Weaker day for EM amid concern about lack of plan for U.S. deficit; ADIB whispers notes

By Christine Van Dusen

Atlanta, Nov. 21 - Emerging markets assets opened weaker on Monday after the United States' Congressional "supercommittee" failed to draft a plan for reducing the nation's deficit by $1.2 trillion during the next 10 years, raising anxiety about the nation's economic health and what trickle-down effects might be felt.

"We are understandably opening weaker today as European periphery spreads widen again, helped this time by the U.S. supercommittee finding the same problem as European Union leaders," a London-based trader said. "I buy the EM outperformance story, but it doesn't mean we don't widen when credit markets everywhere are weak."

The Markit iTraxx SovX index spread widened 10 basis points.

"And cash levels are typically 15 to 20 bps wider," he said.

Said another trader, it was a "sleepy open."

In trading, Kazakhstan's BTA Bank wasn't helped by the sovereign's upgrade to BBB from Fitch Ratings, the London trader said.

"It's still at 34 or 35 as it increasingly seems that BTA Bank will be cast adrift," he said.

Ukraine's bonds were trading about 30 bps wider.

"I guess because while it's solid now, Ukraine will be a major contagion contender when the euro comes under real stress," he said.

Gazprom sees some selling

Looking to Russia, the new $1.6 billion two-tranche notes due 2016 and 2021 from gas company OJSC Gazprom saw some selling early on Monday, the London trader said.

"The retail investor bid has quieted down," he said. "Russian corporates are all just 20 bps wider on low volume."

The deal included $1 billion 4.95% notes due 2016 that priced at par to yield mid-swaps plus 375 bps and $600 million 5.999% notes due 2021 that priced at par to yield mid-swaps plus 390 bps.

"The new Gazprom bonds offer the most liquidity still," another trader said.

Meanwhile, quasi-sovereign bonds continued their slow bleed wider, he said.

Middle East bonds 'stable'

From the Middle East, most names were stable on Monday, aside from Dubai. The sovereign's bonds were 20 bps wider, the London trader said.

Against this backdrop, several Middle Eastern issuers advanced their planned deals.

Abu Dhabi Islamic Bank PJSC (ADIB) whispered its planned benchmark-sized issue of dollar-denominated five-year notes at the mid-swaps plus mid-200 bps area, a market source said.

ADIB, Citigroup, HSBC, National Bank of Abu Dhabi, Nomura and Standard Chartered Bank are the bookrunners for the Regulation S-registered sukuk issue.

The notes could price as soon as Tuesday of this week.

UASC to go on roadshow

Also on Monday, Kuwait-based United Arab Shipping Co. was planning a roadshow for a dollar-denominated issue of notes, a market source said.

Deutsche Bank, Mitsubishi UFJ and UBS are the bookrunners for the deal.

The roadshow will begin Nov. 28 and travel through Hong Kong, Abu Dhabi and Dubai before wrapping up in Switzerland on Nov. 30.

"The Middle East is still a beacon of stability," a trader said, "which should help this new issue."

TAQA plans notes

And Abu Dhabi National Energy Co. (TAQA) is planning an issue of dollar-denominated notes as part of a tender offer, according to a company filing.

Citigroup and RBS are the dealer-managers for the tender offer for $1.5 billion of the company's 5.62% notes due 2012, to be tendered for cash.

The tender offer expires Dec. 5.

"The TAQA curve is the least liquid in Abu Dhabi," a trader said. "The tender for the 2012s at 103.75 is supporting the curve."

In other deal-related news, Mexico-based electric company Comision Federal de Electricidad has mandated BBVA, BNP Paribas and Citigroup for a non-deal roadshow, a market source said.

The trip will start on Nov. 30 and travel to Los Angeles, San Francisco and Chicago before wrapping up on Dec. 1 in Boston and New York.

Flows flatten

In other news, flows into major emerging markets were unsupportive during the previous week, with a consistent set of small outflows recorded, according to a report from RBC Capital Markets.

"In the absence of a rebound in flows, we expect market conditions to remain quite thin with a bias toward trend weakness across EM asset classes as risk premia settles into a higher range," the report said.

"EM fund inflow data last week reported largely flat overall flows due to inflows into hard-currency debt funds offset by local-currency fixed income fund outflows," RBC said. "Crossover investors were net sellers as well. As global growth prospects diminish, we look for inflow dynamics to remain weak in the absence of a market rally."

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