No progress with Cyprus; risk aversion rises, EM spreads widen, bond fund inflows decline

By Christine Van Dusen

Atlanta, March 22 - Emerging markets investors remained risk averse and spreads widened on Friday as leaders in Cyprus failed to make progress on resolving the troubled sovereign's financial crisis.

And after a flurry of new deals on Thursday - including new notes from China Minmetals Corp. Peru's Compania Minera Milpo SAA and Peru's Gas Natural de Lima y Callao SA (Calidda) - the primary market was more subdued on Friday.

The Markit iTraxx SovX CEEMEA ex-EU index moved out 8 basis points to Treasuries plus 214 bps. The corporate index - seen Thursday at 232 bps over Treasuries - widened by 13 bps on Friday to Treasuries plus 245 bps.

"Activity is light so far," a London-based analyst said.

While concerns about contagion have calmed somewhat, the financial crisis in Cyprus is expected to hit Russia particularly hard. Russian depositors stand to lose as much as $2 billion if a levy on deposits is imposed.

In response to this and the move in U.S. Treasuries, most sovereign bonds from Russia were 4 bps to 5 bps wider on Friday.

"The impact of the Cyprus crisis on Russian banks is, however, expected to be limited," the analyst said. "The European Central Bank has given the island nation a deadline of Monday before emergency liquidity assistance is cut off."

Meanwhile, trading was somewhat quiet for names from the Middle East and North Africa, with some weakness in bonds from Lebanon and Egypt.

From Ukraine, sovereign bonds remained under pressure from the global risk-off mood, said Svitlana Rusakova of Dragon Capital.

"But bids did not retreat much," she said. "Corporates were mostly inactive, though a few names adjusted lower."

EM inflows fall

Emerging markets bond funds saw inflows of $468 million for the week ended March 20, down from $557 million the previous week, according to a report from data-tracker EPFR Global.

"Fears that a bailout package for Cyprus that called for a one-off levy on existing depositors might prompt bank customers in Spain, Italy and Portugal to head for the exits gave investors and markets pause for thought in mid-March," the report said.

Commitments to emerging markets bond funds were the second lowest, year-to-date, the report said.

"For emerging market bond funds, funds with local-currency mandates outgained their hard-currency counterparts," the report said. "Funds with an emerging Asia focus topped the regional fund groups in terms of both flows and performance, and China bond funds were by far the most successful country fund group when it came to attracting fresh money."

But even local-currency bonds enjoyed "only half the weekly rate they enjoyed in the previous quarter," according to research from Commerzbank. "These trends began to take hold well before this latest bout of risk-off kicked in. They could prove to be steady, medium-term trends."

Finansbank plans dollar notes

In deal-related news, Turkey-based lender Finans Bank AS (Finansbank) is planning to issue up to $750 million of notes with tenors of up to 10 years, a market source said.

No other details were immediately available on Friday.

BankMuscat active

The secondary market on Friday saw the recent $500 million issue of 2½% notes due 2018 from Oman-based BankMuscat - which priced at 99.302 to yield mid-swaps plus 170 bps - close at 99.30 bid, 99.40 offered.

The notes ended Thursday's session at 99.37 bid, 99.47.

The Regulation S notes came to the market via Citigroup, Credit Agricole CIB, Deutsche Bank, HSBC, National Bank of Abu Dhabi and Standard Chartered Bank.

Bahrain in demand

Bahrain's 6.247% notes due in 2014 were in demand on Friday in the high-105s, a trader said.

"The fairly illiquid $350 million fixed-rate notes due 2013 matured on Monday," he said.

The recent notes priced by Dubai's Emirates airline - $1 billion 3 7/8% amortizing Islamic bonds that came to the market at 99.331 - closed Friday at 98.80 bid, 99.20 offered.

Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Citigroup, Dubai Islamic Bank PJSC, Emirates NBD Capital Limited and Standard Chartered Bank were the bookrunners for the Regulation S-only sukuk.

Perpetuals trade up

Abu Dhabi Islamic Bank's recent $1 billion issue of 6 3/8% perpetual Islamic bonds that priced at par was seen at 104.43 bid, 104.93 offered on Friday.

Abu Dhabi Islamic Bank, HSBC, Morgan Stanley, National Bank of Abu Dhabi and Standard Chartered Bank were the bookrunners for the Regulation S-only sukuk.

And Dubai Islamic Bank's $1 billion 6¼% perpetual notes that also priced at par moved to 100.18 bid, 100.68 offered on Friday.

Dubai Islamic Bank, Emirates NBD Capital, HSBC, National Bank of Abu Dhabi and Standard Chartered Bank were the bookrunners for the Regulation S sukuk.

Minmetals prices notes

In its new deal, metals and mineral trading company China Minmetals sold RMB 2.5 billion 3 5/8% notes due March 28, 2016 at par to yield 3 5/8%, a market source said.

The notes were talked at 3.65% to 3¾%.

HSBC, DBS Bank, ICBC (Asia), ABC International and Standard Chartered Bank were the bookrunners for the Regulation S deal.

The proceeds will be used for general corporate purposes.

Minera Milpo sells bonds

Peru's Compania Minera Milpo priced a $350 million issue of 4 5/8% notes due March 28, 2023 at par to yield 4 5/8%, or Treasuries plus 269.5 bps.

JPMorgan and Morgan Stanley were the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used to refinance $180 million in loans and for capital expenditures and general corporate purposes.

Minera Milpo is a Lima-based mining company.

New deal from Calidda

In another deal from Peru, gas producer Calidda priced a $320 million issue of 4 3/8% notes due April 1, 2023 at par to yield 4 3/8%, a market source said.

The notes were talked at a yield in the high-4% area.

Citigroup and Santander were the bookrunners for the Rule 144A and Regulation S deal.

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