New issues few as U.S. data keep investors cautious; Morocco, Banco do Brasil price notes

By Christine Van Dusen

Atlanta, Sept. 28 - The new deal pipeline nearly dripped to a stop on Tuesday, with Morocco and Banco do Brasil among the few issuers to print notes, as emerging market investors mostly stuck to the sidelines on "grim" news about consumer confidence in the United States.

Overall, "investor appetite for risk was somewhat shaky," a market source said.

Still, the day did see some issuers take baby steps toward the market, even as some recent - and tightly priced - issues of perpetual notes faltered.

The slower pace is likely to become the "status quo" for at least this week, a debt analyst said. "But you never know these days. At the drop of a hat, anything can happen. Right now it feels like we're seeing one or two deals coming here and there as things plod along and we grind toward year-end."

Consumers lack confidence

The JPMorgan Emerging Markets Bond Index Plus closed nearly flat at a spread of 287 basis points with Venezuela again outperforming, though less dramatically than in days past.

Meanwhile, the Conference Board released its consumer confidence data for September, showing that the index fell to 48.5 in September after a negatively revised 53.2 in August.

"Consumers' confidence in the state of the economy remains quite grim," said Lynn Franco, director of the Conference Board Consumer Research Center, in a written statement. "And with so few expecting conditions to improve in the near term, the pace of economic growth is not likely to pick up in the coming months."

The new data "has put more pressure on the market," a New York-based trader said. "The market is clearly weaker, with new issues from the last few days not performing well."

Perpetuals underperform

Among the deals that underperformed on Tuesday was Brazil-based petrochemical company Braskem SA's $450 million perpetual notes, which priced at par to yield 7 3/8%.

Though it "makes sense" that the company would "jump on the Brazilian perp-issuing bandwagon to take out its more expensive perpetual notes," the pricing "appears tight," according to a report from Barclays Capital Emerging Markets Research.

The pricing was "112 bps wide to where its 20s were" on Monday morning, the report said, giving a "relatively small discount to the long end of the Braskem curve."

At 25 bps wide of where the 7% perpetuals issued this month by Brazilian steel subsidiary CSN Islands XII Corp. are trading, the pricing leaves "little room for upside," the report said.

The debt analyst agreed. "I think the most interesting thing today has been the underperformance of the recent Braskem perp," he said. "It's certainly notable that some of the perp issuance has not done that well, including CSN's."

Braskem was "down about a point" in the afternoon, he said. "Those are underperforming because they really priced too tightly. The market's kind of flattish, but because these two priced so tight, the market is starting to look at where they are and it doesn't look so great."

Morocco prints notes

Also impacting the picture on Tuesday was a fear of oversupply, the trader said.

"The new issue calendar has been big the last few months, and there could be many more issuers trying to tee it up in October, too," he said. "It's making people nervous that there could be too much supply."

Tuesday, though, didn't do much to bulk up supply, with very few new deals pricing.

The Kingdom of Morocco priced €1 billion 4½% notes due 2020 at 99.495 to yield 4.563%, or mid-swaps plus 200 bps, according to a market source.

Barclays Capital, HSBC and Natixis were the bookrunners for the Regulation S offering.

Sao Paulo-based lender Banco do Brasil priced $600 million 5 3/8% notes due 2020 at 99.316 to yield 5.464%, or Treasuries plus 300 bps, via Bank of America Merrill Lynch, BB Securities, HSBC and Banco Votorantim.

This followed the late Monday pricing by Sri Lanka of $1 billion senior bonds due 2020 at par to yield 6¼%, a market source said.

HSBC, RBS and Bank of America Merrill Lynch were the bookrunners for the Rule 144A deal, which was whispered to yield 6¼% to 6 3/8% before being launched at 6¼%.

The notes, which are non-callable, received more than $6.3 billion in orders, a source said.

Dubai sets price talk

The primary market has "obviously slowed down. Everyone who was ready to rock and roll has already got it done," the debt analyst said. "Some are continuing to think about it, and some are ready. It's certainly a decent time to do it. But there's just not the huge supply that we saw earlier."

Still, there are deals "waiting in the wings," he said. "So it's not going to completely dry up."

Among the deals awaited by the market is Dubai's planned two-tranche issue of five- and 10-year notes, which are expected to total at least $1 billion and price Wednesday.

Deutsche Bank, HSBC and Standard Chartered are the bookrunners for the Regulation S deal.

The five-year tranche of at least $750 million was talked at a yield in the 6¾% area. The 10-year notes, likely totaling as much as $500 million, were talked at a yield in the 7 7/8% area.

Proceeds will be used for general budgetary purposes.

The current pipeline also includes a planned benchmark-sized issue of notes from Seoul-based Hyundai Motor Corp. The auto manufacturer is under some pressure after car recalls in the United States have led to growing losses.

Market-watchers on Tuesday also were whispering about a possible sukuk issue of notes from Nigeria.

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