Bahrain taps leads for sukuk on busy, tricky day for EM debt; Kipco lower, Egypt tightens

By Christine Van Dusen

Atlanta, Sept. 26 - Bahrain mandated bookrunners on a slow Monday that saw selling pressure and widening for emerging markets assets.

"Overall it was another heavy and tricky day," a trader said. "The market this morning opened heavy with Asian selling. It's not really recovered, apart from some patchy local demand on some pretty defensive names."

Egypt's 2020s were among the few notes to tighten during the session while Dubai widened and Kuwait's Kipco had a particularly difficult day.

"The market is very tricky still, and uncertain," another trader said. "As such, selling pressure remains and bid and offers are wide."

The Markit iTraxx SovX index spread was at 375 basis points, slightly wider than Friday's close.

"In the Middle East space there are still a few pockets of bids, including front-end Qatar and Abu Dhabi and some sukuks," he said.

The primary market was quiet following Friday's pricing of notes by Asia Cement (China) Holdings Corp. Most EM-watchers were keeping an eye on Bahrain's plans and the ongoing roadshow for Union National Bank.

"We're fast approaching month- and quarter-end," a trader said. "I will be plenty happy to see the back of it."

Middle East in focus

Taking a closer look at the secondary market, Dubai's 2014 notes opened about 7 bps wider, at 102.12 bid, 102.62 offered. And Egypt's 2020s were seen trading up at 100.50, about 10 bps tighter, with good local demand.

"There's a squeezed feel about this one," he said. "Locals are buyers."

The trader also saw Emirates' 2016s - which had been holding in fairly well - give up some gains, widening by about 30 bps on the day, he said.

"Asian accounts are much better sellers, but that makes sense given the heavy Asian credit performance," he said.

Emirates' 2016s closed at 96.75 bid, 97.75 offered, he said.

"It's probably a victim of its own success," he said.

Bonds start to 'crack'

Monday also saw Emaar Properties' 2016s close at 98.5 bid, 99.5 offered.

"Only sellers on Bahrain names," he said. "More and more bonds that have held in are starting to crack."

The day was particularly painful for Kuwait's Kipco, he said. And Lebanon continued to trade a bit heavy, particularly on the 2021s.

"I have to say, though, that it remains an outperformer at 'only' 25 to 35 bps wider over the month," he said.

Looking to Russia, Vimpelcom's 2022s were trading near 80.

And from Africa, Cairo-based African Export-Import Bank (Afreximbank) saw its 2016s trading Monday morning at 95.5 bid, 97 offered after recently pricing at par.

Bahrain mandates bookrunners

For its planned sukuk issue of $1 billion notes, Bahrain has mandated Citigroup, BNP Paribas and Standard Chartered, a market source said.

Proceeds will be used to finance the sovereign's budget deficit.

Issuance is expected to take place in October.

This news followed the Friday pricing of RMB 586 million 2.95% notes due 2014 from Asia Cement (China) Holdings, an investment holding company and subsidiary of Taipei, Taiwan-based cement producer Asia Cement Corp.

The notes came to the market at par via HSBC, BNP Paribas and Mizuho Securities Asia Ltd. HSBC was the bookrunner.

Proceeds will be used for working capital.

Settlement will occur on Sept. 30.

Defensive bias urged

Taking a look at the big picture for emerging markets debt, countries within the asset class are experiencing a growth slowdown that is expected to continue, according to a report from Nick Chamie, global head of emerging markets research for RBC Capital Markets.

The growth differential between emerging and developed markets is narrowing, he said, diminishing EM's ability to stimulate global growth.

On the three-month horizon, investors should expect mass liquidation to dictate price action. "If euro zone and United States financial strains result in a break, look for the EM selloff to turn vicious," he said. "Signs of policy easing in China could help but can't save EM."

"EM domestic demand continues to look healthy but increasingly stretched," he wrote.

Looking to the four- to 12-month view, valuations are expected to return to more attractive levels but lower medium-term growth rates should be considered, he said.

As a result of all this, investors should maintain a defensive bias and look for tactical opportunities, he said, focusing on positioning, flows and valuations. "Reduce focus on beta," he said. "Increase country selections ... favor Asia and Latin America versus Europe, Middle East and Asia."

Marisa Wong contributed to this story

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