Kuwait two-trancher shines in trading; investors watch weather, Fed; Lebanon picks bookrunners

By Christine Van Dusen

Atlanta, March 14 – Kuwait’s debut issue – $8 billion of tranches due in 2022 and 2027 – was the star of the show on Tuesday, experiencing strong demand amid a resilient tone while the Federal Reserve began its meeting and a snowstorm hit the northeastern United States.

“As the Fed gathers for its two-day meeting later today, the Northeast U.S. prepares for a late-winter storm that has also postponed a meeting between U.S. President Trump and German Chancellor Merkel,” a London-based analyst said. “A bad omen for EM credit? It doesn’t seem so, with EM markets having remained remarkably resilient in face of the expected 25-basis points rate hike, the recent rates sell-off and dollar strengthening against EM currencies, as well as the recent drop for [oil prices] below the $50-per-barrel mark.”

Kuwait’s new issue was the beneficiary of the positive mood among emerging markets investors. The $3.5 billion 2¾% notes due 2022 priced at 99.366 to yield 2.887%. On Tuesday morning the notes were seen at 99.55 bid, 99.63 offered.

The $4.5 billion 3½% notes due 2027 priced at 99.026 to yield 3.617%. On Tuesday morning in New York they were spotted at 99.40 bid, 99.45 offered.

“Remember they priced at the tight end of the pricing spectrum,” a London-based trader said. “Despite plenty of people claiming this was ‘rich,’ the bonds have performed and good size has cleared. Asian flow is largely two-way and locals are, net-net, adding.”

The Kuwait deal benefits from scarcity and “a zero-risk-weighted technical for local accounts,” he said. “It is, after all, rated Aa2/AA/AA and compares well to peers in [Central Europe] and Asia.”

Kuwait trades

JPMorgan, Citigroup, Deutsche Bank, HSBC, NBK Capital and Standard Chartered were the bookrunners for Kuwait’s Rule 144A and Regulation S deal.

“Today was all about Kuwait, with almost $460 million of the 2027s going through the Street and nearly $325 million of the 2022s,” the trader said. “It's been a long time coming, a sovereign dollar deal from Kuwait, and worth the wait.”

Lebanon on deck

The sovereign is not expected to be a frequent issuer, “given its humongous net foreign assets position from which it can draw down,” the analyst said. “With Kuwait now having completed the [Gulf region] puzzle in international debt markets, we are awaiting for the return of Lebanon.”

Lebanon has mandated four bookrunners – Barclays, Byblos Bank, JPMorgan and Societe Generale CIB – to lead a dollar-denominated and Regulation S transaction, which could include tranches of bonds due in 10, 15 and 20 years.

Busy trading from Middle East

Elsewhere in the Middle East, volumes were high on Tuesday, the London-based trader said.

“Qatar’s 2021 has cheapened up over the week to near 67 bps z-spread,” he said. “Saudi Arabia’s 2021 is now about 15 bps behind Qatar 2021.”

The Saudi Arabia notes saw good flows on Tuesday, he said.

“The 2026 has been the big outperformer on the month, versus the five-years and 30-years,” he said. “The oil market continues to trade with a weaker bias, which is not entirely surprising given the technicals at play that have been fairly well flagged.”

Oman’s credit remained steep and the 2021 seemed “bulletproof at a little above par,” he said. “The 2047s have seen some Asian demand the past couple of sessions. However, on spread it is 5 bps tighter on the week, versus the 2026s and 2027s, which are 10 bps tighter.”

Turkey in focus

Investors were also keeping an eye on Turkey, which continued to quarrel with several E.U. countries after the Dutch prohibited Turkish ministers from campaigning among expatriates for a referendum that would increase the powers of the Turkish president.

The Turkish foreign ministry has ignored pleas to ramp own its rhetoric.

“The Turkish government has taken several diplomatic steps in retaliation,” the analyst said. “These include banning the Dutch ambassador from entering the country, revoking indefinite permissions for flights carrying Dutch diplomats, as well as suspending high-level relations and planned meetings.”

Meanwhile, Turkish President Erdogan has said the country needs to “reassess” its relations with the European Union, he said.

“It remains to be seen whether the recent incidents will have a lasting impact on both parties’ relationship or are rhetoric ahead of crucial polls in Turkey and across the EU,” he said. “Without doubt, both sides are in desperate need for each other due to the heavy trade relations, intertwined political relations and the refugee deal in exchange for financial aid, among others. While this indicates a very low likelihood of a complete break-up in relations, we however do not see any potential for improving relations ahead of the Turkish referendum.”

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