Greece, Germany weigh on markets; trading weak; Malaysia, Qatar Islamic Bank plan issues

By Christine Van Dusen

Atlanta, May 19 - Emerging markets kept up their quiet streak on Wednesday as investors tried to make sense of Germany's short-selling ban and worried that austerity measures in Greece and other eurozone countries wouldn't do enough to kick off an economic recovery.

Meanwhile, though, the euro improved as market-watchers wondered whether the European Central Bank might step in and reduce volatility by propping up the currency.

"It's very busy," a London-based market source said at midday in Europe. "Everyone is looking at Germany and what they have done to CDS and short selling."

The sovereign has banned naked short-selling in some stocks and euro-denominated bonds in an attempt to reign in speculators, who Germany says made the European financial crisis worse.

As a result, the market was "whippy and choppy," the London source said. "It's weaker overall."

Investors avoid risk

A New York-based market source agreed: "The markets are obviously very dislocated and choppy. We've seen some pressure in general across assets. I think it's all assets, but the higher beta assets are underperforming."

Other than that, "people are just trying to get a sense of what's going on and what's next," the source said. "The tone is being driven by events out of Europe."

Secondary muted

The secondary on Wednesday, overall, "continued to languish," according to an emerging markets debt portfolio manager.

"I think people are basically on the sidelines and looking to take off risk. There is a lot of interest in emerging markets, generally speaking; we certainly saw that interest being reflected in terms of fund flows and the money in the asset class and may well see it again," the portfolio manager said. "But what's going on in Greece and Europe has put the breaks on that and has made people a little bit more patient in terms of when to get in the market."

Also impacting trading on Wednesday was the U.S. Senate's debate on financial industry reform designed to better regulate banks and find alternatives to big bailouts.

As a result of all this, "it seems like the bid-offer has gone extremely wide for credits across the board," the manager said. "Credits in Russia are seeing very big swings. And then we're seeing big swings in terms of the new issues market.

"Credits that recently came to market tend to be more liquid and easier to short and just play around with, so those tend to have gotten punished more severely."

Primary still hushed

The primary market on Wednesday saw "absolutely nothing" in the way of new issues, the New York-based source said. "There's not much going on. We are not involved in any new issue stuff right now."

But the market for new issues isn't closed, the portfolio manager said.

"While the issuance is now anemic relative to the pace we were seeing in the beginning of the year, there's still some scope for issues to get done," the source said.

The manager pointed to a planned five-year dollar-denominated sukuk offering from Malaysia, which is holding a roadshow via HSBC and CIMB in Asia, the Middle East and Europe before concluding on May 27.

"They have a higher probability of getting something done. It's a single-A credit, and their target audience is more Asian-focused. To me an issuer like that can basically come in well and be able to get something done," the manager said.

A deal also is expected from Doha-based lender Qatar Islamic Bank, which is planning a sukuk offering of up to $750 million, according to a market source. HSBC and Credit Suisse are the bookrunners for the deal.

The portfolio manager also noted the recently announced 10-year eurobond issue from Mobile Telesystems (MTS) in Moscow. The mobile phone company started its roadshow on Tuesday and has been whispered at 8%.

"They're still out in the market and want to get something done," the source said.

MTS could follow Kazatomprom's footsteps. The Kazakhstan-based nuclear holding company issued $500 million 6¼% five-year notes on May 13 at 98.947 to yield 6½%, or Treasuries plus 424 basis points.

"They got something done. It was probably the only day they could have done it. The market was so volatile before and after," the manager said. "It all depends on the day."

Issues in the pipeline

The manager also mentioned Colombia as a possible new issuer. The sovereign is looking to place something in the dollar market. "With an issuer like Colombia, if it is priced appropriately, they can get something done."

The New York-based market source was mostly focusing on another Latin American name: Argentina, and its ongoing debt exchange.

"That's probably the only live project," the source said.

He's also watching out for Jakarta, Indonesia-based telecom company Indosat, which started a roadshow on May 12 for a planned issue of dollar-denominated fixed-rate senior notes due 2020 via Citi, DBS Bank Ltd., Deutsche Bank, HSBC and RBS. That deal could price this week.

Also on his radar screen is the recently announced deal from Argentina's IRSA Inversiones y Representaciones SA.

The Buenos Aires-based real estate, shopping center and hotel company is planning a $250 million issue of 10-year notes with bookrunners Citigroup, Banco Itau and Santander. A roadshow started Monday.

"I think that's an interesting deal," the New York source said. "I'm shocked they're in the market. It's an Argentine corporate, and you don't see Argentine borrowers issuing too often. I'd like to see where that goes. I'm interested to keep an eye on that."

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