New issuance slows on weaker economic data; Bank of East Asia prices; trading mostly light

By Christine Van Dusen

Atlanta, July 16 - After the flood of new issuance at mid-week, emerging markets were fairly quiet on Friday as investors and issuers digested the most recent round of negative economic news from the United States and failed to fend off summertime sluggishness.

"It's calm, and we're trying to figure out whether this is just a Friday afternoon during the summer or if this is going to be a pattern we see developing," said Luz Padilla, portfolio manager for the DoubleLine emerging markets fixed income fund.

"It's been reasonably quiet," a London-based trader said. "It was busy yesterday with the new issue out of Akbank in Turkey, but today's relatively calm. There's not a huge amount of action."

Bank of East Asia prices

The only deal of much note in the primary market came from Hong Kong-based retail and commercial lender Bank of East Asia, which priced a $150 million add-on to its $450 million 6 1/8% notes due 2020 at 100.103 to yield 6.111%, or Treasuries plus 313 basis points, an informed market source said.

The original issue priced at 99 to yield Treasuries plus 320 bps.

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

The Bank of East Asia issuance followed Thursday's pricing of Argentina-based Irsa Inversiones y Representaciones SA's $150 million 11½% notes due 2020 at 97.838 to yield 11 7/8%, according to an informed market source.

Another issuer, Waha Aerospace - part of Abu Dhabi-based Waha Capital - plans to issue $1.5 billion floating-rate notes due 2020, a market source said.

The debt is guaranteed by the Emirate of Abu Dhabi. No other details were available Friday.

And Medellin, Colombia-based lender Bancolombia is setting out on a roadshow for its planned issue of subordinated notes due 2020, which could total as much as $636 million, according to a market source.

Bank of America Merrill Lynch and JPMorgan are the bookrunners for the Securities and Exchange Commission-registered deal.

Primary slows down

All in all it was a slow day in the primary market, a market source said.

A source pointed in particular to the recent $1 billion 6½% 10-year notes from Brazil's Companhia Siderurgica Nacional, which priced at 99.096 to yield 6 5/8%, and the $300 million 4 3/8% senior unsecured notes due 2015 from Mexico's Banco Mercantil del Norte SA (Banorte), which priced at 99.725 to yield 4.437%.

"They're not runaway successes. But they're getting absorbed OK. They probably weren't forced to pay enough and I think that at the end of the day that's probably why," she said. "They came in at the tighter end of the range, so you weren't necessarily being compensated to participate in the new issue.

"So when you just pile on more debt and the new issue comes out on top of where the old issue is trading, nobody is motivated to do anything."

On the other hand, the $2 billion 5½% bonds due 2021 from Mexico's Petroleos Mexicanos SAB de CV (Pemex), which priced at 99.011 to yield 5.65%, "has done pretty well and held its gains," she said. "That's because it priced between 30 and 40 [bps] cheap of the existing curve."

Secondary market quiet

Trading, in general, was fairly light and not very eventful on Friday, a market source said. Most names ended the day unchanged.

Yields on 10-year Treasuries declined during the day in light of reports that economic concerns pushed consumer sentiment in the United States in June to its lowest point in almost a year.

But for emerging markets the biggest story, the London trader said, was that Ukraine canceled its planned offering of eurobond notes.

According to a statement on the Ukraine Ministry of Finance website, the notes received a "high level of interest" during a roadshow with JPMorgan, VTB and Morgan Stanley. But the sovereign decided not to move forward with a transaction "given other immediate sources of financing and its liquidity position."

Some market-watchers speculated that the deal was pulled because investors were requiring too high of a yield, and also in light of Ukraine's attempts to get a $14.9 billion loan from the International Monetary Fund.

"It could've been a bad story if they'd pulled the offering because the IMF wasn't happy, but that didn't seem to be the way," the London trader said. "They seem to have other alternatives for funding and the IMF seemed happy. So it seemed to be a positive withdrawal. That's how the market took it. The technicals of the existing bonds are positive."

Padilla sees the Ukraine story as both "good and bad," she said. "It's good because they're not being forced to pay up so they're not in a situation where they have to issue no matter what the price. So it's good they're showing restraint and they're not going to affect the current curve."

But the cancellation also represents "a missed opportunity," she said. "A lot of people had been waiting for it to come and made room for it. Unfortunately it is what it is."

New deals ahead

The July 19 week should see a steady flow of new issuance, a market source said. On tap is a possible issue from Turkish lender Yapi Kredi, benchmark-sized notes from South African media company Naspers Ltd., eurobond notes from Belarus and the Bancolombia deal, a market source said.

Colombian credits have "gotten an incredible amount of support from domestic markets," Padilla said. "So that's one of the countries, at the corporate level, where we've seen the pricing for those securities being very stable throughout even the worst of May."

As far as Naspers goes, "there's not a lot out there from South Africa," a market source said, "so that deal has scarcity value. It could do well. It sounds like it could be potentially interesting."

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