Melco Crown sells notes; volumes still light, spreads stay wider; EM bond inflows decrease

By Christine Van Dusen

Atlanta, Nov. 16 - China-based Melco Crown Entertainment subsidiary Studio City Co. Ltd. finished a choppy week with an issuance of senior notes. Volumes remained light and spreads widened as investors remained worried about the United States' fiscal cliff, Greece's financial future and the violence in Gaza.

And after widening Thursday on the back of these concerns, spreads were mostly unchanged on a quieter Friday, with the Markit iTraxx Sovx Index spread at 192 basis points over Treasuries and the corporate index at 245 bps.

Liquidity was poor on Friday, also due to the regional holiday in the Middle East.

"End of an interesting week. The Israeli attack on Gaza and following retaliation from Hamas has taken the gloss off the market. And I sense it may have put a line in the sand as far as spreads go," a London-based trader said. "I suspect the back end of next week will be just as illiquid, given the Thanksgiving holiday."

As far as new issuance, the market is awaiting notes from International Petroleum Investment Co. (IPIC), Abu Dhabi National Energy Co. (TAQA) and Gulf Investment Bank (GIB).

"While there has not been a dearth of supply from the region, post-summer and Ramadan, there are a few credits lining up and on roadshows, and obviously others are probably waiting and following how these progress," the trader said. "IPIC, TAQA and GIB have publically stated they are looking to tap the markets. I think the first two should be fine; it's a question of pricing, tenor and size."

Melco Crown prices notes

In its new deal, the Melco Crown subsidiary priced an $825 million issue of eight-year senior notes at par to yield 8½%, according to an informed source.

The yield printed on top of yield talk, which had been revised from earlier talk in the 8¼% area.

Deutsche Bank Securities Inc. was the left bookrunner.

ANZ, Bank of America Merrill Lynch, BOCI, Citigroup Global Markets, Credit Agricole CIB and UBS Investment Bank were the joint bookrunners.

Proceeds will be used to fund capital expenditures.

IPIC, GIB in focus

In trading on Friday, IPIC's existing 2041 notes were seen at 138 while the 2022s were trading at about 210, a trader said.

"Gulf Investment Bank probably is not such an easy sell," he said. "But at the right level and tenor, there may be enough demand."

Despite the weakness of the week, emerging markets bonds overall have had a good year, a trader said.

"Differentiation between credits, issuer selection and knowing one's technicals is key," he said. "However I suspect international investors are likely to lighten up, given what has happened this week and the time of year."

Dubai bonds could see selling

Bonds from Dubai could be exposed to some selling next week, a trader said.

"It has navigated some big re-fi hurdles this year and it still has a fairly good story to tell," he said. "As we've seen throughout the Arab Spring, Dubai still stands out as a the leading commercial and tourist destination regionally and is fairly well positioned going forward."

Local investors are expected to lighten up in the secondary in anticipation of new issues on the horizon, he said.

"Will they have any reason to pick up paper at the moment? I'm not so sure," he said. "Meanwhile the international dealer community has turned to defense from offence and thus also into year-end will not have the same ability or confidence to take down a slew of paper."

Gulf region has cash

There does remain a decent stash of cash in the Gulf region, as well as liquidity and growth, the trader said.

"In the external debt space the end of this year through 2013, there really are only a handful of deals maturing, and many - including Sabic Capital, TAQA and Dubai Water and Electricity Authority - are solid enough credits that this should pose no real dramas," he said. "Further down the track, however, from 2014 onwards there is a large amount coming due."

Ukraine bonds mostly unchanged

In other trading, bonds from Ukraine were mostly unchanged at the end of the week, said Svitlana Rusakova of Dragon Capital.

The 2017s saw two-way flows in the 107 to 107½ range while good offers were seen for the 2021s, which were seen unchanged at 102½ bid, 103½ offered.

"In the corporate sector a few names were adjusted lower as some careful sellers emerged," she said.

And the City of Kiev's 2015s and 2016 lost some ground toward the end of the week, she said.

Ciech Group plans notes

In deal-related news, Poland-based soda ash producer Ciech Group Financing AB (Ciech SA) is planning about PLN 1.3 billion-equivalent euro-denominated notes due 2019 and zloty-denominated bonds due 2017, a market source said.

Credit Suisse and Barclays are the bookrunners for the Rule 144A and Regulation S deal, the proceeds of which will be used to repay bank and bond debt.

The notes are expected to price next week.

FirstRand cancels issuance

South Africa's FirstRand Bank Ltd., a wholly owned subsidiary of financial services company FirstRand Ltd., has canceled plans for an issue of dollar-denominated 10-year notes, a market source said.

JPMorgan, Standard Chartered Bank, RBS, Rand Merchant Bank and Morgan Stanley were the bookrunners for the Regulation S deal.

The notes were marketed during a roadshow that started Monday in Geneva and Zurich then traveled to London on Tuesday and Singapore on Wednesday.

"Now, admittedly it was a lower tier 2 deal. And granted, South Africa has had a testing week with Gold Fields downgraded and the currency nearly hitting 9," a trader said. "But bank paper there generally trades pretty well, and there is a lack of issuance in dollars."

Inflows decline

In other news, inflows into emerging markets bond funds dropped to $665 million for the week, down from $803 million the previous week, according to a report from data tracker EPFR Global.

"The second week of November saw investors digesting an unpleasant cocktail of European data, US budget skirmishes, Japanese politics and renewed violence in the Middle East," the report said.

Emerging markets bond funds with a local currency mandate outpaced their hard currency counterparts by more than 2-to-1, EPFR said.

That was "a reversal of the general pattern, year-to-date," the report said.

Paul A. Harris contributed to this article.

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