Morocco outperforms, ADCB struggles; EM bond funds see more outflows; Armenia roadshow ahead

By Christine Van Dusen

Atlanta, Sept. 6 - Bonds from Morocco outperformed in trading on a Friday that was quieter on the new issuance front and featured mostly unchanged spreads for emerging markets assets.

The Markit iTraxx SovX CEEME ex-EU index spread on Friday opened flat to Thursday at 255 basis points over Treasuries. The Markit iTraxx Crossover index spread - seen Thursday at 413.5 bps - widened to 416 bps on Friday.

"Spreads remain resilient despite the outflows due to the lack of issuance," a London-based analyst said. "This week corporates are generally 10 bps to 20 bps tighter, with quasi-sovereigns like OAO Gazprom performing particularly well. The concern now is how our market will perform once companies begin to issue again."

The outflows, which totaled as much as $1.6 billion for the week, occurred as investors worried about the turmoil in Syria and awaited crucial economic data from the United States.

"Investors left for the last of their summer vacations with Syria's civil war, China's economy and U.S. policy - foreign, fiscal and monetary - on their minds," data-tracker EPFR Global wrote in a report. "They returned with the same issues still front and center."

A total of nearly $6 billion flowed out of emerging markets bond and equity funds during the week, EPFR said.

In trading, one of the biggest underperformers of the week was Abu Dhabi Commercial Bank's 2023 dollar bonds, a London-based trader said.

The notes were quoted at 86½ on Friday, about 110 bps wider on the month.

"Continues to push lower," he said.

Morocco's 2022s and 2042s, on the other hand, attracted investor interest.

"The bonds are 40 bps better," he said.

DEWA in focus

One trader was paying close attention to Dubai Electricity and Water Authority's bonds, and was particularly struck by how the company's 2016s are currently trading through the 2015s.

"Interesting behavior by the curve recently," he said. "The 2016, a $500 million deal, has traditionally been hard to find. The 2015s trade well but not as well as the 2016s."

Meanwhile the company's 2018 sukuk notes have "been beaten up, relative to the 2016s," he said.

"It's been a 65-bps move between the two as the sukuk has pushed lower," he said.

The 2020s have been more liquid and traded most often by funds and dealers who hedge Dubai.

"So it has, understandably, moved wider," he said. "But it's still 20 bps to 30 bps away from the wides of the year."

Ukraine corporates move down

Bonds from Ukraine finished the week mostly unchanged, with some two-way flows in quasi-sovereigns, said Svitlana Rusakova of Dragon Capital.

Among corporates, Ukraine's Donbass Fuel & Energy's (DTEK) 2018s traded down to 92½ before moving to 92 bid, 92½ offered, she said.

From Russia, bonds remained under pressure, according to a report from UFS Investment Co.

Armenia sets roadshow

Armenia will embark on a roadshow starting Sept. 10 for a dollar-denominated issue of notes, a market source said.

Deutsche Bank, HSBC and JPMorgan are the bookrunners for the Rule 144A and Regulation S deal.

The roadshow will be held in Los Angeles, New York and Boston and will end in London on Sept. 13.

OGX Petroleo & Gas pops

Brazil's OGX Petroleo & Gas Participacoes SA bonds got a 5 point boost on the day after it was reported that the company's management had unanimously decided to exercise majority owner Eike Batista's $1 billion put option.

"They were all over the place," a trader said. He saw the 8½% notes due 2018 trading around 23, up from "18 and change" the day before.

"So they popped a good bit," he said.

Another trader said the 8½% notes were the "big trader" on the day, with at least $25 million of bonds changing hands. He deemed the issue up over 4½ points at 231/4.

The second trader also saw the 8 3/8% notes due 2022 rising 5 points, ending at 23.

However, the 2022 paper was not nearly as active, the trader noted.

The cash-strapped company elected to exercise the option, which will require Batista to buy more stock at 6.3 reais per share. Batista has recently been selling off his stake to raise money and recently sold stock for 50 centavos per share.

Under the terms of the exercise, OGX is asking for $100 million upfront with an option for more dispersals in the future.

The cash injection won't be enough to stave off a restructuring, some believe.

"Fundamentally, a $3.6 billion debt is higher than OGX's asset value, which in theory leaves zero value left for the equity," said Credit Suisse AG analysts Vinicius Canheu and Andre Sobreirain in a note to clients. "The outlook remains grim."

Stephanie N. Rotondo contributed to this article.

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