Emerging markets quiet on Europe concerns; roadshows for Mobile TeleSystems, Sabic eyed

By Christine Van Dusen

Atlanta, May 17 - The bounce-back seen last week in emerging markets fell flat on Monday as anxiety about Europe's economic crisis flared up again, silencing the primary and turning investors off from risk.

"It's very dull," a London-based market source said. "The market is quiet."

A New York-based market source agreed. "There's less than nothing," he said. "It's very, very quiet."

Yields dropped Monday to near-lows on Europe's continuing economic turmoil and news that U.S. manufacturing declined. By mid-afternoon, yields on 10-year Treasuries had fallen 4 basis points to 3.42%. The yield compared to the 3.4% seen on May 6, which was the lowest yield reported since December.

This wasn't tempered by news that the National Association of Home Builders index showed an increase in builder confidence in May.

"There's been a bit of a flight to quality," the New York source said. "There are better buyers of Brazil and Mexico dollar paper the last few days. Other credits are lagging."

High-beta credits were trading "more with equities," he said. "Brazil and Mexico are very well bid. Brazil's long end is down about ¾ of a point from the high levels of last week. Venezuela is down 5 points. Argentina is down 3 [points]."

Most of the new issues seen in recent weeks were trading "south under the issue price or just around it," the Europe-based trader said.

Even the recent $500 million issue of 6¼% notes from Kazakhstan-based Kazatomprom, which priced at 98.947 to yield 6½%, or Treasuries plus 424 bps, failed to ignite in the secondary on Monday - this despite it being "the best placement in the history of eurobond issues on emerging markets," according to a company press release.

"The order book reached $4.3 billion with demand exceeding the supply eight times," the release said.

Primary hushed again

On the new issue front, there were "no deals" by midday in New York, according to the Europe-based trader.

And it was the same story as the day neared its end. "It's all quiet on the new issue front," another New York-based market source said. "Hopefully things will pick up later in the week."

That could be the case. Several issuers on Monday took steps toward bringing deals to market.

Russia's Mobile TeleSystems is marketing a planned eurobond via Bank of America Merrill Lynch, Credit Suisse and RBS.

Saudi Arabia's Sabic Capital also is embarking on a roadshow for a planned offering of senior unsecured bonds.

And Abu Dhabi's Tourism Development & Investment Co. is expected to issue 10-year bonds via Standard Chartered, Citigroup and BNP Paribas sometime in the next three months.

Tourism Development & Investment is a government-owned hotel developer.

Sources on Monday also were whispering about some sovereigns.

There's Serbia, which could put together a deal for euro-denominated notes. There's Albania, which could price its long-awaited dollar-denominated issue of bonds in the next week via JPMorgan and Deutsche Bank. There's the Ukraine, with a potential eurobond issue of notes. There's Argentina, which could price its planned $1 billion 8¾% global bonds due 2017 - part of a debt-restructuring plan - this week.

And then there's Macedonia, which has wrapped up a roadshow for a planned issue of euro-denominated bonds via Credit Suisse and HSBC. One source said he expected the deal could price this week; another said he'd heard it had been shelved.

Local currency gets inflows

In the meantime, flows into emerging markets bond funds have "dwindled," according to Cameron Brandt, global senior analyst for data tracker EPFR Global. "It's not surprising given the current backdrop."

But he was encouraged by one data point from the week ended May 12: "The fact the local currency EM Bond Funds still managed to post solid - $100 million-plus - inflows for the week," he said. "I think that indicates an enormous desire to put money back to work at better than average yields."

And, he said, "The fact that the public finances of a good number of emerging markets are better medium-term bets than those of most developed markets is attracting some serious money."

MTS markets notes

Russia's Mobile TeleSystems will hold a roadshow starting Tuesday for a planned eurobond issue via Bank of America Merrill Lynch, Credit Suisse and RBS, according to a market source.

The marketing trip will take place in the United States and Europe.

Mobile TeleSystems is a mobile phone company based in Moscow.

Sabic Capital plans roadshow

Saudi Arabia's Sabic Capital will hold a roadshow for a planned offering of senior unsecured bonds (expected ratings A1/A+/A+) from Thursday to May 25, according to a market source.

JPMorgan, HSBC and RBS are the bookrunners for the deal.

Proceeds will be used to refinance debt.

Sabic is a petrochemical, fertilizer and metals conglomerate that is 70%-owned by the Kingdom of Saudi Arabia and based in Riyadh.

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