Spreads narrow, sentiment improves for EM ahead of holidays; Norilsk Nickel deal on deck

By Christine Van Dusen

Atlanta, Oct. 11 - Spreads tightened and the tone improved for emerging markets assets on Friday as the U.S. government seemed to make some progress toward avoiding a technical default on Oct. 17.

The Markit iTraxx SovX CEEME ex-EU index spread ended the week at 380 basis points over Treasuries, about 9 bps tighter than Thursday.

"Asia markets have rallied this morning," a London-based analyst said. "In Central and emerging Europe, the Middle East and Asia we will likely see positive market reaction, helping issuances go ahead due to favorable market conditions."

Sovereign bonds from Latin America put in a quieter but solid session on Friday, with bonds from Argentina standing out as performers, a New York-based trader said.

The sovereign bonds moved up a ½ point to 1¼ points on lighter flows for all Latin American names.

"Balanced, compared to the better selling we saw into the rally yesterday," he said. "The markets are expecting a debt ceiling extension and for tapering to be a next-year issue. New issues have slowed, risk appetite is back in play and positive momentum and price action are dragging in buyers."

From the Middle East, the recent issue from Abu Dhabi-based Al Hilal Bank - $500 million of 3.267% notes due 2018 that priced at par - traded at 100.90 bid, 101.20 bid on Friday. On Monday the notes were seen trading between 101.1 and 101.2.

And the recent notes from Saudi Arabia-based Saudi Basic Industries Corp. (Sabic) - $1 billion 2 5/8% five-year notes that priced at 99.449 - traded Friday at 98¾ bid, 99.05 offered. On Monday they were spotted at 99.2 bid, 99.4 offered.

On the new issuance front, on the last day before next week's Columbus Day and Eid holidays, Moscow-based nickel and palladium producer OJSC MMC Norilsk Nickel took a step toward the market.

The company plans to issue bonds but has not disclosed any details.

Chinese insurer sells notes

On Thursday, China Taiping New Horizon Ltd. priced a $400 million issue of 6% notes due 2023 at par to yield 6%, or Treasuries plus 329.7 bps, a market source said.

Credit Suisse, JPMorgan, Agricultural Bank of China, Bank of China, China Construction Bank International, CICC and Taiping Securities were the bookrunners for the Regulation S deal.

The issuer is a wholly owned subsidiary of China Taiping Insurance Holdings Co. Ltd., an insurance conglomerate based in Hong Kong.

Ukraine recovers some losses

Looking to Ukraine, sovereign bonds headed into the end of the week on better footing and recovered some of the recent losses related to headlines about Naftogaz, a Russia-based trader said.

On Wednesday, the oil company paid its overdue $21.7 million coupon. Had Naftogaz not paid by Oct. 10, the company would have gone into a cross default, which would have hurt sovereign bonds as well.

"The belly of the curve outperformed, with Ukraine 2016s and 2017s up by 1 point, and the rest of the curve just ¼ point to ½ point higher," the trader said at the end of the week. "We've seen some two-way flow in quasi-sovereign names with real money trimming positions and hedge funds picking up cheap paper."

Overall liquidity remained "scarce," she said.

Kaspi in focus

One trader was keeping an eye on Kazakhstan-based JSC Kaspi Bank, which on Monday will set out on a roadshow to market dollar-denominated notes.

The country's largest micro-lender, Kaspi uses the "typical high-margin, high-risk business model" often seen at retail banks, she said.

"The group is aggressively run, with loan growth of 34% as of the first half of 2013, and in the face of individual income decline in the country, the retail segment is likely to see continued asset quality deterioration," she said. "We would look for more details on the potential deal and business operations during the roadshow next week."

JPMorgan and VTB Capital are the joint bookrunners for the Rule 144A and Regulation S transaction. Resmi FIH JSC is the local arranger.

Canara oversubscribed

The final book for India-based Canara Bank's recent $500 million 5¼% notes due 2018 was more than $2.2 billion from 185 accounts, a market source said.

The notes priced at 99.77 to yield 5.303%, or Treasuries plus 385 bps, following talk of a spread of Treasuries plus 385 bps to 390 bps.

About 77% of the orders came from Asia and 23% from Europe, with 46% from fund and asset managers, 24% from banks, 15% from private banks, 13% from sovereign wealth funds and others and 2% from insurers.

BofA Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Agricole, HSBC and JPMorgan were the bookrunners for the Regulation S issue of notes.

Final book for Greenland

About $3 billion in orders from 160 accounts came in for the new issue of 4¾% notes due 2018 from China's Greenland Holding Group Co. Ltd., a market source said.

The real estate developer priced $700 million of the notes at 99.665 to yield 4 7/8%, in line with talk.

About 89% of the orders went to Asia and 11% to Europe. Private banks picked up 52%, fund managers 39%, banks 8% and others 1%.

HSBC, JPMorgan, Morgan Stanley, Bank of China International, Deutsche Bank, Citigroup and Goldman Sachs were the bookrunners for the Regulation S deal.

HDB draws orders

The new issue of notes from Hungarian Development Bank - $750 million 6¼% notes due 2020 - drew a final book of more than $3.25 billion, a market source said.

The notes priced at 99.481 to yield mid-swaps plus 424.1 bps, following talk in the 440 bps area.

Citigroup, Deutsche Bank and JPMorgan were the bookrunners for the Rule 144A and Regulation S offering.

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