Investor sentiment improving but volumes stay thin; Sberbank, Slovenia, Tunisia deals ahead

By Christine Van Dusen

Atlanta, Feb. 7 - Emerging markets assets ended the week on better footing, but trading volumes were low and bond funds saw outflows while the primary market remained quiet.

Only Russia's OAO Sberbank, Slovenia and Tunisia took steps on Friday toward printing new deals.

"Investors have taken advantage of recent widening, but there is still no clear strong conviction to go outright long in anticipation of a rally," a London-based analyst said. "Despite the better tone this week, the primary market remained closed to EM."

In trading by the end of the week, banks from Turkey tightened an average of 43 basis points, with Akbank TAS' 2022s and Garanti Bankasi AS' 2022s particular standouts.

"Bank Asya 2023s tightened 62 bps," a trader said. "The bond has endured a difficult start to the year - 250 bps wider versus a month ago - but the recently announced capital injection and disposals have clearly helped sentiment."

Meanwhile, emerging markets bond funds saw outflows of about $2 billion for the week ended Feb. 5, with the majority from funds with local-currency mandates, she said.

"This appears to have made no impact on performance," she said.

Latin American corporate bonds had a slow but strong start in Friday trading, a New York-based trader said.

Brazil's Petrobras and Vale SA were mostly unchanged in the belly of the curve while their long-dated paper tightened 5 bps to 7 bps, he said.

"Volumes are fairly muted," he said. "Clients are not adding too strongly as they try to digest what the non-farm payrolls print really means."

Cemex volumes solid

Mexico's Cemex SAB de CV saw solid Street volumes but did not realize any gains beyond those seen on Thursday, the New York trader said.

"Braskem remains bid, with the 2024s the bond of choice on the curve," he said. "Mexican bank paper is trading sideways after yesterday's gains."

Better bids for Chile

Pulp companies in Chile continued to see higher bids on light volumes, the New York trader said.

"Chilean corporates continue to be the belle of the ball," he said.

In other news from Latin America, Brazil's Oleo & Gas Participacoes SA (OGP) - formerly known as OGX Petroleo & Gas Participacoes SA - is expected to get about $200 million in financing as part of a preliminary debt-for-equity swap that would give creditors control of OGX, a market source said.

In response, the company's 8 3/8% notes due 2022 were softer, the source said.

Vakifbank popular

Taking a closer look at trading among Turkish corporates on Friday, Turkiye Vakiflar Bankasi TAO (Vakifbank) was popular, a trader said.

Banks from Russia also narrowed during the week, about 16 bps on average, with Sberbank among the top performers.

This came in spite of an announcement that Sberbank was planning to issue new notes.

Other Russian corporates narrowed about 20 bps, she said, while selling of OAO Gazprom slowed and the bonds underperformed.

Dubai sees demand

From the Middle East, Dubai was a leader, with solid investor demand for corporate names, a trader said.

Emaar Properties PJSC saw its 2019s bounce on the news that the company had been upgraded to investment-grade for the first time in four years.

On Friday, after the United States released its non-farm payrolls numbers, Qatar's 2020s stayed flat at 166.87 bid, 177.37 offered, he said.

Kipco performs

The recent issue of notes from Kuwait Projects Co. (Kipco) - $500 million 4.8% notes due 2019 that priced at par - finished the week about 49 bps tighter.

The notes priced to yield 4.8%, or mid-swaps plus 314.4 bps, with bookrunners BNP Paribas, HSBC and JPMorgan in a Regulation S deal.

"You have to take your hat off for that," the London trader said. "Nothing like a new deal to reinvigorate things."

Kuwait bonds 'decent'

Overall, other bonds from Kuwait put in a "decent week," a London-based trader said.

The sovereign's 2020s were difficult to source on Friday, he said.

Kuwait's Burgan Bank lagged a bit but began to recover after the market digested Kipco's deal.

"A few have woken up to [Burgan's] value this week," he said.

And Kuwait Finance House remained illiquid, he said.

Sberbank sets roadshow

Russia-based lender Sberbank will set out on Monday for a roadshow to market a dollar-denominated issue of notes, a market source said.

The subordinated notes will be issued in line with Russia's new Basel III standards.

BofA Merrill Lynch, Credit Suisse, Deutsche Bank and Sberbank CIB are the bookrunners for the deal.

Slovenia on deck

Slovenia's upcoming issue of notes will total between $2 billion and $3 billion in a dual-tranche deal, a market source said.

In January the sovereign mandated Barclays, Goldman Sachs and JPMorgan as the bookrunners for the Rule 144A and Regulation S transaction and a roadshow.

No details on timing were released on Friday.

Tunisia to print bonds

Tunisia is looking to issue $1.88 billion in international bonds this year, a market source said.

The United States will guarantee an $880 million issue and Japan will guarantee a $1 billion issue.

The sovereign is also expected to issue Islamic bonds.

Korea Gas deal oversubscribed

The final book for Korea Gas Corp.'s new $500 million 3 7/8% notes due 2024 that priced at 99.385 to yield 3.95% was about $4 billion from 200 accounts, a market source said.

About 43% of the orders came from Asia, 31% from the United States and 26% from Europe.

Asset and fund managers picked up 55%, insurers 27%, banks 12% and private banks 6%.

The notes came to the market at Treasuries plus 125 bps - tighter than talk - with bookrunners BofA Merrill Lynch, Barclays, Goldman Sachs, JPMorgan and UBS in a Rule 144A and Regulation S deal.

Korea Gas is a natural gas company based in Seongnam, South Korea.

Korea Midland final book

Also oversubscribed was Korea Midland Power Co. Ltd.'s recent $300 million issue of 9¾% notes due in 2019 that priced at a spread of 135 bps over Treasuries in a Regulation S deal.

The transaction drew an order book of more than $2.3 billion from 150 accounts, a market source said.

About 55% of the orders came from asset and fund managers, 21% from banks, 13% from insurers, 6% from private banks and 5% from others.

The notes priced at 99.814.

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