Korea Western Power sells bonds; Syria turmoil has investors seeking havens; spreads widen

By Christine Van Dusen

Atlanta, Aug. 27 - Korea Western Power Co. Ltd. priced notes on Tuesday as investors sought out safer assets amid increasing anxiety about the unstable situation in Syria.

U.S. Treasury prices rose, with the 10-year yielding 2.752% early in the session.

"Risky assets are under pressure in European trading hours, despite U.S. Treasuries rallying, following the July durable goods report in the U.S., which was softer than expected," according to a report from Barclays. "Overall, global uncertainty has risen, in part on concerns that the U.S. would respond militarily to the conflict in Syria."

Also weighing on asset prices was the political picture in Italy.

"The U.S. Treasury relief rally is not lifting emerging markets in line as spreads still reflect the general pressure on EM," a London-based analyst said. "Currencies and stocks are still under pressure as fears about future funding costs weigh heavily on sentiment."

The Markit iTraxx SovX CEEME ex-EU index spread on Monday opened at 257 basis points over Treasuries, wider by 12 bps from Friday. The Markit iTraxx Crossover index spread - seen Friday at 418 bps - widened 2 bps on Monday morning.

Five-year credit default swaps for Turkey were 12 bps wider, while sovereign bonds were 1½ points to 2 points down.

"Corporates are also suffering," the London analyst said.

Lat-Am corporates weaken

Corporate bonds from Latin America also suffered, showing weakness and little to no liquidity, a New York-based trader said. That pushed prices even lower.

"There's no conviction whatsoever to add risk at these lower levels, especially now with global equity and bond markets in a tailspin," he said. "We are widening strongly again on the non-spread-based credits and a few wider again on the spread credits like Vale, Petrobras, Codelco."

He reported that inquiry levels were low during the morning on Tuesday.

Mexican corporates in focus

Bonds from Mexican corporate issuers also moved lower on Tuesday, the New York trader said.

"No buyers in sight," he said, pointing to the 2022s from Mexichem SAB de CV, which previously saw buying interest.

"Saw buyers when the market showed decent weakness, but it has now fallen back to about 951/2, down 2 points in the last week," he said.

Mexico's Alpek SAB de CV fell hard on Tuesday, with the 2022s down more than 3 points, he said.

Peru corporates give up gains

Corporate bonds from Peru, which recently held in well, lost some gains on Tuesday, the New York-based trader said.

"They're now giving it up," he said.

Brazil-based Odebrecht Drilling Norbe VIII/IX Ltd.'s 2021s and 2022s bucked the trend a little bit, dropping just 1 point to 1½ points in the past two weeks, he said.

New issue from Korea Western

In its new deal, Korea Western Power sold CHF 200 million 1 5/8% notes due 2019 at 99.866 to yield mid-swaps plus 72 bps, a market source said.

Barclays and UBS were the bookrunners for the Rule 144A and Regulation S deal.

Korea Western engages in the production and supply of electricity and has headquarters in Seoul, South Korea.

China Citic plans notes

In other deal-related news, China Citic Bank Corp. Ltd. said it plans to issue up to RMB 37 billion of qualified tier 2 capital instruments with a maturity of at least five years.

Proceeds will be used to replenish the bank's tier 2 capital and to increase its capital adequacy ratio.

The Beijing-based bank said its board of directors approved the proposed issuance at a meeting held on Tuesday.

Marisa Wong contributed to this article.

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