Empresas Publicas de Medellin, Aneka Tambang plan notes; Ukraine, Qatar, Turkey stand out

By Christine Van Dusen

Atlanta, Aug. 11 - Emerging markets assets on Thursday once again started the session on firmer footing but soon saw its toehold slip - with rampant selling and wider spreads - due to continued concern about the euro zone economic crisis.

"With equity markets stabilizing, we tried to open firmer today," a London-based trader said at midday in Europe. "But bonds are all 1 point lower and the [Markit iTraxx SovX] at 260 is back at the wides."

Said another trader, "After credit default swaps were lifted initially, the weakness fed through to cash bonds. Benchmarks have seen relentless selling."

The JPMorgan Emerging Markets Bond Index Plus spread widened 11 basis points to Treasuries plus 350 bps with Argentina underperforming at 43 bps wider. Venezuela, however, managed to tighten by 7 bps.

"Concerns over European banks and the financial system are clearly building, with markets likely to remain highly sensitive to any news flow around this issue, near term," according to a report from RBC Capital Markets.

Still, a few names managed to show some resilience, including Ukraine, Qatar, Turkey and South Africa's FirstRand Bank Ltd.

In deal-related news, Colombia-based public utility service company Empresas Publicas de Medellin is planning new notes, and Indonesia-based mining and metals company PT Aneka Tambang is considering a dollar- or rupiah-denominated issue.

Selling seen

Rumors of some short-selling of banks in Europe helped give the market a little lift, but not enough to make a big difference, a trader said.

"There was some good real-money selling; however, we still had the local bid," he said. "I would stress that the buying is in the blue chip names and not the high-beta credits, which got whacked."

On a spread basis there remains value in this market, he said.

"But it's not been a week where value has come into it," he said. "The S&P is perhaps putting in a near-term floor in this 1,125 to 1,150 level. If we hold, I think we can bounce a little into the weekend as the Street is probably a lot cleaner, risk-wise, and we are also perhaps a tad oversold."

Corporates struggle

The selling pressure continued into the close, a trader said.

But, he said, "Many names are still holding in OK and definitely outperforming their peer group and other markets."

Corporate debt was getting hit harder than sovereign, the London trader said.

He pointed to Russia-based Vimpelcom's recent multi-tranche deal, which early on Thursday was trading 200 bps wider at a cash price of 90. And Ukraine-based Ferrexpo Finance plc, which not long ago was trading at 104, was seen at 92.

"So much for a new EM paradigm," he said. "It seems that U.S. Treasuries really are the only safe haven after all."

Later in the session, Vimpelcom managed to bounce back a bit, 2 points off the lows.

Turkey performs

Ukraine started the day by trading down before finishing Thursday barely wider. "Corporates remain another story," he said.

Turkey was an outperformer on Thursday, as was South Africa's FirstRand, which was wider by a relatively small 25 bps.

"That's impressive versus, say, Sberbank, which widened about 100 bps to Libor plus 380 bps," a trader said. "And Kazakhstan basically seems to have stopped trading, with no Street liquidity, but then again Gazprom has also gone into hiding."

From Kazakhstan, BTA Bank's 2018s were seen at 72, another trader said.

Qatar names, Lebanon gain

Qatar continued to trade well, particularly in its 2020 dollar notes, which were seen Thursday at 111.50 bid, 111.75 offered, another trader said.

Qatar-based Qatari Diar's 2020 notes were also lifted.

"There was even some small selling of Qtel International today, but the name in this market is 25 to 35 [bps] wider over the month, which is no mean feat," he said.

In other trading from the Middle East, Emirates' 2016 notes were seen early Thursday at 98 bid, 98.50 offered.

And Lebanon was a stand-out.

"You've got to hand it to Lebanon, and its 2022s," a trader said early in the day in Europe. "They're at 99.80 bid, 100.20 offered."

Later, the sovereign was continuing to hold well, with the 2022 notes seen at par.

"We did see a little international selling on Lebanon, but not much in the grand scheme of things," another trader said.

Dubai lags

More trading was reported for Mubadala's 2021 notes, which were seen at 106.75 bid, 107.25 offered.

"Generally speaking, sukuks are doing OK, with some paper around" a trader said.

Dubai was a laggard, he said.

"Bonds got beaten up, forcing the five-year credit default swaps to close at 415 [bps] bid, 425 [bps] offered, versus 380 [bps] bid, 390 [bps] offered at the open," he said. "Dubai's 2020s closed out at 105.50 bid, 106.50 offered to close 90 bps wider over the week. Similar moves were seen for Dubai Water and Electricity Authority paper.

"There was further selling pressure on some higher-beta names, as expected," he said.

Abu Dhabi National Energy Co. remained "bulletproof," he said, particularly at the long end. "There are no sellers of those bonds whatsoever," he said.

Aneka Tambang may issue

Colombia's Empresas Publicas de Medellin plans to issue new notes in the second half of 2012, a market source said.

No other details were immediately available on Thursday.

And Indonesia's Aneka Tambang is considering a dollar- or rupiah-denominated issue of notes worth up to $350 million, a market source said.

Bank Mandiri, Bank Rakyat, Deutsche Bank, Goldman Sachs, Sumitomo Mitsui and Standard Chartered have been linked with the transaction.

Issuance could take place before the end of the year.

EM may lack 'firepower'

Taking a look at the big picture for emerging markets, medium-term growth prospects remain solid, but it's unclear whether EM nations will continue to be able to offset economic weakness in the developed world, according to another RBC Capital Markets report.

During the 2008 and 2009 economic crisis, EM nations had low debt and deficit levels, as well as significant trade and current account surpluses.

"In their massive response to stimulate their economies - and the world's - EMs in the aftermath have seen their government deficit and debt levels rise, a large surge in household debt loads and a notable decline in trade and current account surpluses," RBC said.

So now, those EM nations lack the "available firepower" to make as positive an impact on the struggling global economy.

"In short there is less flexibility to enact new stimulus measures - particularly in fiscal policy or banking sector credit growth - by EMs," the report said. "Thus the ability for EMs to provide a meaningful lift to global growth prospects at the margin is more limited this time around. Moving forward, domestic demand dynamics in EMs will be key in assessing the durability of EM growth in the face of deteriorating G3 economic conditions."

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