First Gulf Bank sells notes on mostly quiet day for EM; Venezuela confirms issuance plans

By Christine Van Dusen

Atlanta, July 26 - As the U.S. debt-ceiling talks continued to hang over the financial markets on Tuesday, bond issuers stayed quiet - with just Abu Dhabi's First Gulf Bank PJSC pricing notes -while emerging markets assets managed to stay fairly resilient.

"The lack of progress in talks to raise the U.S. debt ceiling has led to a risk-off move," according to a report from RBC Capital Markets. "However, the mood in EM has been strikingly different."

The Markit iTraxx SovX index opened 2 basis points firmer, a trader said, and liquid cash bonds were being lifted.

"After the now-familiar Monday pause and in the absence of any new bad news, the market is free to be marked higher on the open. EM has joined gold and the Swiss franc as the safe haven of choice," he said. "So we have Ukraine and Russia benchmarks all 1/4- to 1/2-point firmer. Despite the summer volumes the market is rock-solid and at the margin people are adding more illiquid risk."

Still, the debt-ceiling issue - along with continued concern about Greece's new bailout plan - continued to cast a shadow over EM.

The JPMorgan Emerging Markets Bond Index Plus spread closed wider by 1 bp, at Treasuries plus 274 bps.

Generally speaking, the headlines about the debt ceiling are driving the market, a New York-based market source said. "The overhang of potential tail risk ... is something that is going to impact our tone."

Stage set for issuance

At the same time, dealer inventories on the trading side are decreasing, he said.

"So it could be a good time to issue new bonds," he said. "All of those things are setting up for a potentially really good market to issue out of EM and Latin America. I could see a scenario where we see issuance that was tabled or delayed over the past two or three weeks start to really pick up for a week or week and a half, depending on the outcome."

September, he said, is poised to be chock full of new issuance.

"It's expected to be a very heavy month, assuming that the general market concerns get stabilized," he said.

Venezuela plans $4.2 billion

In deal-related news, Venezuela confirmed plans to issue $4.2 billion 11.95% notes due 2031 in a domestic deal, a market source said.

The notes could come to the market as soon as the first week of August.

And Argentina-based electric company Transener SA plans to issue new 9¾% senior notes due 2021 as part of an exchange offer, according to a company announcement.

The company is exchanging its outstanding 8 7/8% notes due 2016 for the new notes. As of Monday night, about 38.35% of the outstanding notes had been validly tendered.

Deutsche Bank is the exchange agent.

"That's wrapping up," the New York-based market source said.

But until the debt-ceiling issue is resolved, primary market activity is likely to be "a little patchy," he said.

Moscow bank whispers guidance

Meanwhile, Russia-based Credit Bank of Moscow's three-year offering of dollar-denominated notes was whispered at a yield in the low-8% area, a market source said.

Raiffeisen Bank International is the bookrunner for the Regulation S notes.

"Credit Bank of Moscow is also looking to take advantage of the mood," a trader said. "At 8%, that looks about right."

Said the New York-based source: "There are a couple of deals out there that were remnants of roadshows last week or longer-term that are coming together."

Among them were the $350 million seven-year notes from Mexico-based financial and retail corporation Grupo Elektra via BCP Securities, Jefferies and UBS.

"That's known to the market," he said. "Generally speaking, the mix of new supply is going to be very broad. I think there are two things out of Europe, the Middle East and Asia that we're working on for September, and then there are five to six different mandates across different countries in Latin America that we expect to come through in September and October. It's a decent mix."

Usina Vista books still open

One deal that seemed to be struggling to get to the market, he said, was the $150 million to $200 million offering of seven-year notes planned by Brazil-based Usina Vista Alegre.

The sugarcane grower and sugar and ethanol producer has been expected to price the notes via BTG Pactual in a Rule 144A and Regulation S deal that's been talked at the 11% area.

"They wrapped up a roadshow last week but have yet to price," he said. "It doesn't seem that, for the time being, that has worked, though BTG says the books are still open."

First Gulf does deal

In its new deal, Abu Dhabi-based lender First Gulf Bank sold $650 million 3.797% notes due Aug. 2, 2016 at par to yield mid-swaps plus 225.7 bps, a market source said.

The notes priced above talk, which was set at the mid-swaps plus 210 bps area.

Prior to pricing, the notes were trading up 5/8 of a point in the gray.

Citigroup, HSBC and Standard Chartered Bank were the bookrunners for the Regulation S notes.

Good retail demand was seen for the new issue, a trader said.

"There's good two-way flow going through in the new sukuk," another trader said.

Afreximbank performs

Still, the new notes weren't performing quite as well as another recent issue - the $500 million 5¾% notes due 2016 from Cairo-based African Export-Import Bank (Afreximbank) that priced July 20 at par.

Commerzbank, HSBC, Mitsubishi UFJ Securities and Standard Bank were the bookrunners for the Regulation S deal.

"That still powers on," a trader said, noting that the bonds were seen at about 102 early in the day.

In other trading, Turkey's sovereign bonds started the day firmer, while corporates began Tuesday mostly unchanged, a trader said.

As the European session continued, good demand was seen for Yasar Holding AS, Yuksel Insaat and Akbank.

"The sovereign has given up early gains," he said.

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