Turkey prices taps; investors await Saudi Arabia deal; Middle Eastern credits see some action

By Christine Van Dusen

Atlanta, Oct. 14 – Turkey priced new notes on a Friday that saw investors awaiting the new issue of notes from Saudi Arabia at the end of an “interesting and tricky” week.

“Another interesting and tricky week draws to a close,” a London-based trader said on Friday. “Next week should be more of the same.”

Saudi Arabia received attention ahead of its upcoming dollar-denominated issue of notes due in five, 10 and 30 years.

“This will push [Gulf region] issuance for the year into record territory,” a trader said.

Citigroup, HSBC, JPMorgan, Bank of China, BNP Paribas, Deutsche Bank, Goldman Sachs, MUFG Securities, Morgan Stanley and NCB Capital are the bookrunners for the Rule 144A and Regulation S deal.

“The roadshow has now left London and kicks off the U.S. leg in Los Angeles today,” he said. “We are having plenty of client discussions after the well-attended lunch and group meetings for this much-awaited deal. Lots of varying opinions on pricing at this stage.”

The proceeds from the deal will be used for general domestic budgetary purposes.

“I think this supply has weighed down a little on the Qatar sovereign curve, which closes the week out 4 basis points to 5 bps wider,” he said. “Most pundits and commentators alike, when chatting about expected pricing [on Saudi Arabia] obviously reference Qatar and Saudi Electricity Co.”

Trading of Middle Eastern bonds on Friday was thin, he said, with some paper coming out from the higher-yielding names, he said.

“Meanwhile a credit like Dubai Electricity and Water Authority trades like a rock with what still feels like a decent order going through on the 2020 dollar notes,” he said. “DEWA 2020 is 18 bps tighter on the month.”

Middle East in focus

Dubai’s DP World was active, the trader said, especially in the 2020s and 2023s.

“They broadly close the week unchanged, but the 2020s are a big outperformer on the month by circa 25 bps,” he said. “Oman continues to trade fairly well.”

Perpetual bonds from the Middle East saw steady demand during the week, he said, as did the taps of Abu Dhabi National Energy Corp.’s (TAQA) 2021s and 2026s.

Turkey prices tap

In its new deal, Turkey priced its $1.5 billion tap of its 6 5/8% notes due Feb. 17, 2045 at 117.781 to yield 5.4%, according to a report filed by the sovereign and a market source.

BNP Paribas, Goldman Sachs and JPMorgan were the bookrunners for the Securities and Exchange Commission-registered issue.

The original $1.5 billion issue came to the market in February of 2014 at 99.026 to yield 6.7%, or Treasuries plus 297.2 bps.

BofA Merrill Lynch, BNP Paribas and Goldman Sachs International were the bookrunners.

Prior to the pricing of the new notes, the original issue was trading on Friday at 101.15 bid, 101.65 offered while the sovereign’s 4¼% 2026 notes were seen at 97.38, 97.88, a trader said.

“I think it’s fair to say Turkey remains cheap, even with it outperformance over the last week,” he said. “I think this may be a good opportunity for any underweight out there to cover, but underweight have had multiple opportunities to cover, so I’m not sure how supportive that could be.”

Looking at Turkey’s 2043s, they were trading Friday cheap to the curve, another trader said.

“It’s got the highest convexity, lowest cash price and now trading relative cheap to the curve,” he said. “I know we don’t like duration at the moment, but if we are really that bearish we should see outflows as investors allocate away from [emerging markets], which will lead to substantial curve-flattening, especially versus benchmark 10-year bonds.”

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