EM gets a boost, but investors, issuers on sidelines; Poland, Latvia, Czech Rail ahead

By Christine Van Dusen

Atlanta, June 7 - Though the environment for risk assets improved and spreads tightened on Tuesday - while investors took a little breather from constant concern about Greece and the global economy - new issuance from emerging markets remained at a standstill and volumes stayed thin.

"The European debt problem has seemed to calm down a little bit, and we seem to be getting a little bit of a lift out of that following the drubbing we've been taking the past few days. But there's a real lack of volume, and that's not going to change, given the uncertainty that people still have," said Nick Chamie, head of emerging markets research for RBC Capital Markets.

"The flow of new issues was, up until about a week or so ago, quite strong, but that seems to have dried up. I expect that unless we get calmer waters and a market rally across risk assets, it could remain that way for a little while."

Despite this backdrop, some issuers did take steps toward the market on Tuesday, including the Republic of Poland, Prague-based Czech Railways and the Republic of Latvia.

The JPMorgan Emerging Markets Bond Index Plus spread tightened 3 basis points.

"It was a moderate day, however, there was some selling pressure on a few assets late in the day as the U.S. Treasury rate moves out to 3.04%," a trader said. "Credits remain supported, though."

Demand was seen for paper from Saudi Arabia, he said, and the Qatar sovereign held firm with good liquidity on the 2019s and 2020s.

Poland sets guidance

Poland set price talk for a planned tap of its 5 1/8% senior notes due April 21, 2021 at Treasuries plus 170 bps to 175 bps, a market source said.

The Securities and Exchange Commission-registered notes will settle on June 14.

The original issue - via Citigroup, Goldman Sachs and RBS - totaled $1 billion and priced on April 14 at 98.831 to yield 5.277%.

Also on Tuesday, Prague-based Czech Railways planned a roadshow to begin on June 10 for its issue of about €300 million of notes, a market source said.

Barclays Capital, Erste Group and Societe Generale are the bookrunners for the Regulation S deal, which will be marketed in Europe.

And Latvia set the tenor for its planned benchmark-sized issue of dollar-denominated notes at 10 years, a market source said.

Citigroup and Credit Suisse are the bookrunners for the Rule 144A and Regulation S offering, which is expected to price this week.

Indigestion in market

One thing that seems to be impacting the primary market for EM right now is indigestion, Chamie said.

"There's indigestion not necessarily in EM but in the U.S. corporate world, where issuance hasn't tapered off and there are some signs that there might be some waning appetite for higher-yielding securities at the margin," he said. "If that's the case, then that might be a precursor for some softer demand in EM at some point. Given the volatility that we've seen, new issuance will probably wait for some moderation in the volatility."

Though investors were less worried about Greece on Tuesday, the sovereign remained in the news. An International Monetary Fund official was quoted as saying that Greece is at a critical point in addressing its debt problems and must continue implementing austerity measures in order to retain support from the IMF and European Union. European officials are expected to release a report on Wednesday related to Greece's debt restructuring.

"People are watching that with interest, to see how it is going to unfold," a market source said.

BTA lags, Nigeria performs

In trading, most names were tighter on Tuesday, though Kazakhstan-based lender BTA Bank continued to suffer.

Africa remained a standout, with selling seen for Nigeria-based GTB Finance BV's 2016 notes. The 7½% notes, which priced at 98.981 on May 12, were trading Tuesday at 102.72 bid, 103.32 offered.

Better buying was seen for Nigeria's 2021 notes, which were seen at 104.62 bid, 105.37 offered.

"The bond is back at its all-time high," a trader said. "We closed them at 104.75 bid, 105.25 offered and saw two-way flow."

Egypt a standout

Over the month, Egypt has been Africa's best performer, with its 2020 notes tighter by 60 bps and its 2040 notes tighter by 75 bps, a London-based trader said. Also well supported on Tuesday was Morocco.

"Senegal may have found a level here," he said, noting that the sovereign's 2021 bonds were trading Tuesday at 105.12 bid, 105.87 offered after pricing on May 6 at 97.574.

"Ghana is trading near highs," the London-based market source said.

And the recent issue of 4 3/8% notes due 2016 from South Africa-based lender FirstRand Bank Ltd. - which sold at 99.548 on June 2 - was seen in the street at 101, he said.

"That's only seeing buyers with us," he said.

Saudi, Qatar, Lebanon eyed

Looking to the Middle East, demand was seen for paper from Saudi Arabia, a trader said, and the Qatar sovereign held firm with good liquidity on the 2019s and 2020s.

Meanwhile, Lebanon got some attention. "I think the credit looks OK, spread-wise, versus its peer group," a trader said.

Said another trader: "I was lifted out of what was left of my Lebanese paper recently with the news on the ground had locals looking to pick up loose bonds."

The sovereign's 6% 2019 notes were trading at par bid, 100.5 offered after pricing at par on May 18. Lebanon's 6.1% 2022 notes - a tap of which priced at 97.016 on May 18 - were seen at 97.25 bid, 98 offered.

Good liquidity was seen for Qatar's 2019s and 2020s, and the recent issue of 3.575% notes due 2016 from HSBC Bank Middle East was trading Tuesday at 101.15 bid, 101.55 offered after pricing May 26 at par.

Emirates tightens

Also from the region, the recent issue of notes from Dubai-based Emirates was 3 bps tighter from launch, the trader said.

"Abu Dhabi National Energy Co. was a little heavy, spread-wise, but we're not seeing much in the way of client selling," he said.

And Abu Dhabi's Tourism and Development Investment Co. lagged.

"I also managed to trade DP World's 2017 sukuk within the 104.50 bid, 104.75 offered context," he said. "It seems to have reached a level here where it is struggling to rally from."

From Kuwait, Kipco remained well supported and tighter by 20 bps to 35 bps on the month. And Sharjah-based SIB Sukuk Co. II Ltd. was seen trading above 102 on Tuesday.

"They're having a good little run," the trader said.

In other trading, a lot of action centered on Ukraine's corporate issuers, particularly in the steel sector, ahead of the expected deal from Russian pig and coke iron producer KOKS Group, a trader said.

"Ukraine corporates are very firm today with broad demand," he said. "The sovereign is consolidating so far."

Meanwhile, banks from Russia saw a mix of activity, with buyers for OJSC Russian Agricultural Bank and sellers for Gazprombank's 2014s and 2016s and Sberbank's 2013s.

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