EM paper suffers; Lafarge Shui On, Khazanah, Indonesia, PKP plan deals; Transnet delayed

By Christine Van Dusen

Atlanta, Sept. 15 - Emerging markets assets had a mixed Thursday, with investors rejecting corporate risk in favor of sovereign exposure, as continued anxiety about the global economic picture kept the primary market quiet.

"First you had the rotation into EM. Now you have the rotation within EM," a London-based trader said.

So while the Markit iTraxx SovX spread tightened 7 basis points to 279 bps, the corporate space was under pressure.

"There were interesting areas of outperformance, like Turkish banks and FirstRand, which are basically unchanged," he said. "But generally EM corporate risk is for sale."

Said another trader, "The flow is simply an ongoing stream of people looking to sell illiquid risk. For the first time this year, emerging Europe, Middle East and Asia are really lagging."

Still, some singular names did manage to stay firm on Thursday, including Abu Dhabi and Lebanon.

There was "a very mixed picture so far this morning," according to a report from RBC Capital Markets.

Forming a strong and constructive view is difficult, the London trader said.

"Just trying to trade range and pick spots where there exists value and avoid the squeezed bonds," he said. "If we do see further tightening, then the supply will come."

Some issuers did make plans for new deals. On that list were Lafarge Shui On, Malaysia's Khazanah Nasional Bhd., Indonesia and Poland's PKP SA.

Lafarge taps leads

For its possible issue of renminbi-denominated notes, Lafarge Shui On - a joint venture between French industrial company Lafarge Group and Hong Kong's Shui On Construction & Materials Co. Ltd. - mandated four bookrunners for a roadshow to market a possible issue of renminbi notes, a market source said.

Citigroup, HSBC, Mitsubishi UFJ Securities and Standard Chartered will arrange the marketing trip, which will be held in Hong Kong and Singapore.

A Regulation S offering of notes may follow.

Khazanah, Indonesia on tap

Also on Thursday, Malaysia-based investment holding company Khazanah has mandated BOC International, CIMB Bank and RBS for a renminbi-denominated offering of sukuk notes, a market source said.

The notes will be distributed under Regulation S.

And Indonesia is planning a roadshow to begin next week for a sukuk issue of notes that could total as much as $1 billion, a market source said.

Issuance is expected no sooner than October.

No other details were immediately available on Thursday.

PKP mandates bookrunner

In other deal-related news, Poland's PKP has mandated Goldman Sachs for a roadshow starting Sept. 19, a market source said.

The marketing trip will take place in London, Switzerland and Germany. An offering of notes may follow, subject to market conditions.

PKP is the parent company of Grupa PKP, the Warsaw-based state-owned railway operator for the Republic of Poland.

And South Africa-based rail, port and pipeline company Transnet SOC Ltd. is delaying any plans for global bond issuance until 2012, a market source said.

The company expects to borrow $3.5 billion during the next five years. Proceeds will be used for loan redemptions and infrastructure projects.

Korea Gas prices Swiss notes

All of this news followed the late-Wednesday pricing of South Korea-based Korea Gas Corp.'s CHF 350 million two-tranche issue of notes due 2019 and 2016 via bookrunners Barclays Capital, RBS and UBS, a market source said.

The deal included CHF 100 million 2 7/8% notes due Oct. 11, 2019, which came to the market at 100.226 to yield 2.843%, or mid-swaps plus 150 bps.

The second tranche totaled CHF 250 million 2% notes due Oct. 11, 2016, which priced at 99.859 to yield 2.03%, or mid-swaps plus 117 bps.

Morocco gets squeezed

In trading, Morocco's 2017s were getting squeezed on Thursday, up just a bit at 103.50 a few times during the day, the London trader said.

"This bond has outperformed the 2020s by 60 bps over the month," he said. "Switching makes sense. There's a drop-down, a little, in coupon but you're taking out over 9 points in cash and picking up 72 on the Z-spread and 110 [bps] in yield for the three-year extension."

Some interest was shown for Cairo-based African Export-Import Bank on Thursday, and the company's 2016 notes.

"Egypt bonds retained a bid," he said.

Looking to Abu Dhabi, bonds started the session on Thursday firm. "Abu Dhabi's 2014 notes had some decent demand in the face of the falling U.S. Treasuries and is now 15 bps tighter on the week," he said.

Lebanon remains solid

Lebanon remained rock-solid. Better buying was seen for the sovereign's 2019s, which were trading at 103.25 bid, 103.75 offered.

Sellers were seen for the Dubai sovereign and two-way action for Abu Dhabi National Energy Co. and Lebanon.

"Qtel International felt a little heavy today for the first time in a while," he said. "I'm not sure if some paper came out or if it was a reaction to U.S. Treasuries or the Street caught long, or maybe spreads have just done enough, having done 20 bps of tightening over the month. Nonetheless, it felt offered today."

Aldar fares well

Middle Eastern property companies were holding fairly well, particularly Aldar Properties. Better buying was seen for Emaar Properties' 2016s.

And Dubai Water and Electricity Authority saw dealers short on its 2016s.

"Holders should definitely sell it and move into the 2020s," he said, noting that the notes were up 2 bps on the day, 18 bps on the week and 56 bps on the month.

Meanwhile, Emirates airlines saw good demand for its 2016s - which were trading at 99.37 bid, 99.62 offered - while International Petroleum Investment Co.'s 2021s were tightening nicely. Those notes were trading at 103.05 bid, 103.35 offered on Thursday, tighter by 16 bps.

"Spreads, for the most part, are holding well, and the market was fairly active today," a trader said. "Some bonds remain in decent demand."

Ukraine corporates eyed

In Ukraine, the market was thin for corporates while the sovereign - performing better - did see some squeezing of its 2015 euro notes.

"In Ukraine the change in shareholder structure in Avangard ought to be a positive, but Ukraine corporates are under too much stress right now to notice," the London trader said.

From Russia, the quasi-sovereign banks saw mixed performance.

"It's worth noting the different shapes of these curves," a trader said. "Many of the Russian corps are being hit."

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