Gruposura prints notes as Greece debt woes plug up EM pipeline; demand for bonds abounds

By Christine Van Dusen

Atlanta, May 11 - Emerging markets assets remained surprisingly resilient on Wednesday even as the pace of issuance slowed and risk appetite took a hit from the turmoil in Greece, where police fired teargas on anti-austerity protestors and another round of debt restructuring seems likely.

"External debt markets have shown little volatility," according to an RBC Capital Markets report.

Indeed, the JPMorgan Emerging Markets Bond Index Plus spread started the day close to unchanged at Treasuries plus 271 basis points.

That level stands "at the top end of the broad 240 bps to 280 bps trading range that has now been in place for the past three to four months," RBC said.

There was a buying spree in the secondary market, sources said. But the primary market remained eerily quiet, with the only new deal of note coming from Colombia's Gruposura Finance.

"I continue to think supply must surely be coming," a London-based trader said. "Absolute rates are still low-ish, demand is significant and the window is open.

Gruposura sells bonds

In its new deal, Colombia-based Gruposura Finance sold $300 million 5.7% senior notes due May 18, 2021 at 99.354 to yield Treasuries plus 260 bps, a market source said.

The notes priced in line with talk, which was set at the Treasuries plus 265 bps area.

Bank of America Merrill Lynch and JPMorgan were the bookrunners for the Rule 144A and Regulation S notes, which include a change-of-control put at 101%.

Proceeds will be used for general corporate purposes.

The notes are guaranteed by Grupo de Inversiones Suramericana SA (Gruposura), an investment company based in Medellin, Colombia.

Buying bonanza underway

In trading, it was a moderately active day, the London-based trader said.

Said another London-based market source: "Real-money accounts who've been underweight rectified the situation with a wave of buying in low-beta assets yesterday afternoon. That's triggered a wave of buying of everything else today."

Even Turkey, which reported a larger-than-expected account deficit for March, saw solid performance for its 2030 notes.

From Kazakhstan, railway company Kazakhstan Temir Zholy saw a great deal of volume on Wednesday.

But other Kazakhstan corporates were left out of the action, including lenders BTA Bank and Kazkommertsbank.

Finansbank notes struggle

Also excluded from the buying spree was Turkey's Finansbank AS, which on May 5 priced $500 million 5½% notes due 216 at 99.384 to yield 5.643%.

"Everywhere else it's an old-fashioned frenzy," he said.

That was particularly true in Russia, where Asian accounts were showing a great deal of interest. Better buying was seen for Alfa Bank's 2021 and 2017 notes. The 2021s - which priced in April at par - traded at 101.875 bid, 102.25 offered while the 2017s were seen at 106 bid, 106.50 offered.

Africa in focus

Africa experienced some support on Wednesday, a trader said, with prices softening somewhat.

"The market is fairly well supported, but it's not the action we saw yesterday afternoon," he said. "Egypt is catching a little bid."

Senegal - which on May 6 sold $500 million 8¾% notes due 2021 at 97.574 to yield 9 1/8% - saw the notes trading at 103.12 bid, 103.62 offered in the morning. Nearing the close, the notes were seen at 103.10 bid, 103.60 offered.

"Senegal has completed a 100 bps tightening from launch, wrapped around 8½% now," he said.

Mostly, though, the market was awaiting the five-year notes expected from Nigeria's Guaranty Trust Bank plc, which were talked at the 7½% to 7¾% area.

Demand seen for Middle East

Looking to the Middle East, buying was seen for the Qatar sovereign and Saudi Arabia's Sabic Capital Ltd.

"Abu Dhabi names saw solid demand," the trader said. "National Bank of Abu Dhabi is playing good catch-up versus its peers. The sector is all pretty well supported."

The trader also was keeping an eye on Abu Dhabi National Energy Co. (TAQA).

"The long-dated paper is 10 bps tighter," he said. "We had alluded to the moves in TAQA some time ago and have definitely seen some shifting out along the curve. The TAQA 12s, 13s, and 14s feel tired here, and we continue to see buyers on the 16s, 17s, 19s and 36s."

Jordan gets attention

And Jordan was on radar screens on Wednesday, with its bond - which priced near 98 - going as low as 90 before inching back up to the 94 mark.

"Versus launch spread, it's 70 bps wider," the trader said.

And DP World Ltd., the port operator owned by Dubai World, got some attention from the market after announcing it will list its shares on the London Stock Exchange this month.

Restructuring eyed for Greece

Taking a closer look at the Greece situation, it seems that "the countdown to restructuring has started," according to a report from RBC Capital Markets.

"But accepting insolvency does not make restructuring imminent," the report said. "We argue that it may take longer than many think."

The sovereign needs to be further along the path toward achieving a sustainable primary surplus, RBC said, and contagion fears are likely to continue to dominate E.U. decisions.

"In our view, European authorities will try to avoid a Greece restructuring in 2011, then likely proceed with one in the first half of 2012," the report said. "By then, the status of Ireland and Portugal should be clearer."

EM spreads 'attractive'

Investors should refine the way they look at spread opportunities and focus on investments that can offer a cushion against potential shocks, according to a recent report from Michael Gomez, executive vice president with bond fund Pacific Investment Management Co.

"Among global interest rate markets, it means recognizing that developed world sovereign debt carries large risk - both on the credit side, as debt trends worsen, and on the inflation side as central banks latently apply confiscatory monetary policy to fixed interest debt securities," he wrote. "We believe better alternatives exist in select EM markets, where balance sheets are cleaner and real interest rates are high."

It's important to focus on obtaining more spread for less leverage while also accepting higher volatility and liquidity, he said, while the markets reprice EM corporate risk to that of developed markets.

"With EM economies accounting for roughly 35% - and more on purchasing power parity measures - of global GDP but just roughly 10% of its fixed income markets, investors that recognize and move early a larger allocation of their assets into EM may stand best positioned to capture attractive spread opportunities in the period ahead," he said.

Brazil recommended

Brazil is among the select EM markets that provide a good alternative for investors, Gomez wrote. The sovereign has a strong balance sheet and high reserve coverage, as well as a responsive central bank.

"Yet despite these strengths, Brazil is forced to pay investors a higher rate of interest," he said.

The reason, he said, is that the government has increased its level of subsidized lending to its development bank, allowing the bank to lend money at a lower non-market rate of interest of 6%.

"The more credit that flows into the economy at these subsidized rates, the higher the clearing rate that the central bank must set for interest rates on the rest of the economy to contain price pressures," Gomez said. "With (the development bank) pricing credit at an artificially low rate, the market clearing level for Brazilian rates moves to an artificially higher level."

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