Spreads widen for EM bonds; two-way activity for Ukraine corporates; Orient Express mulls deal

By Christine Van Dusen

Atlanta, Aug. 8 - Emerging markets bonds saw spreads widen on Wednesday amid a slightly weaker tone for much of Central Europe, the Middle East and Asia.

The Markit iTraxx SovX CEEME ex-EU index spread on Wednesday opened 8 basis points wider at 236 bps over Treasuries. The Markit iTraxx Crossover index spread - seen Tuesday at 387 bps - moved out to 398 bps over Treasuries on Wednesday morning.

"US Treasuries are opening slightly firmer this morning at 2.62%," a London-based analyst said. "Spreads are generally 3 bps to 6 bps wider across the board."

Investors were selling Turkey's sovereign and banking bonds on Wednesday, she said, with both about 10 bps wider.

"It's a Turkish holiday today until next week," she noted.

From Ukraine, sovereign bonds were mostly unchanged as the mid-week point approached, said Svitlana Rusakova of Dragon Capital.

"Corporates saw two-way flows," she said.

Among the most active names were Metinvest BV and Mriya Agro Holding Public Ltd.

Local currency bonds from Romania and Croatia have made some significant moves so far this week, according to a report from Erste Group Research.

The bonds in the middle of Romania's curve are the most liquid and tradable, the report said.

"The unexpected 50-bps cut by the National Romanian Bank and verbal indication that further room for cuts ... continue to drive the local currency bond market," Erste Group said.

Meanwhile, Croatia's 5¼% 2018s, which were issued near par and have traded as high as 104, were spotted at about 102.40.

Orient Express may print bonds

In deal-related news on Wednesday, Russia-based lender OJSC Orient Express Bank was considering the sale of eurobonds, a market source said.

No other details were immediately available.

Ferrexpo reports earnings

In other news from Ukraine's corporate sector, iron ore company Ferrexpo plc reported its earnings results for the first half of the year and announced better volumes driven by pellet demand.

But at the same time, prices declined and production costs rose, the London analyst said.

"Net leverage remains under control, however," she said. "We would expect little movement in the illiquid Ferrexpo 7 7/8% 2016s, currently yield 10.3%, on the back of this result."

VimpelCom sees flat revenues

Also reporting earnings on Wednesday was EM-focused OJSC VimpelCom, which matched estimates for earnings before taxes. The telecommunications services provider had flat revenues for the second quarter, with particularly solid performance in Russia offset by challenges in Italy, Africa and Asia, the analyst said.

"We expect this result to have little impact on spreads," she said. "Performance is more likely to be driven by developments related to [Algerian mobile unit] Djezzy and the Canadian unit."

VimpelCom is an Amsterdam-based telecommunications services provider. Its broadband services are offered in Russia, Ukraine, Kazakhstan, Uzbekistan, Tajikistan, Armenia, Georgia, Kyrgyzstan, Vietnam, Cambodia, Laos, Algeria, Bangladesh, Pakistan, Burundi, Zimbabwe, Central African Republic, Italy and Canada.

Al Baraka downgraded

Bahrain's Al Baraka Banking Group, part of Turkey's Albaraka Turk Katilim Bankasi AS, saw its long-term counterparty credit ratings downgraded on Tuesday by Standard & Poor's, the analyst said.

The downgrade was related to the bank's risky lending strategy and capitalization issues, she said.

"Although ABG's downgrade is related to Middle Eastern and North African sovereign and economic risks, there is increased pressure on Albaraka Turk's rating as a result," she said. "Albaraka Turk has been on outlook negative since June 2011 and since then has issued a tier 2 sukuk, which has improved capitalization."

It's unclear whether ABG's downgrade will indeed push down its parent's rating, she said.

"But this story will likely affect sentiment," she said. "However, we note that the Albaraka Turk tier 2 is relatively illiquid."

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