Emerging market trading slow ahead of Friday's CPI numbers; Hong Kong and PTT price

By Reshmi Basu

New York, July 15 - Emerging market trading dragged Thursday, but the Asian primary market continued to sizzle with new issues from Hong Kong and PTT PCL, both of them oversubscribed.

"The market is well bid but not too much activity," said a trader.

"People have been focusing on new issuances but generally things have been quiet."

And secondary trading is expected to stay quiet this summer unless new economic data intimates that the U.S. Federal Reserve will act differently than people are currently expecting.

"Unless all of the sudden the Treasury market or numbers signal a different turn for the 10th time, this is what we have," he added.

Overall emerging market paper was up during Thursday's session. The JP Morgan EMBI Index rose 0.19%. Its spread to Treasuries tightened four basis points to 468 basis points.

The Brazil bond due 2040 was up 0.6 to 96.85 bid while the C bond was bid at 933/4, up half a point.

Hong Kong and PTT price

Both the Hong Kong government and Thailand's PTT tapped the international markets for the first time Thursday. Both Asian credits were oversubscribed.

From Turkey, Petrol Ofisi International Oil Trading Ltd. priced $175 million of five-year bonds (-/B/B+) at 99.516 to yield 9.875% via JP Morgan and BNP Paribas.

The Hong Kong government came to market with the U.S dollar-denominated tranche of its sovereign HK$20 billion dual currency offering. The size was at the upper end of the planned $1 to $1.25 billion range.

The $1.25 billion notes (A1/A+) priced at 99.233 to yield Treasuries plus 74 basis points.

"Hong Kong was also very, very tight. Too tight for an EM account," said a buy-side source.

Bank of China, Goldman Sachs, HSBC, Merrill Lynch and Morgan Stanley are lead managers.

And petrochemical company PTT (Baa1/BBB) priced $400 million of 10-year notes at 99.121 to yield Treasuries plus 138 basis points via Citigroup, Deutsche Bank Securities and JP Morgan.

The book size was more than $2 billion, and the deal came in tighter than price guidance of 140 to 150 basis points more than Treasuries.

The buy-side source told Prospect News that the book order for PTT was mainly Asian demand.

"It makes sense because it is a high quality Asian credit. The locals are always very interested in this kind of supply."

However, the buy-side source did not participate in the new deals launched Thursday.

"For some of them, liquidity was an issue because the size of the deal was really small. And for others, like the PTT deal was extremely tight for us," said the source.

Asia's hot primary market

The Asian primary market has been on fire of late, particularly for Korean issuers. In the last week, Korea Development Bank, LG Telecom and Korea Southern Power have priced.

And more Asian issuers are hitting the road.

Korean petroleum refining company LG Caltex Oil Corp. will start a roadshow for a $300 million offering of 10-year bullets (Baa2/BBB) next week.

Deutsche Bank, Banc of America and Citigroup are running the books for the Rule 144A/Regulation S deal

As reported earlier, Export Import Bank of China kicks off a roadshow on Friday for its $1 billion of 10-year global bonds via Citigroup, Goldman Sachs & Co and HSBC.

The big driver behind Asian bond sales is that there is so little supply of investment-grade U.S. corporate paper, according to an emerging market analyst.

"High grade funds are losing some money through redemptions, but those outflows are more than offset by coupons and amortizations," he said.

"And U.S. high grade corporates are paying down debt after all their issuance in 2002-03, leaving the high grade funds scrambling for places to put their money to work.

"All these Asian new issues are a direct result of that scramble for paper - they offer yield, but they're still investment grade, from names [like HK or Korea] that people know and trust.

"As long as U.S. corporates keep paying down debt, the Asian high grade issuers are going to be flooded with liquidity," noted the analyst.

The buy-side source agreed that U.S. interest for Asian credits comes from the high-grade side, not emerging markets.

"There are probably cross-over accounts looking at decent Asian credits versus U.S. corporates with similar ratings, and for some of them there's value - a pick up 30 basis points over U.S corporates," added the source.

"The major issue in Asia so far and always has been is the lack of liquidity. Every bit of supply that was out there has being swallowed by the locals.

"There's room for the supply," noted the source.

As for the pipeline, the buy-side source is looking at Gazprom and Vitro Envases Norteamerica SA de CV.

The plus for Mexico's Vitro Envases is that it is an investment-grade Mexican corporate. The negative is that it is a small deal, raising liquidity concerns, said the source.

The glass manufacturer is expected to price $150 million senior secured guaranteed notes due 2014 on Friday morning via Citigroup.

Another deal of interest is Russian gas producer Gazprom's dollar-denominated benchmark deal via ABN Amro Holding NV, Merrill Lynch & Co. and Morgan Stanley;

The structure of the deal will be asset-backed, using gas receivables from Gasuni and ENI.

"That means it will be higher quality than Gazprom itself, so probably the pricing is going to be tighter," noted the source.

Busy week for dealers

Dealers have been busy, according to the buy-side source. But the market has little guidance as investors await Friday's release of CPI numbers.

"We saw a lot of buying of Russia. And people are doing relative value trades on the curve - saying this bond is cheap versus the long end.

"Other than that, there is no directional move," added the source.

"Basically everyone is more comfortable with the asset class and is willing to put cash to work. "It's hurts if you're not invested."

Moody's says Brazil "not on review"

Both Brazil and Turkey have been rumored to be in line for a sovereign upgrade in recent sessions.

But Moody's Investors Service told Prospect News that Brazil "is not on review."

Although the buy-side source said that the Brazilian rumor has died down after raging - and boosting prices on Brazilian debt - earlier in the week.

Meanwhile the rumor of Turkey's upgrade started in the local market.

Also, Turkey is considering a euro-denominated bond issue.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.