America Movil, Sun Hung Kai price notes as EM assets rally; volumes low; Goldman plans sukuk

By Christine Van Dusen

Atlanta, Oct. 24 - Emerging markets started the day off weaker and proceeded to tread water but then rallied as Monday progressed - with particularly good performance from Russia and Dubai bonds - though volumes remained below average and investors lacked strong conviction.

The primary market saw two new deals, from Mexico's America Movil SAB de CV and Hong Kong's Sun Hung Kai Properties (Capital Market) Ltd.

"The market's normal desire for certainty is not applying right now as we rally after a classic weekend of euro fudge," a London-based trader said.

"If currency traders can buy the euro at $1.39 with the banking system on life support, then buying credit risk is not that much of a leap of faith. The glass is definitely half-full right now."

The Markit iTraxx SovX index spread started Monday 5 basis points tighter.

"Emerging Europe, Middle East and Asia are happily moving along as the market performs in a quiet session," a trader said. "Credit default swap levels are wider in line with the euro reversing early gains, but Russia paper is still 5 to 10 bps tighter. Russian corporates are an outperformer today."

By Monday afternoon, the tone was solid, a trader said.

"Although plenty of people are scratching their heads," he said. "Conviction and positions are not the strongest at the moment. So if dealers are lifted out of chunks of paper they'll take the path of least resistance."

Ukraine in focus

In other trading, Ukraine's sovereign bonds started off the day weaker on the back of poor economic data.

"Although corporates are opening quite strong, activity has been very low so far," he said.

Better buying was seen for Mriya Agro Holdings, he said.

"The steel sector, in general, is trading well, in line with the Russian steel sector," he said.

By the European afternoon, corporate bonds were outperforming sovereigns.

"But the whole sector is rallying as the day goes on," he said.

Turkey's sovereigns lag

Looking to Turkey, corporate and benchmark bonds were mostly unchanged at the open, with very little activity, a trader said.

"Turkey's sovereign bonds are a laggard, as the recent 2022s are still being absorbed," the London trader said.

The recent issue of $350 million 5 7/8% notes due 2016 from Turkey-based KT Sukuk Varlik Kiralama AS - which priced on Oct. 20 at par to yield mid-swaps plus 447.5 bps - was holding at par, he said.

"There's low follow-through interest," he said.

HSBC, Liquidity Management House and Standard Chartered Bank were the bookrunners for the Regulation S notes, guaranteed by Kuveyt Turk Katilim Bankasi AS, an Istanbul-based Islamic financial institution.

Turkish bank bonds perform

By the afternoon, strong retail investor demand was sighted for most Turkish bank bonds, with better buying for Garanti Bankasi AS' 2021 and selling for Isbank's 2016s.

"There's been a pretty amazing outperformance of the sovereigns by the banks today," a trader said. "Retail investor demand on banks persists ahead of their financial results in November, pushing their prices almost a point higher on the day. This leaves me a bit puzzled, to say the least, as I'm expecting a contraction on banks' profitability and increases on losses."

Dubai in focus

From the Middle East, Dubai Water and Electricity Authority's bonds got a boost from an upgrade from Moody's Investors Service.

"The bonds are 15 to 25 bps tighter, led by the 2015s," a trader said.

Meanwhile the Dubai sovereign opened 7 to 10 bps tighter. And Dubai Holdings' 2014s continued to tighten.

And front-end demand was sighted for Qatar's 2014s and 2015s.

"Qtel International is retaining a solid bid," he said. "Qtel's 2025s are now 42 bps tighter on the month."

Abu Dhabi names solid

Abu Dhabi National Energy Co.'s 2012s saw demand, trading between 103.25 and 103.30.

"I think moving into the 2013s and 2014s makes sense as the 2012s, still solid as a rock, offer a good switch opportunity," a trader said.

Abu Dhabi's International Petroleum Investment Co. saw its 2020s and 2021s catch a bid, with bonds closing 7 to 9 bps tighter, a trader said.

"In fact, looking through all of Abu Dhabi it's all very solid indeed," he said. "Aldar Properties is in pole position already for 'bond of the week,' moving to the 110 handle now. It closes about 40 bps tighter today. Highly impressive, not one to short."

And African names were trading well, capitalizing on the momentum from buying late Friday, the London trader said.

America Movil sells bonds

In its new deal, Mexico-based telecommunications company America Movil priced a two-tranche issue of sterling notes due 2026 and euro notes due 2019 in a Securities and Exchange Commission-registered deal, a market source said.

The deal included £500 million 5% notes due Oct. 27, 2026 that priced at 99.28 to yield 5.007%, or Gilts plus 217 basis points via Deutsche Bank and HSBC.

The second tranche totaled €750 million 4 1/8% notes due Oct. 25, 2019 that priced at 99.049 to yield 4.268%, or mid-swaps plus 180 bps, with bookrunners Credit Suisse and Deutsche Bank were the bookrunners for the euro notes.

The day also saw Hong Kong-based property developer Sun Hung Kai Properties priced $500 million 3½% notes due Nov. 2, 2016 at 99.901 to yield Treasuries plus 245 basis points via bookrunner Standard Chartered Bank in a Regulation S transaction.

Sukuks ahead

In other deal-related news, New York-based Goldman Sachs International is planning a sukuk issue of notes via unit Global Sukuk Co. Ltd., a market source said.

The notes will be part of a $2 billion Islamic bond program listed on the Irish Stock Exchange.

And Dubai-based developer Majid Al-Futtaim Holding is considering a sukuk issue of notes, a market source said.

The notes could come to the market as soon as next month.

"They couldn't get the conventional notes done after a June roadshow," a trader said. "So if all else fails, issue a sukuk."

Market-watchers were also whispering that Emirates airlines may be looking to issue notes.

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