Polkomtel prices amid sluggish primary; Argentina underperforms; Kuveyt Turk eyes sukuk

By Christine Van Dusen

Atlanta, Aug. 30 - Though data released Monday showed that economic sentiment in Europe improved more than expected in August, the tone for the day was still "very negative" in emerging markets, a Toronto-based market source said.

The tone couldn't be lifted even by the news that the International Monetary Fund had created a flexible credit line for countries that don't require urgent bailouts.

It was just a "sluggish and slow day with super light volumes across the board on the heels of a bank holiday in the U.K., as well as a typical summer Monday," a New York-based trader said.

Yields on 10-year Treasuries declined about 5 basis points, and 30-year yields fell about 4 bps by mid-morning. Meanwhile, five-year credit default swaps were about 3 bps to 6 bps wider across the board, reflecting a "generalized decline in risk sentiment," the Toronto-based source said.

"EM buyers stayed cautious as equities were knocked around again," the trader said. "Sovereigns and corporates were lower by a half-point, and wider."

Argentina underperforms

Argentina stood out, with CDS wider by about 10 bps. "It's been one of the major underperformers of the last 10 days or so," the Toronto source said.

The sovereign had previously been a "strong performer, since the completion of the debt restructuring," he said. "But it's been hurt by some of the increased political uncertainty with what's going on with the government and the media group."

Argentina has claimed that media company Grupo Clarin's reporting has been biased and could encourage a coup, so the sovereign is shutting down the company's internet provider, Fibertel, within the next few months.

"That's bringing about questions about freedom of expression in Argentina and has a negative connotation," said Enrique Alvarez, debt strategist with think tank IDEAglobal. "That seems to be the largest driver in Argentina. They're off 6% from last week as far as performance is concerned."

Argentina's discount bond was 75½ bid, 77½ offered on Monday, he said. "That's a point higher on the offer side from Friday."

LatAm soft

The rest of the Latin American region was "somewhat soft," he said. "There's a continued pattern of profit-taking. You want to look at Peru, Panama and Colombia. There seems to be a pulling back on most of the solid credits that have had solid numbers across the entire year. It's a natural edging back."

The day's big underperformer, the Toronto-based source said, was Mexico. "Their currency is down 1.1%."

The weakness was related to continued violence in Mexico, including the murder of a northern Mexico mayor over the weekend, and the news that the government is attempting to crack down on corruption by firing about 10% of the federal police force.

Polkomtel prices notes

The primary market saw very little activity on Monday, with just Poland-based mobile phone operator Polkomtel SA pricing PLN 1 billion notes due September 2015 to yield Wibor plus 170 bps, a market source said.

BNP Paribas and Unicredit Bank were the bookrunners for the deal. Other details were not available Monday.

Market sources were also whispering about Turkey-based participation bank Kuveyt Turk Katilim Bankasi AS, which could be considering a second sukuk issue.

The company's recent issue of $100 million Islamic bonds, which on Aug. 19 priced at par to yield 5¼%, was about 45% oversubscribed, a source said.

Sukuk issuance is expected to total as much as $30 billion this year, up from $24.65 billion in 2009, according to a recent report from Kuwait's KFH Research Ltd.

But in general, any kind of new issuance wasn't on many minds on Monday.

"I think the circumstances in the market and the surrounding tone overall for issuance have changed significantly," Alvarez said.

Supply concerns in Venezuela

In previous weeks, "we had very high rates of absorption and demand for Latin American paper. We had very, very unexpected price highs," Alvarez said. "Ever since then we've seen a change in the overall economic tone on the U.S. side. Things have been eroding. So the timing has not been as favorable."

Given that, "there's nothing on the primary side," he said. "I doubt we'll see anything in these conditions. These conditions are like quicksand. If you go out there and it's not decent, you'll pull the entire category down."

The recent $3 billion issue of 12¾% bonds due 2022 from Venezuela, which priced at par, was in high demand during previous weeks but now is "challenged," he said.

"Venezuela is surrounded by excess supply concerns," he said.

This could impact the planned issue of $2 billion bonds from Caracas, Venezuela-based state-owned oil company Petroleos de Venezuela SA.

As long as there's oversupply, "prices there will remain challenged," he said.

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