EM trading slow but 'impressive'; Guatemala bonds in demand; Hutchison Whampoa sells notes

By Christine Van Dusen

Atlanta, May 30 - Hong Kong's Hutchison Whampoa Ltd. priced notes on a Wednesday that saw investors attempting to steer clear of the euro zone's financial mess and turning their attention to some emerging markets bonds, particularly from Central America and Asia.

Still, risk appetite was suppressed and any positive momentum was somewhat stunted by Greece's continuing troubles and Spain's struggle to get its spending under control.

"We have to deal with this limbo period where outside events partially paralyze EM," a trader said.

The falling price of crude oil also impacted some emerging markets names, like Venezuela, which saw steady selling on Wednesday.

"Global equity markets are under real pressure," a London-based trader said.

The Markit iTraxx SovX index spread was back at the wides on Wednesday, at Treasuries plus 340 basis points. Later, the index was seen at 343 bps over Treasuries.

"But look at emerging Europe, Middle East and Asia cash, and you'd think it's just another quiet day," he said. "Retail investors are still buying and real-money investors are sitting on their hands."

Given the weakness in core equity markets, "emerging Europe, Middle East and Asia are putting in an impressive open with spreads barely 5 bps wider," a London-based analyst said. "However, this has mostly been achieved due to very low levels of activity and relative willingness of locals to remain on the bid."

New deal flow has slowed to a trickle, a Connecticut-based trader said, and emerging markets currencies are weaker, too.

"With the overall focus on Europe, weakening currencies and slower inflows in EM, the market is in risk-reduction mode," he said. "We're starting to see real money come out of riskier assets here at this point."

Ukraine widens slightly

In trading, Russia-based Vimpelcom was 10 bps wider.

"In the more liquid names like Russia and Gazprom, the price moves are all very orderly," a trader said. "But other traditional high-beta names like Ukraine are barely 5 bps wider."

Large external debt levels make the sovereign "vulnerable to investor sentiment," the London-based analyst said.

"Ukraine has significant external repayments to make in June," she said. "Reduced growth prospects because of declining demand for its exports will aggravate the weakening currency and add to investor caution."

Most Middle Eastern and North African bonds were outperformers on Wednesday, with spreads tighter on the week, a trader said.

"And of course Saudi Electricity Co.'s 2022s are still well bid after yesterday's ramping," he said.

Guatemala sees buyers

Demand was strong for the recent $700 million issue of 5¾% notes due 2022 from Guatemala.

The notes priced Tuesday at 99.065 to yield 5 7/8%, or Treasuries plus 414.5 bps, via Deutsche Bank in a Rule 144A and Regulation S transaction.

"The combination of 25% debt to GDP and energy assets is exactly what people want right now," a trader said.

The notes were up about a ½ point by midday on Wednesday.

"For the most part, over the course of the day, there has been brisk demand for that one," the Connecticut trader said. "There's still a little bit of money out there looking for safer credits. Guatemala is a nice diversifying asset and it was a relatively manageable deal.

HK Land deal 'OK'

The recent $500 million issue of 4½% 10-year bonds from property investment and management company Hongkong Land Co. were trading fairly well on Wednesday.

The notes priced at Treasuries plus 290 bps, or 98.796, to yield 4 5/8%. Mitsubishi, Standard Chartered Bank and HSBC were the bookrunners for the Regulation S deal.

"That seems to be doing OK," the Connecticut trader said.

Baghlan Group ahead

Another market source was watching out for the upcoming three-year dollar notes from Azerbaijan-focused Baghlan Group FZCO.

The oil transportation company has mandated BNP Paribas for the Regulation S transaction and an upcoming roadshow. Proceeds will be used for capital expenditures and for the acquisition of a 33.33% stake in Bahar Energy Ltd.

"Given the short-dated tenor and structure of the notes, we do not expect a potential issue to have material impact on other Azeri risk," the London analyst said.

Hutchison Whampoa prints bonds

In its new deal, business conglomerate Hutchison Whampoa priced €2 billion of notes due 2017 and 2022, a syndicate source said.

The deal included €1.25 billion 2.5% notes due 2017 that came to the market at a spread of 140 bps over mid-swaps, or 99.606, to yield 2.585%.

A second tranche of €750 million 3.625% 10-year notes priced at a spread of mid-swaps plus 190 bps, or 99.950, to yield 3.361%.

Deutsche Bank, Barclays and J.P. Morgan were the bookrunners for the deal.

Other Asian issuers could follow suit, the Connecticut trader said.

"I think most of the new deals are going to be Asia-related names," he said. "There's also some room for supply from the Middle East, with Bahrain's sovereign bond coming. Even Latin America is becoming slim pickings, in terms of where you're going to be able to issue for the time being, until the risk environment improves."

Aleesia Forni contributed to this article.

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