Greece news lifts emerging markets but U.S. data disappoints; KOKS, Russian Railways plan deals

By Christine Van Dusen

Atlanta, June 3 - Word that European officials have agreed to pay the next tranche of Greece's €110 billion bailout helped provide support to emerging markets assets on Friday, though lingering fears about the global economy hindered new issuance and kept volumes lighter.

The agreement between European Union and International Monetary Fund officials - which followed a report from Moody's Investors Service that raised the likelihood of a default to 50% - leaves open the possibility of further aid for Greece.

The news helped mitigate the effects of slower-than-expected job growth from the United States.

"Yet again, EM laughs it off," a London-based trader said. "Neither data nor other markets seem to matter in the face of inflows."

Still, it was a fairly quiet Friday, he said. And only a few issuers - including Russia's KOKS Group and OAO Russian Railways Co. - made moves toward the market.

"Investor caution has kept price action relatively limited," according to a report from RBC Capital Markets.

KOKS whispers notes

Russia-based coke and pig iron producer and miner KOKS Group whispered its planned three-year issue of RUB 5 billion notes at 8½% a market source said.

No other details were immediately available on Friday.

Also from Moscow, Russian Railways plans to tap its 7.487% sterling notes due March 25, 2031, a market source said.

"That's had no impact on spreads," a London-based market source said.

The original issue of £350 million notes priced on March 18 at par to yield Gilts plus 325 basis points after being talked in the low-300 bps area.

Barclays Capital, Goldman Sachs and VTB Capital were the bookrunners for the Regulation S notes, which include a change-of-control put at par if government ownership falls below 66%.

Market-watchers were also whispering about a possible $1 billion sukuk issue of notes from Malaysia via Maybank, CIMB, Citigroup and HSBC in July.

South Africa still performing

In trading, South Africa continued to be solid as a rock, a trader said.

"Somebody still has a lot of love for South Africa right now," he said.

South Africa-based lender FirstRand Bank Ltd. saw its 4 3/8% notes due 2016 trading at 100.55 bid, 100.80 offered after pricing on Thursday at 99.548 to yield 4.477%.

"The new FirstRand deal is still busy finding its way to the right people, keeping it well bid," another trader said.

And Ghana was 30 bps tighter, while Jordan was 40 bps tighter and the 7½% 2016 notes from Nigeria's GTB Capital BV - which priced on May 12 at 98.981 - were seen at 103 bid, 103.50 offered.

"The majority of these credits go out with a solid bid," he said.

Egypt stands out

Egypt was another standout, moving 40 bps tighter, with one trader calling it the bond of the week.

"I guess with the ongoing soggy data and news flow out of the U.S. and Europe we're better off parking some cash in Africa," he said.

Egyptian spreads have benefitted from international support packages and retraced from their post-revolution highs, according to a report from Barclays Capital.

"With immediate liquidity needs taken care by the international aid packages, the positive spread performance seems understandable," the report said. "However, we highlight that challenges remain regarding longer-term solvency. International loans must be paid back eventually, and given the transition-related downturn in growth, Egypt's debt is now on an upward path and at relatively high levels."

Emirates trades up

Also on Friday, the recent issue of $1 billion 5 1/8% notes due 2016 from Dubai-based airline Emirates - which priced Wednesday at 99.904 to yield mid-swaps plus 330 bps - was trading at 100.05 bid, 100.15 offered.

"The high print this week was 100.40," a trader said. "We saw some good two-way flow. We traded good volume within that context all day."

In other trading, Ukraine's long end "was flying," he said. "It was the star performer today, tightening 20 bps on the back of a resumption of talks on the IMF package."

Said another market source: "They're playing catch-up from yesterday's performance."

Sellers for BTA Bank

Kazakhstan's BTA Bank saw some selling, with its 2018s near recent lows at 88 bid, 88.75 offered.

And Russia stood out, a London-based trader said.

"With oil off 1%, that hasn't stopped Russia from firming," he said. "Turkey is rallying.," he added.

And Belarus was very firm, tighter by 30 bps, even amid reports that inflation is now at 20%.

Limited supply from Lat Am

Taking a closer look at Latin America, sovereign debt supply has been limited so far this year, with new deals from only five issuers so far: Panama, Mexico, Jamaica and El Salvador, according to Barclays Capital.

"Several factors may be behind the slower-than-expected issuance," Barclays said in a report. "We suspect that in the case of Brazil and Colombia, currency considerations have delayed their decision to issue. For example, while Colombia's spreads have benefited from Moody's upgrade, we think there are risks that the government may postpone the $2 billion issuance we were expecting, owing to recent dollar buybacks and the central bank's currency appreciation fears."

But any extra supply will likely be absorbed next year, Barclays said.

Argentina could issue soon

Argentina, meanwhile, is relying on domestic sources of financing, but "the authorities are planning to replace the use of central bank reserves to pay debt with market issuance," the report said.

"This would imply, according to authorities, about $7 billion that the government would have to look for in the market just to substitute for central bank financing," Barclays said.

The report also suggests that provincial issuance is likely, with deals expected from the City of Buenos Aires, Cordoba and the Province of Buenos Aires in the fourth quarter and the beginning of 2012.

"The supply backdrop remains favorable for Latin America for the rest of the year," the report said.

Sino-Forest bonds hit

Hong Kong- and Toronto-based wood products company Sino-Forest was on radar screens Friday after the company's bonds dropped 30 to 50 points on recent allegations of fraud.

"It's worth sparing a thought for investors in Sino-Forest, the Chinese corporate that has dropped 40 points today now," a London-based trader said. "This makes Belarus look positively stable."

On Thursday, a research report put out by a Hong Kong-based company called Muddy Waters Research declared that the amount of land Sino-Forest reported buying from Lincang City in the Chinese province of Yunnan doesn't match city records - meaning that the company could not have produced as much timber in the area as it claimed.

On Friday, the company responded to the allegations, pointing out that Muddy Waters was founded by a prominent short-seller who would be in a position to make substantial money from a decline in the company's shares.

Still, Sino-Forest said it would assemble an independent committee to look into the matter.

-Stephanie Rotondo contributed to this article.

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