Investors embrace risk, focus on new issues; Bangkok Bank, Kexim, Qtel price; more on tap

By Christine Van Dusen

Atlanta, Oct. 13 - Risk sentiment got a boost and emerging market issuance resumed on Wednesday - with deals from Bangkok Bank PCL, Export-Import Bank of Korea and Qatar's Qtel International Finance Ltd. - as the market was heartened by economic data from China and the sense that the United States will continue with quantitative easing.

But the improved sentiment and issuance didn't translate into heavy trading volumes, given that investors were focused on new issues rather than secondary market opportunities.

The "significant collapse in EM debt spreads in the last year or so" has led to "a little more trepidation on the valuation side on the part of investors," said Nick Chamie, global head of emerging market research for RBC Capital Markets. "Instead more of the focus of investors is on local market opportunities."

Spreads tighten

As of Wednesday morning, external debt markets continued to "do well," with the JPMorgan Emerging Market Bond Index Plus trading at "its lowest reading since April," according to a report from RBC.

By early afternoon the EMBI Plus spread was at Treasuries plus 246 basis points, 8 bps tighter on the day.

"All the asset prices seem to be up - stocks, commodities and currencies," a source said. "That's giving EM debt a boost here, reflecting the positive risk appetite environment."

Leading the way, another source said, were Argentina and Venezuela.

Five-year credit default swaps for Argentina ended the day tighter by 27 bps, while Venezuela's tightened by 43 bps. Also tighter on the day: South Africa by 4 bps, Mexico by 2 bps and Brazil by 4 bps.

Only Poland saw its swap rate rise, widening by 7 bps on the news of an expected inflation increase, RBC said.

China, QE improve picture

The positive risk sentiment stems in large part from the prospect of ongoing quantitative easing from the Federal Reserve, Chamie said.

"As long as they keep pumping out more U.S. dollars, then everything priced in U.S. dollars should continue to appreciate," he said. "It's also helping U.S. stocks as the prospect of easier monetary conditions help the outlook for equities. So net-net, certainly the possibility of the Fed pumping out more U.S. dollars is helping other assets enjoy some price inflation."

Also helping to improve the picture for EM was the news from China.

"It's been quite helpful news that the trade numbers in China are good and loan growth is healthy," Chamie said. "Without the prospect of any kind of significant policy tightening coming from the largest commodity consumer, that's given people the confidence to put money to work."

Kexim, Bangkok Bank price

Though the primary market wasn't going gangbusters on Wednesday, the market did see some issuers sell notes.

Thailand-based commercial lender Bangkok Bank priced a $1.2 billion two-tranche issue of notes due 2015 and 2020, a market source said.

The deal included $400 million 3¼% notes due Oct. 18, 2015, which priced at 99.835 to yield 3.286%, or Treasuries plus 212.5 bps. Price talk was set at the Treasuries plus 220 bps area.

The second tranche totaled $800 million 4.8% notes due Oct. 18, 2020 and priced at 99.576 to yield 4.854%, or Treasuries plus 237.5 bps. Price talk was set at the Treasuries plus 245 bps area.

Morgan Stanley was the bookrunner for the Rule 144A transaction, which includes a make-whole call at 50 bps.

Also pricing on Wednesday was Export-Import Bank of Korea's $1 billion 4% notes due Jan. 29, 2021 at 99.38 to yield 4.075%, or Treasuries plus 160 bps, a market source said.

Barclays Capital, Bank of America Merrill Lynch, HSBC, JPMorgan and Morgan Stanley were the bookrunners for the Securities and Exchange Commission-registered deal, which was talked at the Treasuries plus 165 bps area.

Proceeds will be used for general operations, including extending foreign currency loans and repayment of maturing debt and other obligations, according to a 424B5 filing with the SEC.

Middle East in focus

Wednesday also saw Qatar-based telecommunications subsidiary Qtel International Finance price a two-tranche $1.25 billion issue of notes, an informed market source said.

The deal included a $500 million tap of the company's existing 3 3/8% bonds due 2016, which priced Wednesday at 100.15 to yield Treasuries plus 219 bps.

The transaction also included $750 million 5% notes due 2025, which priced at 98.96 to yield 5.1%, or Treasuries plus 262.5 bps.

Barclays, Deutsche Bank, Mitsubishi, Qatar National Bank, RBS and Standard Chartered Bank were the bookrunners for the Rule 144A and Regulation S deal.

Also from the Middle East was an offering from state-owned utility company Dubai Electricity & Water Authority, which is expected to price a dollar-denominated benchmark-sized six- and 10-year notes this week, a market source said.

Citigroup, Credit Agricole, National Bank of Abu Dhabi, Standard Chartered and RBS are the bookrunners for the deal.

This followed Tuesday's news that state-owned oil company Saudi Aramco and Abu Dhabi Islamic Bank are each planning notes.

"The pickup in issuance coming out of the Middle East, Qatar and Abu Dhabi is quite notable," Chamie said. "It shows that risk appetite is returning even to a place where there were some real concerns not that long ago."

That, in addition to the recent uptick in issuance plans out of Russia and some from Latin America, "is quite a healthy sign that demand for EM exposure remains very strong," he said.

Other offerings on tap

In other news on Wednesday, Philippines-based lender Banco de Oro Unibank Inc. announced plans to issue dollar-denominated fixed-rate senior notes due in 5½ years.

Citigroup and UBS are the bookrunners for the Regulation S transaction, which is expected to price this month. BDO Capital & Investment Corp. is the co-manager.

Also plotting an EM-related deal is Morgan Stanley, which plans to bring to market a real-denominated issue of senior unsecured notes due 2020 in a Rule 144A and Regulation S transaction, according to a market source.

Itau and Morgan Stanley are the bookrunners for the deal, which is expected to price this week.

The notes will be payable in dollars.

Sources also say that Brazil-based energy company Petroleo Brasileiro SA could soon do a deal.

"Given their equity raise, they're going to be looking to use that as an opportunity to tap the debt markets," a source said. "At some point we should expect a benchmark deal."

Market sources were also whispering about Philippines-based lender Asian Development Bank and a possible issue of yuan-denominated notes with Deutsche Bank and Bank of China.

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