Emerging market investors work to digest week's supply; Ukrainian, Russian issuers active

By Christine Van Dusen

Atlanta, Sept. 17 - Supply - that was the word of the day for emerging market investors who on Friday focused not on trading but on chewing on the week's sizable portion of new deals and digesting the news of continued economic turmoil in Ireland.

Adding to recent issues from CSN Islands XII Corp., Poland, Telemovil El Salvador SA, Banco Santander Chile, Banco Cruzeiro do Sul, Celulosa Arauco y Constitucion SA and Brazil were several issues on Friday from the Ukraine and Russia.

"There are lots of new issues. That's what everyone is focusing on," said Luz Padilla, portfolio manager for the DoubleLine Emerging Markets Fixed Income Bond Fund. "The Irish situation seems to be getting worse, and that does create some volatility.

The sovereign's bond markets were thrown for a loop Friday, and the European Central Bank intervened after news that Ireland would seek a bailout.

"We'll have to see if it at all affects our market. It seems to be getting a little more pronounced," she said. "But at this point the market is shrugging it off. The new issues keep coming."

Ukraine heats up

A London-based trader was nearly crushed under the weight of the recent new issuance.

"There's been loads going on," said the trader, who focuses on the Ukraine and Russia. "It's been manic all day long."

Keeping him busy was the $2 billion two-tranche issue of notes from the Ukraine sovereign, which included $1.5 billion 7¾% notes due 2020 and $500 million 6 7/8% notes due 2015. Both priced at par.

JPMorgan, Morgan Stanley and VTB were the bookrunners for the Rule 144A and Regulation S transaction.

This followed the Thursday night pricing of $200 million 9 3/8% fixed-rate loan participation notes due 2015 from Ukrainian lender Privat Bank, which came to market at par via HSBC and UBS in a Regulation S transaction.

Russia in focus

Also on his radar screen Friday were deals from two Russian lenders. Alfa Bank priced $1 billion 7 7/8% notes due Sept. 25, 2017 at par to yield mid-swaps plus 564.1 bps with Deutsche Bank and UBS. The yield had been whispered at 8% to 8¼%.

"They actually pushed up the timetable because when it went out on a roadshow they received a significant amount of interest," a market source said. "They didn't have to wait until Monday or Tuesday to price. They had a significant amount of orders."

So did Russian lender Sberbank, which priced $1 billion 5.4% notes due March 2017 at par with bookrunners Barclays, BNP Paribas and ING in a Regulation S deal.

"They had a significant amount of interest," the source said. "They were going to get it done no matter what. They can come at will."

Itau, Suzano print notes

These deals came on the heels of two late-Thursday issues out of Latin America. Brazilian lender Itau Unibanco priced $1 billion 5¾% notes due 2021 at 99.886 to yield 5.766%, or Treasuries plus 300 bps. Deutsche Bank, Itau Unibanco and JPMorgan were the bookrunners for the Rule 144A drive-by.

And Brazil-based pulp and paper company Suzano Papel e Celulose SA priced $650 million 5 7/8% notes due 2021 at 98.116 to yield 6 1/8%, or Treasuries plus 336.1 bps, a market source said.

Bradesco BBI, JPMorgan and Itau were the bookrunners for the Rule 144A and Regulation S transaction, which was talked at the 6¼% area.

Funds show inflows

Trading volumes for the day were "not necessarily very robust," Padilla said. "Everyone is so focused on the new issues. That, in and of itself, would create a drag because you don't want to be doing anything ahead of that."

In other news Friday, emerging market bond funds with local currency mandates continued to account for the biggest share of fresh money committed to the fund group for the week ended Sept. 15, according to data tracker EPFR Global.

These funds "outperformed their hard currency counterparts in mid-September as the spread between U.S. Treasuries and JPMorgan's benchmark EMBI Plus index remained around the 275 bps level," EPFR wrote in a report.

Year to date, local currency funds have accounted for "53% of the overall flows into EM bond funds, compared to 24% for hard currency funds and 23% for blend funds."

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