Russia prices bonds as Libya unrest keeps issuers, investors on sidelines; Foodcorp on tap

By Christine Van Dusen

Atlanta, Feb. 24 - Russia was alone among the emerging markets in selling notes on Thursday as risk appetite took yet another hit from continued violence in the Middle East and the related rise in oil prices, which temporarily exceeded $100 a barrel.

Investors were also drawn toward safer assets after better economic news from the United States, where durable-goods orders increased in January, jobless claims dropped during the week ended Feb. 19, and many companies reported better-than-expected quarterly earnings.

"The unrest in Libya is a major focal point and the gyrations in oil prices are certainly the major price determinants today," said Nick Chamie, head of emerging markets research for RBC Capital Markets. "Beyond that, it sort of seems as if everyone else is sidelined.

"I'd generally characterize the environment as a bit of apprehension and a lack of conviction, given the volatility in the markets and the situation the market's facing."

The JPMorgan Emerging Markets Bond Index Plus spread closed flat at Treasuries plus 275 basis points, with Argentina tighter by 5 bps and Venezuela by 8 bps.

Russia sells notes

Russia's RUB 40 billion notes due March 10, 2018 came to market Thursday at par to yield 7.85%, a market source said.

The notes priced slightly tighter than talk of 7 7/8% to 8%.

Deutsche Bank, JPMorgan, HSBC, Renaissance Capital and VTB Capital were the bookrunners for the Rule 144A and Regulation S deal.

"Investor demand was reported at $2.5 billion," according to an RBC report. "We would not rule out further re-taps of this issue later this year."

Foodcorp sets price talk

In other deal-related news, South Africa-based branded food manufacturer Foodcorp Ltd. set price guidance for its planned €415 million issue of notes due 2018 at 8¾% to 9%, a market source said.

JPMorgan and Barclays Capital are the bookrunners for the Rule 144A and Regulation S notes, which are non-callable for three years and are expected to price on Friday.

Proceeds will be used for general corporate purposes and to refinance existing senior secured notes, settle existing hedging arrangements and fund the repurchase or redemption of certain securities issued by parent company New Foodcorp Holdings Ltd.

Qatar bank trades heavy

A London-based trader was keeping an eye on Commercial Bank of Qatar's dollar notes due 2014, which were seen at 102.25 bid, 102.50 offered on Thursday.

"This bond is trading very heavy still," he said. "I have it 65 bps wider on the week. This is a decent move for this name."

In comparison, Qatar's 2014 dollar notes were trading at 107 bid, 107.5 offered on Thursday. And where Qatar's five-year credit default swaps were trading at 113 bps bid, 118 bps offered, Commercial Bank of Qatar's CDS were at the 180 bps bid, 210 offered.

Commercial Bank of Qatar could soon issue more debt, given that its shareholders have approved a $5 billion bond program.

"I would assume this is laying the groundwork for when markets are more favorable," the trader said. "The bond is starting to look interesting."

Some buyers in Middle East

In other trading, buyers were seen for credits from Bahrain, including Bahrain Mumtalakat Holding's 5% 2015 dollar notes. They were trading at 94.50 bid, 95.50 offered on Thursday.

The Bahrain sovereign's 2020 bonds were seen at 93.12 bid, 93.62 offered.

The dollar 2021 bonds from Lebanon, meanwhile, saw little action. The notes were trading Thursday at 114.25 bid, 115.25 offered.

"This credit remains quiet," the London-based trader said. "Locals obviously hold the majority of this paper. Hence, there has not been the forced selling that we have witnessed in other areas in the region."

And Dubai's 2014 dollar notes were trading at 100.12 bid, 100.62 offered on Thursday. That's up 5 bps, week over week.

"That's a solid effort," the trader said. "I like this bond on the dips."

Venezuela credits lose ground

Among Latin American credits, Venezuela and Petroleos de Venezuela SA (PDVSA) started the day off fairly well before giving back some gains as the day went on, a New York-based trader said.

PDVSA's 2022s traded as high as 76 before settling in at 75.40 bid, 75.75 offered.

Argentina's bonds were also trading lower, with the Boden 2015s at 93.25 and the discount bond at about 84.50, the trader said.

In general, volumes were thin on Thursday.

"We've certainly had a consistent amount of weakness already this past week," Chamie said. "Another spike in oil prices would set off a similar dynamic again. So people are a bit apprehensive at the current time."

Issuers are similarly apprehensive right now, he said.

"With investor conviction having suffered here, there's no real firm demand to take up new issues in this environment," he said. "I think things are going to be highly dependent on the events out of the Middle East and the dynamics around oil prices. Beyond that, I think there is still quite a bit of demand for EM paper, but it's going to have to wait until we see a reduction in overall volatility levels.

"For the time being that seems to have peaked out and there may be a retracing of some of this lost ground. So we might get an improvement over the coming days."

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