PDVSA plans notes as Egypt remains in focus; VTB Bank, Sigma Capital, LDK Solar on deck

By Christine Van Dusen

Atlanta, Feb. 10 - Venezuela's Petroleos de Venezuela SA's plan to issue $3 billion of notes stood out on Thursday as renewed concerns about Egypt inspired risk aversion among emerging markets investors and skittishness among potential issuers.

The military's plan to assume control amid conflicting reports about whether Egyptian president Hosni Mubarak would step down pushed spreads wider, with the JPMorgan Emerging Markets Bond Index Plus starting the day up 5 basis points.

"Eyes are on Egypt again," a London-based market source said. "The sector was weak; then the rumor that Mubarak was to resign pushed the market back up."

In response, Egypt's 2020 bonds moved up to 96 from 93, he said. But as the day went on, and the fate of Mubarak's presidency was unclear, the bonds were off close to 15 points. By the end of the New York session, it looked as though he was preparing to step aside.

All of this put pressure on other names in the region, including Jordan and Bahrain.

Also contributing to the caution in the market was continuing turmoil in Ivory Coast, which recently defaulted on its debt and where president Laurent Gbagbo still refuses to step down. This in turn hurt other African sovereigns, including Nigeria and Ghana, a Connecticut-based market source said.

"We're watching the Middle East and Africa," he said.

PDVSA plans deal

The $3 billion of notes due 2022 planned by Venezuela-based oil company PDVSA were talked Thursday at a yield of 12¾%, a market source said.

The notes, which are expected to price Friday, can be purchased at a rate of 4.3 bolivars to the dollar and then traded abroad in dollars.

Proceeds will be used to finance investment projects and for general corporate purposes.

"It's a little bit different because it has a little longer date and should have a larger coupon," the Connecticut-based source said. "There's very active trading in the gray market. At the moment we're seeing accounts buying the new deal in gray with a yield over 17% and selling the Venezuela 2022 sovereign paper, which is about 15½%."

The size of the deal could cause some market indigestion, he said, but the notes are not expected to bring in new buyers.

"For the most part we'll see guys move existing positions to buy this bond that (president Hugo Chavez) is being forced to bring cheap to the market," he said.

VTB Bank active

Also experiencing active trading in the gray on Thursday was a planned $750 million issue of seven-year notes from Russia's VTB Bank, which was being whispered at a spread of mid-swaps plus 312.5 bps to 325 bps.

"It looks unattractive to me. It seems fair, but not exciting," the London-based market source said. "It's in the gray at 99.90 bid, 100.10, so it's a bit damp."

In other trading, Dubai's 6.396% 2014 notes, which were seen at 100.375 in the street on Wednesday, were at 100.55 bid, 100.95 offered on Thursday.

The Emirate of Ras Al Khaimah's 2016 bonds were seen trading at 104.20 bid, 104.70 on Thursday.

"That bond holds very well, and held in very well during the Egypt situation," a London-based trader said. "We're seeing good demand still on a majority of sukuks. [There are] good technicals on sukuk paper, still."

Bahrain's 2020 bonds - which traded Wednesday at 96.62 bid, 97.12 offered - were at 96.75 bid, 97.25 offered on Thursday. "That's the power of the sukuk," the trader said, noting "some decent two-way interest in Bahrain 2020s lately."

Ivory Coast in focus

The political problems in the Ivory Coast took their toll on Thursday, but the 2020 bonds were actually up following the sovereign's recent default.

"They're up 2 or 3 points after the default because a number of real-money guys who have existing positions added when it went cheaper than 8½%, assuming that once the election gets sorted out they will make the payment and continue once again servicing the debt," the Connecticut-based source said.

So while there was some buying last week and the bonds slipped below 40 again in the last day or two amid few glimmers of hope for peaceful resolution in the Ivory Coast, many investors are still sticking with the sovereign.

"There are a lot of real-money accounts in this credit for the long haul, or at least the next month or two, hoping there will be some resolution," he said.

Money off the table

In the meantime, the Connecticut source is seeing some sellers of Ghana and said the recent issue from Nigeria - $500 million 5¾% notes due 2021 that priced Jan. 20 at 98.223 to yield 7% - was underperforming.

"Real money is trying to take some money off the table," he said. "We're seeing Nigeria, Belize, Dominican Republic and El Salvador with better sellers, but it's hard to find buyers. The shift in focus between the inflationary scares and some of the geopolitical conflicts is causing some people to take their chips off the table."

El Salvador's 2041 bonds were down about 3 points, he said.

"There's really no underlying support," he said. "It's a similar thing for the Belarus 2018 deal. That's really failed to muster any support at all."

He was also watching Ukraine-based mining and steel business Metinvest, which on Feb. 7 priced $750 million 8¾% notes due 2018 at 98.722 to yield 9%.

"That's up about a point on some demand for Eastern European-type credits, but on a smaller scale," he said.

Sigma Capital, LDK plan notes

In deal news, Indonesia-based Sigma Capital Pte. Ltd. - a subsidiary of developer PT Lippo Karawaci Tbk. - has mandated Citigroup, Deutsche Bank and Bank of America Merrill Lynch for a tap of up to $130 million of its 9% senior notes due 2015, according to a company announcement.

The transaction is expected to launch soon, subject to market conditions.

And China-based solar wafer producer LDK Solar Co. Ltd. plans to issue renminbi-denominated notes in a Regulation S transaction, according to a company announcement.

The notes will be payable in dollars, and proceeds will be used to repay existing debt with remaining maturities of up to one year.

This followed the Wednesday pricing of Russia-based Vnesheconombank's CHF 100 million tap of its existing 3¾% notes due Feb. 17, 2016 at 99.7 via Barclays and BNP Paribas.

"The number of deals has slowed significantly and the enthusiasm for deals has tapered off," the Connecticut source said. "I've really gotten the sense that the money on the sidelines that was designed for new issues has really dried up because we're pretty much saturated with new issues."

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