EM investors skittish as Greece, U.S. economy spur risk aversion; Rainbow Days sells bonds

By Christine Van Dusen

Atlanta, June 23 - China's Rainbow Days Ltd. sold notes on a Thursday that saw risk appetite deteriorate on the back of lower growth forecasts from the Federal Reserve, uncertainty from Fed chairman Ben Bernanke, higher-than-expected jobless claims in the United States and concern about Greece's ability to implement new austerity measures.

"Weaker risk appetite has extended to the Asia trading session following the Fed's FOMC statement and Bernanke's press conference overnight, though price action has generally been modest," according to a report from RBC Capital Markets.

Said a London-based trader: "Emerging markets went out weak yesterday and are opening nervously this morning without the Street liquidity we saw yesterday."

The JPMorgan Emerging Markets Bond Index Plus spread widened to Treasuries plus 291 basis points early in the session, within the recent trading range.

"We've had softer days over the past month, but today was definitely much more aggressive and forceful a sell-off," the London-based market source said. "The markets always come back though, and at some point next week we'll have a squeeze."

In the middle of Thursday's uncertainty, Mexico's Cemex SAB de CV set price talk for its planned notes - amid rumors the company would pull its deal - and Abu Dhabi's Dolphin Energy Ltd. LLC looked to push off issuance until the June 27 week.

"There remain tremendous imbalances in the world. The Greece train wreck is ongoing, issuers have been flooding the market with paper - and still plan to - and valuations weren't appealing in the face of these issues," a London-based market source said. "On top of that, data for the most part has been patchy at best, especially from the United States."

Trading heavy

In trading on Thursday, the market opened up fairly firm with plenty of liquidity, a London-based trader said.

"Until about 10 a.m., that is, when things turned for the worse," a London-based trader said. "The Street traded with a very heavy bias for the rest of the day, and spreads closed out generally 10 to 15 bps wider."

Investors weren't in panic mode, he said. "But it was close to it, and remained pretty heavy for the afternoon session."

Kazakhstan-based BTA Bank weakened Thursday after two-way interest in the company's 2018 dollar notes the day before.

From the Middle East, Dubai names opened 1 bp to 2 bps wider while better buying was seen for sukuks. Better selling was reported for Dubai's 2014s and HSBC Bank Middle East's 2016 dollar notes. They priced at par on May 26 and were seen Thursday at 101.47 bid, 101.72 offered.

"We're still a buyer of Abu Dhabi National Energy Co.'s 2019s," a trader said.

South Africa supported

But some Middle Eastern issuers suffered on Thursday. Abu Dhabi's Aldar Properties was downgraded two notches by Moody's Investors Service amid questions about government support. The company's 2014 dollar notes were seen trading between 110 and 110.75, about 30 bps wider.

In South Africa, bonds were still supported at the sovereign level.

"Elsewhere, it's soft," a trader said. "Egypt, Gabon and Ghana are wider by 10 bps. Senegal is a little stealth, with 30 bps widening on the month but finding support on the high-103 handle."

Even Tunisia traded down on Thursday, he said.

And Turkey was weaker, with the long end of the sovereign curve about 2 bps to 3 bps wider. Better buying was seen for Garanti Bankasi AS' 2021s and selling was seen for the lender's 2017s.

VimpelCom deal 'amazing'

Taking a look at the new issue of $2.2 billion of notes due 2014, 2017 and 2022 from Netherlands-based and Russia-focused VimpelCom Holdings BV, traders were impressed.

The issue included $200 million floating-rate notes due June 29, 2014 that priced at par to yield Libor plus 400 bps and $500 million 6¼% notes due March 1, 2017 that priced at par. The third tranche totaled $1.5 billion 7½% notes due March 1, 2022, which priced at par.

"Hats off to VimpelCom, who have just completed an amazing transaction," a trader said. "Personally I'd be nervous to be asked to bid on $10 million of corporate debt in the secondary right now, but VimpelCom has proved how deep the market is for blue chip new issues. Obviously a transaction of this size has included some flippers, so bonds are immediately trading at reoffer this morning."

As the session went on, the deal was trading 7 bps to 10 bps wider.

"VimpelCom is under pressure, which makes sense, given the size of the deal," he said.

The notes experienced heavy selling, even as locals made an effort to support the deal, another trader said.

"But spillover to the rest of the space has been more marked, with Russian quasi-sovereigns in particular seeing good selling and sending names like Gazprombank and VTB Bank 10 to 15 bps wider," he said.

The same trend was noted in Ukraine, but on lower volume, he said.

Rainbow Days prices notes

In its new deal, China's Rainbow Days sold a two-tranche issue of RMB 3 billion notes due 2014 and 2016 in a Regulation S transaction, a market source said.

The deal included RMB 1.4 billion 2% notes due June 30, 2014 that priced at par and RMB 1.6 billion 3% notes due June 30, 2016 that priced at par.

Bank of China, Deutsche Bank and Standard Chartered Bank were the bookrunners for the notes, which are guaranteed by Shenzhen, China-based commercial bank China Merchants Bank Ltd.

Meanwhile, Mexico-based building materials supplier and cement producer Cemex set price guidance for its planned $650 million issue of notes due 2019 at the 9½% area while market-watchers speculated the cement producer could pull its deal.

Bank of America Merrill Lynch and HSBC are the bookrunners for the Rule 144A and Regulation S notes, which are non-callable for four years.

The deal includes a change-of-control put at 101%, and proceeds will be used for general corporate purposes, including repayment of debt.

Dolphin Energy on tap

In other deal-related news on Thursday, the issue of up to $1.93 billion notes from Abu Dhabi-based energy company Dolphin Energy that was expected to price this week will most likely come to the market during the June 27 week, according to a source from one of the lead banks.

RBS, BNP Paribas, Abu Dhabi Commercial Bank, Mitsubishi UFJ Securities and Societe Generale are the bookrunners for the Rule 144A and Regulation S notes.

Market-watchers were also talking about Venezuela's state-owned oil company Petroleos de Venezuela SA (PDVSA), which could tap its 2022 bond in a $1.5 billion private transaction with the sovereign's central bank.

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