Peru, Africa active on quiet day for EM; African Bank, KOKS Group note offerings ahead

By Christine Van Dusen

Atlanta, June 6 - Peru and Africa were in focus on a Monday that saw thin volumes and just a few emerging markets issuers - namely South Africa's African Bank and Russia's OAO Probusinessbank and KOKS Group - advancing deals amid continued uncertainty about Greece and concerns about the global economy.

"External debt markets have been quiet," according to a report from RBC Capital Markets.

The JPMorgan Emerging Markets Bond Index Plus spread opened little changed at Treasuries plus 287 basis points.

Contributing to Monday's slower pace were national holidays in northern Asia and some seasonal malaise.

"We're definitely moving into summertime mode," a Connecticut-based trader said. "The secondary flows are very, very light and a lot of real-money accounts aren't really trading. The money they have set aside they're holding for new deals. People are waiting. They're choosing not to move it around too much."

That said, there was some action in bonds from Peru, which was on the market's mind after exit polls showed Ollanta Humana as the winner of the presidential election. And notes from Ghana, Gabon and Nigeria were popular.

"Today, pretty much 99% of the trading revolved around Peru," the Connecticut trader said. "And anything from Africa is doing very, very well."

Data, Greece hurt sentiment

"After last week's swath of economic data it was little surprise to see market participants in an introspective mood today," said Gavan Nolan, analyst with Markit, in a report. "The damage done by the weak U.S. non-farm payrolls number was curtailed by a better-than-expected ISM services report later on Friday afternoon. But there was little appetite to take on risk today in a world where the prospects for growth are so uncertain."

Bullish investors see this as only a bump in the road, he said. "Others are not so sure and see anemic demand as the problem."

Both camps agree that Greece remains a particular concern. The bailout report from European and International Monetary Fund officials is expected to be released on Wednesday, though that could change, Nolan said.

"There seems to be an agreement in principle on a further bailout package," Nolan said. "But we don't know how private sector bondholders would be incentivized to roll over their debt. Voluntary rescheduling is still being mentioned by German officials, and there is talk of preferred credit status for the new bonds over the old issues."

Peru takes a hit

Taking a closer look at Peru, the sovereign's exit poll results didn't get a good reception on Monday.

"The market reacted badly to the news," Nolan said.

Spreads for the sovereign were between 26 and 40 bps wider, close to the wides seen last month, he said.

"We've had a lot of real money in hedge fund activity moving in and out of positions and trying to predict where Peru will be going next," the Connecticut trader said.

Meanwhile, sovereigns such as Turkey and Russia saw good demand. And Belarus was 1 point firmer on Monday. The sovereign's 2018 notes were seen trading at 91.50 bid, 92.25 offered after pricing at par on Jan. 19.

"There's lots of two-way interest in Gazprombank after news on Friday that they are looking at the market," he said.

Said a London-based trader: "The long end of Gazprombank is very firm."

Recent issues perform

Looking at recent new issues, the $800 million issue of subordinated notes due 2021 from Russia-based lender OJSC Russian Agricultural Bank that priced May 26 at par was catching a bid on Monday, he said.

The 4 3/8% notes due 2016 from South Africa-based lender FirstRand Bank Ltd. - which priced Thursday at 99.548, were holding at 100 5/8.

And the recent $1 billion 5 1/8% notes due 2016 from Dubai-based airline Emirates that priced Wednesday at 99.904 to yield mid-swaps plus 330 bps was seen at 100.10.

"We have a few new deals, but not many have been particularly noteworthy," the Connecticut trader said.

Investors like Africa

From Africa, Ivory Coast continued to be active, and the 2021 notes that priced May 6 at 97.574 from Senegal continued to go up, the Connecticut trader said.

"That's been going up unabated for close to three weeks, with real money continuing to add," he said. "Africa continues to do very well. They tend to be relatively stable and low volume, which people like even more. Anything that comes out of that area is going to get attention if it's priced properly."

One issuer that was not doing all that well on Monday was Hong Kong-based wood products company Sino-Forest, which last week saw its bonds drop 30 to 50 points on recent allegations of fraud.

"That's getting creamed," he said. "But over the last 24 hours we've definitely seen some buying of the bonds, particularly the 2011 tranche. Distressed players are stepping in. We traded some 2014s today in the 67 to 70 context and then had better buyers of the 2011s, with a range of 80 to 85."

African Bank on roadshow

Ahead on the new deal calendar is an issue of notes from South Africa-based African Bank, which is on a roadshow until Tuesday with bookrunners Credit Suisse, Goldman Sachs, Standard Chartered and Rand Merchant Bank, a market source said.

"This week will likely see African Bank," the London-based trader said. "There's still no sign of rumored bank supply."

Also on the near-term horizon is the planned RUB 5 billion issue of notes due 2014 from Russia-based coke and pig iron producer and miner KOKS Group.

The company mandated Bank of America Merrill Lynch, Credit Suisse, Troika Dialog and VTB Capital for a roadshow for the Rule 144A and Regulation S deal, which will start June 8.

The notes have been whispered at 8½%.

Also from Russia, commercial lender Probusinessbank has mandated BCP Securities and UBS for a dollar-denominated issue of notes, a market source said.

A roadshow for the Regulation S deal will take place from June 8 to June 14.

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