Libya turmoil has EM investors, issuers in holding pattern; Russia to sell notes Thursday

By Christine Van Dusen

Atlanta, Feb. 23 - Continued strife in Libya and the related surge in oil prices put emerging markets investors into a wait-and-see posture on Wednesday, leading to light volumes and just a handful of issuers - including Russia, Turkey's Akbank TAS, Lithuania and Abu Dhabi's International Petroleum Investment Co. - moving toward the market.

"Everyone is keeping an eye on what's happening in Libya, especially as it affects oil prices," said Luz Padilla, portfolio manager for the DoubleLine Emerging Markets Fixed Income Fund. "Libya isn't technically part of our market because it has no tradable debt. It's just more of an association, and what it's doing to oil prices."

As many as 1,000 people have been killed since anti-government protests began last week in Libya. In response, oil prices have risen past $100 a barrel, even with Saudi Arabia's promises to make up for any slowdown in production. Some experts are positing that the price could soon pass $220 a barrel.

"So everyone is just in a holding pattern," Padilla said. "If investors were spooked, we'd be seeing a massive sell-off and we're not. Everyone is just waiting to see how this stuff develops."

The JPMorgan Emerging Markets Bond Index Global Diversified spread was at 285 basis points on Wednesday, from Tuesday's close of 287 bps.

Some LatAm names underperform

"The higher-beta credits have bids on bonds slightly higher than last night's closes," a market source said during the New York morning.

By mid-afternoon, the JPMorgan Emerging Markets Bond Index Plus was down about 0.10%, with Venezuela tighter by a ¼ point and Argentina by almost 2 points. Argentina's discount bond, meanwhile, was down 1¼ points.

"It's notable that oil is near 100 and Venezuela is down," a New York-based market source said. "You would think that given how tied Venezuela is with oil prices, the kind of upside we're seeing on crude should be a positive thing for Venezuela."

Argentina, he said, has taken the biggest hit among high-beta credits.

"That might present a little buying opportunity," he said.

Russia sets guidance

In deal-related news, Russia set price talk for its planned $3 billion-equivalent issue of ruble-denominated notes due 2018 at 7 7/8% to 8%, a market source said.

Deutsche Bank, HSBC, JPMorgan, Renaissance Capital and VTB Capital are the bookrunners for the Rule 144A and Regulation S deal, which is expected to price on Thursday.

"That's probably going to be well received," a New York-based market source said. "Most investors have a fairly bullish view on the ruble going forward. And as another oil-related exporting credit in EM, higher oil prices should prove beneficial."

And Turkey-based financing company Akbank has mandated Citigroup, Credit Agricole, HSBC and Standard Chartered Bank for a roadshow, a market source said.

A benchmark-sized issue of Rule 144A and Regulation S notes may follow.

The roadshow will begin Thursday and travel from Geneva and Zurich to London and New York before wrapping up on March 1 in Boston.

Lithuania, IPIC advance deals

Also on Wednesday, the Republic of Lithuania mandated BNP Paribas and JPMorgan as bookrunners for a dollar-denominated offering of benchmark-sized notes, a market source said.

A roadshow for the Rule 144A and Regulation S transaction will begin Friday.

And Abu Dhabi-based oil industry investment company International Petroleum Investment is planning a roadshow for a potential issue of euro- and sterling-denominated notes, a market source said.

Goldman Sachs, Banco Santander, BNP Paribas, Credit Agricole, Deutsche Bank and UniCredit are the bookrunners for the deal.

A roadshow will begin Feb. 28 and travel from London to Edinburgh, Paris, Geneva, Zurich, Frankfurt, Munich and Amsterdam before concluding on March 8 in London.

Capex on tap

"Certainly new issuance has slowed down," Padilla said. "But there are still credits trying to tap the market."

She pointed to the upcoming $200 million notes due 2018 from Argentina-based energy company Capex SA via Deutsche Bank and JPMorgan. The Rule 144A and Regulation S deal is being marketed on a roadshow until March 1.

That deal, a market source said, could face some difficulty.

"It's a B- credit, and it might have some problems," he said. "It's just $200 million and a more obscure name. But things can turn around very quickly. You never know."

He also thinks a deal could soon materialize from the non-deal roadshow that just ended for Mexico City-based oil and gas company Petroleos Mexicanos SAB de CV (Pemex).

Greece in focus

Meanwhile, Greece was facing its own challenges on Wednesday, with a debilitating strike and violence in Athens related to unemployment. German chancellor Angela Merkel visited the sovereign this week and suggested that she could support an extension of Greece's current bailout.

"However, this falls short of the Greek government's demands for a lowering of the interest rate on the loans, and Merkel's partners in government appear to be increasingly hostile to the idea of using the EFSF to buy back peripheral debt," said Gavan Nolan, an analyst with Markit, in a report.

"Optimism around the E.U. summit has been diminishing in recent weeks, and the sovereign market will remain vulnerable to headlines around this issue until the meeting on March 24," he said.

In other news, Ukraine-based lender OJSC Oschadbank is delaying its plans for a benchmark-sized offer of dollar-denominated notes, a market source said.

The company is monitoring the market.

Credit Suisse and Morgan Stanley were the bookrunners for the Regulation S deal.

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