Concerns about U.S. economy slow issuance; China Oriental Group, KWG Property price notes

By Christine Van Dusen

Atlanta, Aug. 11 - Uncertainty about the U.S. economy led to thinner volumes and a trickle of new issuance from emerging markets on Wednesday as risk aversion reared its head again and yields on 10-year Treasuries fell to lows not seen in more than a year.

The market was still "digesting yesterday's news" from the Federal Open Market Committee, which said it would keep interest rates near zero and that economic growth in the U.S. seems to have slowed, a Connecticut-based market source said. "It's obviously a weaker day."

At late afternoon, the JPMorgan Emerging Markets Bond Index Global was about 4 basis points wider.

Said a London-based trader: "Generally it's very weak, with the stock markets. It's like the old days, where U.S. Treasury markets are super strong and equities are super weak and EM follows equities. We had a period of two weeks where we didn't care if equities went down 2%. But today we care."

Economy weighs on EM

Volumes were "very low," the Connecticut source said.

The London trader agreed. "It's quiet because it's August, so there's not the usual turnover," he said. "The market's gapping lower today. I think on the back of the Fed yesterday, everyone was waiting to see what the texture of that was. It seems to be a case of weakness in the economy having been underplayed and now there's the risk of a double-dip, for lack of a less overused term."

There seems to be a "bit of a fear factor," he said. "Markets are in some cases at all-time highs. There are super tight levels. But the specter of the economy's growing problem is weighing on equities and EM, but not everywhere."

China Oriental, KWG price

Indeed, Wednesday was "mixed," the London trader said. "We've seen things lower in Eastern Europe, but Brazil is rock solid. So it's not across the board."

And some new issues did manage to come to market during the day.

Hong Kong-based integrated iron and steel manufacturer China Oriental Group Co. Ltd. priced $550 million 8% notes due 2015 at par via Deutsche Bank and ING. The Rule 144A and Regulation S transaction includes a make-whole call at 100 bps and a put at 101% if either permitted holder's stake drops below 20%.

Proceeds will be used for the acquisition of steel mills, for capital expenditures and for investments in iron ore assets.

And Guangzhou, China-based property developer KWG Property Holding Ltd. priced $250 million 12½% senior notes due 2017 at par to yield Treasuries plus 1,041 bps, a market source said.

The Rule 144A and Regulation S deal with bookrunners Morgan Stanley and Standard Chartered is non-callable for four years. The offering was whispered with a yield in the 12½% area.

Proceeds will be used to finance existing and new property projects and for general corporate purposes.

Other deals in pipeline

Market sources also were whispering about a potential issue of yuan-denominated bonds this month from China-based investment company Central Huijin Investment Ltd. and a possible $122 million bond offering from Banco Santander Chile, a Santiago-based subsidiary of financial services company Grupo Santander, with up to a 30-year maturity.

The market also awaits a $100 million three-year sukuk issue of fixed-rate notes from Turkish bank Kuveyt Turk, a $200 million issue of senior unsecured notes due 2013 from Shanghai-based apparel company E-Land Fashion China Holdings Ltd. and a $175 million issue of bonds due 2022 from Coastal Road Corp., issued through Manila Cavite Toll Road Finance.

Though many market-watchers predict new issuance will remain slow or perhaps stop until September, some are hesitant to make such an emphatic pronouncement.

"It's always quiet until it's not," the Connecticut-based market source said. "We know the obvious: toward the end of summer people take more vacation time, there are fewer people in and less things happen, and there often are less deals. But I would never say it's going to be a quiet summer. There's no way to predict world events. I would just say it's quiet right now."

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