Volumes light, issuance nil as markets await Greece vote; Bank of Moscow takes a beating

By Christine Van Dusen

Atlanta, June 27 - Emerging markets issuers and investors spent Monday on pause, their eyes glued to Greece as the sovereign's parliament prepared to vote on a new austerity plan and hopes were raised that the next round of bailout funds would soon be forthcoming.

The primary market was quiet, and though some bonds bounced, volumes were extremely thin.

"There are improving hopes that there will be a solution forthcoming to see Greece through the current difficulties, so from that perspective markets have caught a bid here," said Nick Chamie, head of emerging markets research for RBC Capital Markets. "That's why they're doing substantially better than we might have thought from this morning."

In general, the tone for the market on Monday was nervous, defensive and quiet.

"However there certainly has been a little dipping of the toe after the very heavy price action on Friday," a trader said. "Spreads, for the record, are a complete mixed bag, but I'd suggest that 2 to 5 basis points tighter broadly covers the market."

Among the few outperformers on Monday were Ukraine and South Africa, which were a relatively strong 10 bps to 20 bps wider on the month. HSBC Bank Middle East's 2016s, SIB Sukuk Co. II Ltd.'s 2016s and Ras al Khaimah also stood out on Monday.

"It's difficult to know what to make of the market here. There's clearly some value back, but Friday action was scary. I'm still of the view that picking up high-quality credits that one is comfortable with makes sense," a trader said. "Flows are below average, but there are definitely some people in to pick up some paper. I suspect most of the action this week will come tomorrow and Wednesday."

Russian bank bonds tumble

Investors were also paying particular attention to Bank of Moscow, which has been suffering since VTB Bank attempted a hostile takeover and determined that Bank of Moscow required a rescue package. Investors panicked on Monday, selling off bonds from both banks. VTB will provide a bailout of up to 100 billion rubles as part of a total 250 billion ruble aid plan.

"That has sent Bank of Moscow and VTB bonds tumbling," a London-based trader said. "All emerging markets banks are trading weak in sympathy."

Middle East 'safe harbor'

In other trading on Monday, Dubai's 2021 dollar notes were trading at 99, about 40 bps wider since launch. And buyers were seen for Saudi Arabia, Emirates airline and Mubadala Development Co., while Qatar got a lift during the afternoon.

"They're normally the first credit to bounce, post sell-off," he said. "[The region] might well be a relative safe harbor in the world at the moment. However, that doesn't mean spreads can't widen."

According to a report from RBC: "Markets have made a nervous start to the trading week ... Market direction will continue to be dominated by incoming Greek headlines."

Turkey bounces

The secondary market additionally saw a bit of a bounce for Turkey, particularly on the longer end of the sovereign curve, a trader said.

"Corporates are pretty much unchanged," he said. "We are buyers of Garanti Bankasi AS' 2021s and seller of Garanti's 2017s. Global sentiment continued to set the direction of Turkish assets today."

Looking to South Africa, the sovereign saw decent trading on Monday, with African Bank the outperformer.

"Who'd have thought a micro-lender would do well in this environment?" a trader said. "As elsewhere, longer-duration off-index assets are struggling."

Nigeria sees selling pressure

Elsewhere in Africa, some selling pressure was noted for Nigeria's 2021 notes, which were trading on Monday at 103.62 bid, 104.37 offered after pricing on 98.223 on Jan. 20.

"Mind you, they are only off a point from the highs," he said. "They traded around the 104 to 104.25 level most of the afternoon."

Ghana was marked lower and Egypt began to fade after finding solid support late last week, he said.

Sri Lanka taps leads

In deal-related news, the Republic of Sri Lanka mandated Bank of America Merrill Lynch, Barclays Capital, HSBC and RBS for its planned issue of 10-year dollar-denominated notes, a market source said.

The sovereign announced in May a plan to issue $1 billion notes due 2021 by the end of the year.

Otherwise, issuers were mostly silent on Monday.

"I'm not surprised we haven't seen issues come quite yet," Chamie said. "With the onset of the summer slowdown soon, there are quite a few that are probably eager to get out the door, so I think that with the smallest of windows they may very well try it at some point this week before they find themselves more or less shut out for the summer."

Timing, he said, will be critical. "And time is cutting short. So we could see a quick flurry before the week is out."

VimpelCom oversubscribed

In other news, the final book for Russia-focused mobile phone service provider VimpelCom Holdings BV's $500 million 6¼% notes due 2017 - which priced at par on June 22 - was $1.3 billion with 180 accounts involved, a market source said.

About 30% of the orders came from Switzerland, 20% from the European Union, 18% from Russia, 17% from the United Kingdom and 2% from others. Private banks accounted for 32%, funds 29%, banks 25%, hedge funds 7%, insurers and pensions 4% and others 3%.

The $1.5 billion tranche of 7½% notes due 2022 that priced at par attracted $3.8 billion with 300 accounts involved. About 47% came from the United States, 30% from the United Kingdom, 12% from the European Union, 5% from Switzerland, 4% from Russia and 2% from others. Funds accounted for 64%, banks 12%, hedge funds 7%, private banks 6%, insurers and pensions 6% and others 5%.

In trading on Monday, the notes bounced from early lows of 98.50, a trader said.

Barclays Capital, BNP Paribas, Citigroup, ING, HSBC and RBS were the bookrunners for the Rule 144A and Regulation S notes.

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