Chile plans notes as sentiment improves, spreads tighten; buying seen for Vimpelcom, IPIC

By Christine Van Dusen

Atlanta, Sept. 7 - The Republic of Chile planned new notes on a more subdued Wednesday that still managed to see improved investor sentiment, tightened spreads, improved liquidity and some good buying of emerging markets assets.

"There's a 10- to 15-basis point tightening in liquid names as the sentiment turns much more positive," a London-based trader said. "There's much more liquidity on the bid side than in the last week. Much as I hate to say it, activity and interest does remain subdued, though."

Said another trader, "There's nothing like a bit of equity market stability to unleash a wave of EM buying. Much as I'd like to start being more constructive here, I am now cautious ahead of what must be some fairly decent supply, which will likely provide a better entry."

The Markit iTraxx SovX spread was at 260 bps on Wednesday morning, about 20 bps inside of the previous day's wides, while the JPMorgan Emerging Markets Bond Index Plus spread opened 4 bps tighter at Treasuries plus 343 bps.

"It's been a solid day of spread tightening and, for the most part, activity on the right hand side of the screen," a trader said. "It's again all about technicals and local demand, which continues to be positive and supportive. Some bonds are virtually impossible to source, and it's very tricky shorting them."

Most liquid cash bonds were 10 bps to 15 bps firmer on the day, a trader said. Good buying was seen for names like Russia's Vimpelcom, Ukraine and Sberbank.

"Even some life is coming back to less liquid assets, with Turkish banks and Ukraine corporates seeing some action," he said. "But price action in these names is evenly balanced."

BTA hits new lows

Kazakhstan's BTA Bank was another active name on Wednesday, with the 2025 notes hitting new lows.

"But the rest of Kazakhstan is very quiet," he said. "Similar ambiguity in Belarus is keeping their bonds pegged back, with the 2015s yielding 16% now."

Said another trader: "The BTA 2018s are between 58 and 60 and the 2025s are between 28 and 31. There's been two-way Street interest."

Looking to Russia, corporates there saw demand as the session went on.

"Aside from Metalloinvest there is good depth on the bid," the London trader said.

Abu Dhabi opens tighter

In other trading, Abu Dhabi names opened 5 bps to 8 bps tighter while the long end of Lebanon was slow and steady, the London trader said.

"There's been good interest in Abu Dhabi Commercial Bank during the past few days," he said. "Qatar Islamic Bank is ticking higher after some paper came out. [There were] only buyers of Sharjah Islamic Bank."

Demand was also sighted for Qatar's Qtel International, some sukuks and paper from Saudi Arabia.

"Long-dated Qatari assets remain in demand, as does the belly and the long end of Abu Dhabi National Energy Co. (TAQA)," he said. "The Dubai space is doing nicely, with ongoing buyers for Emirates, Emaar Properties and Dubai's 2014s and 2015s."

Bahrain trades up

Bahrain's 2020s were trading as high as 98 in the Street, the trader said.

He also noted better selling for Islamic Development Bank's 2016s at 2018s and better buying for International Petroleum Investment Co.'s 2021s. IPIC's sterling notes saw better sellers.

Kuwait-based Kipco's 2020 notes were trading at 108.37 bid, 109.12 offered while its 2016s were seen at 109.50 bid, 110.25 offered.

"Dare I say the market is ready for a new issue?" he said. "We've seen other parts of the world and high-grade market reopen the new issue window. The talk for so long has been about the pent-up issuance from the Middle East. If the market holds these gains, it's surely only a matter of time."

Turkey sovereigns perform

From Turkey, sovereign cash was outperforming credit default swaps, a London-based trader said.

"Solid performance from the sovereigns today," he said. "Seeing better sellers of the short end of the sovereign curve, whereas the long end was lifted strongly by the U.S. names in the afternoon."

Banks, which were firmer at the open, also were better supported during the session., with better buyers of Akbank and Garanti Bankasi AS' 2021 notes and sellers of Yapi Kredi.

Akbank, for its part, has been seeing a good rally for its 2015s during the last couple of weeks. The notes have been outperforming the company's 2018s and are now trading flat to Isbank's 2016s, he said.

Halkbank could issue soon

All of this came against the backdrop of whispers that Turkey's Halk Bankasi (Halkbank) could be readying an offering of bonds first mentioned in July. The notes of up to $2 billion would carry varying maturities.

"We are a better seller of Akbank 2018s and Yuksel Insaat's 2014s and [a] buyer of Isbank's 2016s," he said. "Although both sovereigns and banks are better supported today, there are relatively few prints in the market. Banks are better bid mainly by the locals."

Overall, in the banking sector, it feels like loose bonds remain, he said.

"I still like Garanti's 2021s because the central bank is being dovish and is more likely to reduce reserves rather than decreasing the rates, which is arguably a benign environment for banks," he said. "There are also quite a few banks in the pipeline. Outperformance in such an environment would come from banks that have large deposit bases, access to markets and don't need to issue further debt. Given Garanti 2021s' recent underperformance we believe it's better positioned."

Africa in focus

Meanwhile, names from Africa were firm. Some selling was seen for gold producer Gold Fields Ltd., which began a roadshow on Tuesday for a possible Rule 144A and Regulation S offering via Bank of America Merrill Lynch, Barclays Capital and JPMorgan.

"Some good demand [was seen] locally for Morocco's 2017 euro notes late in the day," the London trader said. "The five-year Morocco traded at 200 [bps] but meanwhile their 2020 euro notes got left behind. The 2017s have outperformed the 20s by 40 bps over the month."

And Egypt's bonds were well bid while small activity was seen on Cairo-based African Export-Import Bank throughout the day. The company's 2016 notes opened at 99.85 bid, 100.35 offered.

Chile offering on tap

In deal-related news, Chile plans to issue a tap of its 5½% notes due Aug. 5, 2020 along with a new issue of notes due 2021, according to two filings with the Securities and Exchange Commission.

Deutsche Bank and HSBC are the bookrunners for both deals.

The 2020 notes will be peso denominated and consolidated with the existing CLP 272.295 billion 5½% notes.

Proceeds from both issues will be used for general governmental purposes.

And market sources were whispering about a possible issue of CHF 200 million from India's Rural Electrification Corp., which may go on a roadshow late this month or early next month.

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