Investors no longer run from risk; CEZ, Sabesp, Telemar Norte Leste, Ras Al-Khaimah ahead

By Christine Van Dusen

Atlanta, Dec. 1 - The fresh start of a new month, along with better economic data and some guarded optimism about the European debt crisis, made risky assets look a little bit better to investors on Wednesday and inspired some emerging market issuers to tiptoe toward the market.

"Yesterday was all about Europe and Korea, and then today is the first of the month and there's a reversal," a London-based trader said. "Stocks are up, Treasuries are down, the euro is stronger, emerging markets bonds are higher and spreads are much tighter. So it's the opposite of yesterday."

And while the primary market didn't ignite, several issuers did move closer to doing new deals. On that list are Czech Republic-based power distribution company CEZ AS, Brazil-based telecommunications company Telemar Norte Leste SA, Brazil-based water and sewage services provider Sabesp and the United Arab Emirates' Ras Al-Khaimah.

"But I wouldn't expect to see any new deals yet, not with the volatility with the European situation," a market source said.

Data pushes yields up

Ten-year Treasury yields were up about 12 basis points during the day on the news that U.S. factory activity expanded in November and private-sector employment saw its biggest boost in three years with the addition of 93,000 jobs during the month.

Investors were also encouraged by comments from European Central Bank president Jean-Claude Trichet suggesting there could be more government bond purchases.

And then there was the news from China. The sovereign released data showing that manufacturing grew faster than expected in November. But concerns remain about controlling inflation and getting price pressures under control, according to a report from RBC Capital Markets.

"Activity is solid and in many cases rebounding from levels seen a few months ago," the report said. "External demand remains resilient for the region with strong numbers for export growth and new export orders."

And there is "compelling evidence that price pressures are continuing to build," the report said.

Trading picks up

All in all, though, the market was in risk-on mode, a market source said.

"It couldn't be more opposite from Tuesday," he said. "Then, save for the peripheral countries like Poland and Hungary, you couldn't even give the bonds away. Today everyone is struggling to find enough. It's the typical feast or famine."

The 2030 bonds from Russia, for example - which on Tuesday were trading at 115 bid, 115¼ offer - were seen at 116 bid, 116¼ by midday Wednesday.

"They were about 15 to 20 basis points tighter," the trader said. "Everything else has followed that pattern."

Spreads tighten

The JPMorgan Emerging Markets Bond Index Plus tightened by 7 bps on Wednesday morning. By day's end, the index was 25 bps narrower. Argentina's spread was tighter by 52 bps and Ukraine's by 62 bps.

"Reassured by the macro indicators, external debt spreads have narrowed," according to an RBC Capital Markets report.

Even William H. Gross, founder and manager of bond fund Pacific Investment Management Co. (Pimco), gave emerging markets a compliment - albeit a somewhat backhanded one - in his latest investment outlook report.

"Unless developed economies learn to compete the old-fashioned way - by making more goods and making them better - the smart money will continue to move offshore to Asia, Brazil and other developing economies, both in asset and in currency space," he wrote.

CEZ, others prepare offerings

CEZ set price talk for a tap of its €500 million 4½% notes due June 29, 2020 at mid-swaps plus 145 bps to 160 bps, a market source said.

Citigroup, Erste, ING and Societe Generale are the bookrunners for the Regulation S-only deal.

The add-on will be issued as part of an exchange for its 4 5/8% notes due 2011, its 5 1/8% notes due 2012 and its 4 1/8% notes due 2013.

The original issue priced June 23 at 99.11 to yield 4.613%, or mid-swaps plus 167 bps.

Meanwhile, Telemar Norte Leste has mandated HSBC, Santander, BB Securities and Espirito Santo Investment Bank for a roadshow the week of Dec. 6, a market source said.

No other details were available Wednesday.

Companhia de Saneamento Basico do Estado de Sao Paulo (Sabesp) mandated Itau and Santander for a roadshow the week of Dec. 6, a market source said.

The marketing trip will start in London and Boston before heading to Los Angeles and wrapping up on Dec. 8 in the New York area.

And Ras Al-Khaimah is planning a $150 million sukuk offering of notes due Jan. 28, 2016, a market source said.

Citigroup and RBS are the bookrunners for the Regulation S-only deal, which is expected to price Dec. 8.

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