was seen - as the Greece saga continued and risk appetite took a hit following Federal Reserve chairman Ben Bernanke's Tuesday speech.

"Overall, the markets felt a little nervy today," a trader said.

Said a London-based market source: "We're actually seeing a wave in selling today ... as global growth concerns come to the forefront again. The impact is not huge, but most spreads are 5 bps wider as the inflow euphoria wears off."

The JPMorgan Emerging Markets Bond Index Plus spread was 2 bps wider, at Treasuries plus 286 bps, at the start of the day.

Bernanke's speech suggested that little will change in terms of policy and that the current measures will remain in place to address the slow pace of the U.S. economic recovery.

Meanwhile the primary market on Wednesday was quiet, with just South Africa-based African Bank Ltd. and India's Essar Services Mauritius advancing deals following Tuesday's pricing by South Korea's Kia Motors and the Republic of Poland.

Greece news widens spreads

Wednesday saw the European debt crisis enter a new phase, according to Gavan Nolan, analyst with Markit, in a report. He pointed to a leaked letter from a German finance minister to European Central Bank president Jean-Claude Trichet, in which the minister suggested that bondholders should make a substantial contribution to the Greece aid effort and that there should be a maturity extension of seven years.

About €30 billion of the €100 billion deal would be covered by private burden-sharing, he said.

"It now appears that a less market-friendly outcome is likely later this month, and spreads duly widened," Nolan said.

The Markit iTraxx SovX WE index was 11 bps wider at 200 bps, with Greece wider by a near-record 104 bps.

Essar plans roadshow

Also on Wednesday, India-based outsourcing services company Essar Services Mauritius - along with Aegis Ltd. - announced plans for a roadshow starting Thursday in Asia for a $300 million offering of five-year senior notes, according to an informed source.

The deal via bookrunners Deutsche Bank, UBS and Standard Chartered is set to price at the end of the June 13 week.

Proceeds from the Rule 144A and Regulation S notes, which are non-callable for three years, will be used to repay debt and for general corporate purposes.

And in its recent issue, South Korea-based automobile manufacturer Kia Motors sold $500 million 3.63% senior notes due June 14, 2016 at 99.688 to yield Treasuries plus 208 bps, a market source said.

Bank of America Merrill Lynch, Citigroup, KDB and Morgan Stanley were the bookrunners for the Rule 144A and Regulation S notes.

Poland oversubscribed

Poland sold $1 billion 5 1/8% notes due April 21, 2021 at 103.211 to yield 4.713%, or Treasuries plus 170 bps, a market source said.

The notes priced at the low end of talk, which was set at Treasuries plus 170 to 175 bps.

Citigroup, Goldman Sachs and RBS were the bookrunners for the Securities and Exchange Commission-registered deal.

The original issue totaled $1 billion and priced on April 14 at 98.831 to yield 5.277%, or 170 bps over mid-swaps.

The final order book was $2 billion, with 160 investors. About 47% came from the United States, 21% from Poland, 16% from the United Kingdom and 5% from Asia. Asset managers accounted for 62%, pension funds and insurance companies 13%, banks 12% and central banks 4%.

"That's trading firmer on the back of very strong U.S. demand," a trader said.

African Bank details plans

In other deal-related news, South Africa-based lender African Bank set the size at $300 million and the tenor at five years for its planned issue of notes, a market source said.

Credit Suisse, Goldman Sachs and Standard Chartered Bank are the bookrunners for the Regulation S-only notes, which are expected to price this week.

"That deal may be investment grade, but for micro-lending we'd like to see at least 200 bps over the recent FirstRand Bank Ltd.," a trader said.

Africa closes weaker

Also from Africa, buying was seen for Nigeria's 2021 notes, which traded Wednesday at 104.56 bid, 105.31 offered after pricing on Jan. 20 at 98.223. Selling was seen for Nigeria-based GTB Finance BV's 2016 notes, which priced at 98.981 on May 12 and traded Wednesday at 102.90 bid, 103.40 offered.

"We're also seeing sellers of Ghana's 2017s come out of the woodwork, closing them at 113.43 bid, 113.81 offered, up 23 bps," a trader said.

By the end of the day, though, the region was closing weaker, he said.

"It feels like there's some paper in the Street," he said. "Even Morocco is fading a little."

Some Middle East names widen

In other trading, Abu Dhabi, Dubai and Bahrain were seen about 5 bps wider.

"There's not much in the way of selling," a trader said. "Bahrain has turned a little heavy recently. And the Qatar sovereign is holding OK. We think the front end looks OK, with bonds closing 5 to 7 bps wider primarily on the move in rates."

And the recent issue of notes from United Arab Emirates-based Emirates airline - which priced June 1 at 99.904 to yield 5.147% - was trading at 99.95 bid, 100.05 offered on Wednesday.

"Very good volume traded in the Street at 100.05," a trader said.

HSBC, Lebanon trade up

The new 3.575% notes due 2016 from HSBC Bank Middle East that priced at par on May 26 were seen on Wednesday at 101.20 bid, 101.35 offered.

"We've been active trading two-way HSBC," he said.

Meanwhile, Lebanon's recent issue of 6% 2019 notes, which priced at par on May 18, were trading at 100.15 bid, 100.35 offered on Wednesday.

The secondary market also saw Ukraine's corporate issuers holding up well, particularly Ukraine-focused iron ore pellet company Ferrexpo Finance plc's 2016 notes. The notes - which priced on March 31 at par - were seen at 103.25 bid, 104.25 offered on Wednesday.

"That's catching a bid again on renewed buyout rumors," the London-based market source said.

Looking to Kazakhstan, lender BTA Bank saw some retail selling on Wednesday.

Paul A. Harris contributed to this article

© 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.