China's LDK, RKI print notes as Middle East turmoil spurs risk aversion; Bahrain postpones

By Christine Van Dusen

Atlanta, Feb. 18 - China-based companies LDK Solar Co. Ltd. and RKI Finance Ltd. were alone in pricing deals on a weaker Friday as the continuing turmoil in the Middle East - as well as the distraction of the Presidents Day-related long weekend ahead in the United States - kept investors and most other issuers on the sidelines.

This capped off a mixed week that saw the most outflows from emerging markets bond funds since December 2008, according to data tracker EPFR Global.

"Tensions in North Africa and the Middle East, rising inflation in key markets and the spread of capital controls took their toll on investor appetite," EPFR said in a report.

As a result, volumes were thin for most of the week, and especially on Friday.

"The mood among investors toward EM remains much unchanged from previous weeks: cautious and lacking conviction, with the asset class no longer as appealing on a short-term basis," according to an RBC Capital Markets report.

Spreads nudge wider

On Friday the JPMorgan Emerging Markets Bond Index Plus spread barely moved, widening by just 2 basis points to Treasuries plus 260 bps.

"The market's treading water," a London-based market source said. "The market's been strong the last few days, and resilient, but today it's not. Volumes have been low all week and today they're non-existent."

In deal-related news, Bahrain is postponing its planned issue of up to $1 billion of notes in light of the increasingly violent clashes near the capitol, a market source said.

"It looks pretty bad over there, with what's going on," the London-based market source said. "It's definitely a story to watch."

EM under pressure

Overall, the emerging markets asset class is under pressure, RBC said. Valuations for developed markets are improving while EM's growth and fundamentals, though strong, have likely peaked.

"Pockets of EM are now facing a combination of economic overheating and sharp inflation pressures, and many are seen either behind the curve or responding via untested tightening measures," the report said. "This is raising concern over EM policy credibility."

Still, many market watchers remained optimistic about the asset class' prospects going forward.

"Investors, including ourselves, remain almost unanimously bullish on EM long term," RBC said. "We would stress that while investors do not seem as upbeat on EM at the moment, there is no panic to exit either. With many EM markets trading near the bottom of short-term ranges, there is some scope for an intermittent rally near term. But we would stick by a defensive approach over the coming weeks."

LDK, RKI price notes

China-based solar wafer producer LDK Solar's RMB 1.2 billion notes due Feb. 28, 2014 came to market Friday at par to yield 10%, a market source said.

Morgan Stanley and Citigroup were the bookrunners for the Regulation S-only deal.

The notes are payable in dollars, and proceeds will be used to repay existing debt.

In another renminbi-denominated deal, RKI Finance Ltd. - a subsidiary of Hong Kong-based toll road and property company Road King Infrastructure Ltd. - priced RMB 1.3 billion notes due Feb. 25, 2014 at par to yield 6%, according to a company filing.

Deutsche Bank and JPMorgan were the bookrunners for the Regulation S deal. BBVA and Citic Bank were the co-managers.

The notes include a change-of-control put at 101% and with a ratings decline.

Proceeds will be used for refinancing debt, for investing in Road King's toll business and a new expressway project in Shanxi Province and for general corporate purposes.

"Otherwise, it's largely been a non-event kind of day today," a market source said.

LatAm mixed

In trading, Brazil's bonds opened a little bit higher on Friday with prices off by about 0.20 to 0.40 cents, a market source said.

Argentina rallied, with prices rising by about 0.25 to 0.50 point. The sovereign's Boden 2015s were trading at 95.20 while its discount bonds were seen at 88.40.

"Argentina was the outperformer yesterday, and that positive momentum has continued," the source said.

Meanwhile, the bonds from Venezuela and state-owned oil company Petroleos de Venezuela SA (PDVSA) were lower on Friday by about 0.25 to 0.50 point as they gave back some earlier gains. Venezuela's 2027 bonds were seen at 72.15 bid, 72.40 offered.

Some selling for Qatar, Dubai

Also on Friday, some sellers were seen for names from Qatar, where five-year credit default swaps spreads were at 99 bid, 104 offered.

Dubai's 2014 notes were seen Friday at 100 bid, 100.75 offered after trading at 100.25 bid, 101 offered on Thursday. The sovereign's 2015s - which traded Thursday at 99.75 bid, 100.500 offered - were seen Friday at 99.37 bid, 100.12 offered. And the 2020s were at 95.5 bid, 96.25 offered after Thursday's trading at 95.75 bid, 96.5 offered.

"We're seeing a little selling but it's still doing OK versus its peer group," a trader said.

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