Global economic distress has investors, issuers jittery; Union Bank of India mulls notes

By Christine Van Dusen

Atlanta, Sept. 6 - The euro zone debt crisis on Tuesday once again took center stage, with Italy the latest to pursue an austerity package and cope with striking workers, and emerging markets felt the strain.

The primary market was quiet, and while there was some liquidity, volumes did not increase to their typical September levels.

"Once again the broader markets are nervous and jittery," a trader said. "However, for the most part, there is a degree of liquidity and a degree of demand on Middle East names."

On that list, he said, were Qatar, Dubai, Abu Dhabi Commercial Bank, International Petroleum Investment Co. and several sukuk issues. Also holding well were Dubai, Emaar Properties and Emirates, mostly with local demand.

"Holidays are, for the most part, over," he said. "And September is here, however there's not yet a significant uptick in volumes."

Said another trader: "This week is typically the week when EM bursts back to life, but so far that's not really in evidence. There must be a few new issues in the wings. Perhaps they will kick-start us."

Mumbai-based Union Bank of India was the only issuer to take a step toward the market, mandating bookrunners and planning a roadshow for a possible dollar-denominated issue of notes.

"It seems that investors may remain edgy against the backdrop of key political event risk throughout September," according to a report from Barclays Capital Markets.

EMEA still outperforms

Many names from emerging Europe, the Middle East and Asia managed to remain fairly solid in the face of Tuesday's volatility, a trader said.

"The theme of outperformance is still very much in place," he said.

Said another trader: "It's another resilient opening, considering the broader picture."

The Markit iTraxx SovX spread was at 270 basis points, about 10 bps from initial wides and about 50% higher than the year's tights, he said.

"Many high-grade indices have doubled," he said.

In response, buying was seen on Tuesday for names like Ukraine, Russia's Vimpelcom and South Africa, which some investors like to pick up on weakness.

"High-beta names remain soft," he said.

Vimpelcom's 2022s were especially active, he said, while Kazakhstan-based BTA Bank's bonds suffered.

Qtel, TAQA well supported

More buyers were seen on long-dated assets, particularly for names like Qatar-based Qtel International's 2025s and Abu Dhabi National Energy Co.'s (TAQA) 2036s.

"They're feeling very well supported," a trader said, noting "good two way interest on the TAQA curve. It's the same story, though with sellers of front dates versus buyers in the belly and long end."

Qtel's 2025s were bid at 100 after having been at the 91 level in late June.

And good volumes were seen for Aldar Properties' 2014s, which traded at 108.5 before settling in closer to the 108.37 to 108.62 level.

"Once again, though, I'm impressed with how the market is holding in," he said.

Afrexim trades up

In other trading, Cairo-based African Export-Import Bank's 2016s were trading at 99.80 bid, 100.30 offered after recently pricing at par.

And small selling was seen for Russia's Gazprom.

In Turkey, retail selling was seen for Isbank's 2016s and Yapi Kredi's 2015s in small amounts on the back of news that the central bank was looking to increase lenders' reserve requirements and provide some flexibility.

"We are better sellers of Yuksel insaat's 2015s, Yasar Insaat's 2015s and Akbank's 2018s," a trader said. "We're better buyers of Isbank's 2016s."

Slow start for LatAm

Looking to Latin America, credit from the region began the day on shaky footing, a New York-based trader said.

"Activity is obviously light after an extended holiday weekend, but bids seem to be holding in somewhat, given another strong Treasury move due to euro zone troubles firing up once more," he said. "Spread-based credits are wider but some wideness can be attributed to the lack of liquidity, and it remains to be seen if we will keep the strong equity correlation we have been trading with since the beginning of August."

Votorantim's 2019s were at one point seen up at 106¼ bid while Brazil-based JBS-Friboi SA's 2018s were up at 95.

"That's up 2 points from Wednesday's close, and we're only seeing a number of buyers there," he said. "We've also seen Colombia-based Ecopet's 2019s trade down into a 122½ bid and Colombia-based Gruposura Finance's 2021s up at 101 7/8."

He also noted that Banco do Brasil SA's 2022s were up at 100.95.

Union Bank of India ahead

In deal-related news, Mumbai-based lender Union Bank of India has mandated Bank of America Merrill Lynch, Barclays Capital, Citigroup, Deutsche Bank, HSBC and Standard Chartered Bank for a roadshow for a dollar-denominated issue of notes, a market source said.

The marketing trip will take place in Singapore, Hong Kong and London.

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