China’s State Grid Europe, Dominican Republic print notes; EM bonds pick up after holiday

By Christine Van Dusen

Atlanta, Jan. 20 – After very limited activity on Monday, due to the holiday in the United States, trading of emerging markets bonds picked up on Tuesday, and China’s State Grid Europe Development plc sold notes.

Bonds from Russia opened the session 5 basis points wider on ever-lower oil prices, downgrades for several banks and a recent meeting of foreign ministers to discuss sanctions against the sovereign.

Experts say the conflict with Ukraine has “deteriorated significantly in the last two weeks,” a London-based analyst said.

Also impacting Russia on Tuesday was the International Monetary Fund’s growth forecast for the country, which is expected to see a 3% contraction in 2015 and a 1% contraction in 2016, he said.

In response, credit default swaps spreads widened on Tuesday morning, he said.

From Turkey, credit default swaps spreads opened flat.

“Although quiet yesterday, the banking sector, in particular, continues to see good trading flows,” he said.

One trader was keeping his eye on the upcoming issue of notes from Turkish lender Turkiye Vakiflar Bankasi TAO (Vakifbank), which set out on Monday for a roadshow to market the deal.

“We see fair value at z-spread plus 440 bps to 450 bps, but including a new issue premium, and given that this is the first new style tier 2 out of Turkey, we expect initial price talk of close to z-spread plus 500 bps,” he said.

BofA Merrill Lynch and Standard Chartered Bank are the joint structuring advisors and joint lead managers. Citigroup, Deutsche Bank, Goldman Sachs and HSBC are the joint lead managers for the Rule 144A and Regulation S deal.

“We like Vakif’s fundamentals, although capital has generally been weaker than peers,” he said. “This new issue should largely deal with that problem, and we think Vakif’s senior [bonds] could rally as a result.”

He believes that if this deal is successful, other Turkish banks will follow with deals of their own.

Tuesday’s session was a mostly quiet one for Central and emerging Europe, with spreads staying largely flat, a trader said.

Middle East in focus

Most perpetual bonds from the Middle East remained under pressure amid limited activity on Tuesday, a trader said.

But Dubai Islamic Bank’s perpetuals found buyers of its older bonds, he said.

Other notes from the region repeated last week’s pattern: demand for high-quality investment grade names while high-yield names struggled, he said.

“Very little supply out of the region,” he said. “So we still assume other issuers will approach soon. Spreads largely unchanged this morning so far.”

High-yield names from the region lagged into the close, another trader said.

“Dar al-Arkan Holdings was popular today, especially the 2016s,” he said. “They have a bond maturing Feb. 18, so expect perhaps a little relief rally, assuming sound repayment of that bond.”

Qatar retires bond

Investors were also paying attention to Qatar on Tuesday, as its 2015 dollar bond retire, with $3.5 billion being paid down, the trader said.

“Spreads at the long end are 5 bps tighter versus 15 bps to 20 bps tighter on the belly,” he said. “There’s still demand for sovereign paper.”

In other trading, Saudi Electricity Co.’s 2043s and 2044s were 20 bps wider on the month while the 2017s and 2022s were 20 bps tighter.

Huarong narrows

Bonds from Asia were firm on Tuesday morning as China released better economic data, a London-based trader said.

Recent issues led the rally, with the five-year notes from China’s Huarong Asset Management Co. Ltd. that priced at Treasuries plus 310 bps tightening 9 bps.

The 10-year notes, which priced at a 360 bps spread, narrowed by 7 bps on Tuesday, he said.

The deal also included three-year notes priced at Treasuries plus 270 bps.

Credit Suisse, Standard Chartered Bank and Wing Lung Bank were the joint global coordinators. ABC International, BOC International, Bocom International, CCB International, China Merchants Securities, Citigroup, Credit Suisse, DBS Bank, Deutsche Bank, HSBC, ICBC, Jefferies, Morgan Stanley, Standard Chartered Bank and Wing Lung Bank were the joint bookrunners and joint lead managers for the Regulation S deal.

Shenhua notes tighten

The recent issue of 10-year notes from China Shenhua Overseas Capital Co. Ltd. – 3 7/8% notes that priced at 99.076 – tightened by a couple of basis points, the trader said.

The deal also included 2½% notes due 2018 that priced at 99.647 and 3 1/8% notes due 2020 that priced at 99.629.

Citigroup, HSBC and JPMorgan were the joint global coordinators, bookrunners and lead managers. Deutsche Bank, Goldman Sachs, CICC HK Securities, ICBC International and Bocom International were joint bookrunners and joint lead managers for the Regulation S issue.

The proceeds will be used for the repayment of loans of overseas subsidiaries, approved overseas projects and other uses.

Asia in focus

Market watchers saw short-covering of oil company bonds from China on Tuesday morning, with Cnooc Ltd.’s 2024s moving up and the sector moving between 2 bps and 5 bps tighter, a trader said.

“Spreads in Korea were a couple basis points wider,” he said. “India spreads are firm, while the short end remained well-bid.”

Among high-yield names in China, property companies closed ½ point to 1 point higher, he said.

And it was a strong session for sovereigns, he said, with the new 2040 notes that the Philippines priced at par trading off the highs of 107 1/8 to close at 107 bid, 107½ offered.

“Indonesia sovereigns also followed, with the long end 1¼ point higher, the belly ¼ to ½ poing higher,” he said. “Indonesia’s 2045 closed at 103½ bid, 104 offered.”

State Grid sells notes

China’s State Grid Europe Development sold €1 billion notes due 2022 and 2027 (expected ratings: A1/A+/A+), a market source said.

The deal included €700 million 1½% notes due 2022 that priced at 99.73.

The €300 million 2.45% notes due 2027 priced at 99.211.

Deutsche Bank, HSBC and Morgan Stanley were the joint global coordinators. Deutsche Bank, HSBC, Morgan Stanley, ANZ, Bank of China, Barclays and RBS were the joint bookrunners and joint lead managers for the deal.

The notes were issued by wholly owned subsidiary State Grid Europe Development (2014) plc.

Dominican Republic sells bonds

The Dominican Republic launched a two-tranche issue of $2.5 billion bonds due in 2025 and 2045, a market source said.

BofA Merrill Lynch and JPMorgan are the bookrunners for the Rule 144A and Regulation S deal.

The transaction includes $1 billion notes due in 2025 that launched at a yield of 5½%, following talk in the 5.65% area.

The $1.5 billion notes due 2045 launched at 6.85%, following talk in the 7% area.

The proceeds will be used for general purposes, including the refinancing, repurchase or retirement of domestic and external indebtedness.

CAF picks bookrunners

In other deal-related news, Venezuela’s Corporacion Andina de Fomento (CAF) is looking to issue dollar-denominated notes, according to company filing.

Barclays Capital, Credit Agricole CIB, Daiwa Capital Markets Europe and Deutsche Bank are the bookrunners for the Securities and Exchange Commission-registered deal.

The proceeds will be used for general corporate purposes, including the funding of the company’s lending operations.

CAF is a lender based in Caracas, Venezuela.

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