EM bond fund outflows continue but drop; Ruwais Power does deal; better bids for Turkey

By Christine Van Dusen

Atlanta, July 26 - Abu Dhabi-based Ruwais Power Co. priced notes on a summertime-slow Friday that saw thin liquidity and wider spreads on the back of recent Treasury moves.

"A quiet Friday as expected, but Central and emerging Europe, the Middle East and Asia are feeling broadly supported, especially in the new deals," a London-based analyst said.

Emerging markets investors were primarily interested in the new issues of notes from Ghana and Ruwais Power, a London-based trader said.

The Markit iTraxx SovX CEEME ex-EU index spread on Friday moved to Treasuries plus 252 basis points, wider by 40 bps from Monday. The Markit iTraxx Crossover index spread - seen Monday at 394 bps - moved to 405 bps on Friday.

Treasuries were slightly better bid following reports that the U.S. Federal Reserve could maintain its current levels of bond buying, the London-based analyst said.

Bonds from Turkey were generally seeing better bids on Friday, but trading of emerging markets overall was "painful," the London trader said.

"Secondary remains sticky, thin and painful," he said. "The Street is really chasing the same bonds."

Bigger regional accounts were doing most of the buying, he said.

"Front-dated bonds are very tricky to source, as are senior bank names," he said. "The market is crying out for some new bank paper, which hopefully will occur in September with some long five-year deals."

In the Latin American corporate arena, Mexico's Desarrolladora Homex SAB de CV saw its bonds drop as much as 4 points on the day after reporting dismal quarterly earnings.

Homex notes decline

Homebuilder Homex's 9¾% notes due 2020 fell from 34 to 27 before closing closer to 29, while the 9½% notes due 2019 dropped 1½ points to 301/2.

Homex, along with sector peers Corporacion GEO SAB and Desarrollos Urbanos SAB, has struggled this year, as the Mexican government has supported an increase in multi-family dwellings instead of single-family homes.

OGX gives back gains

OGX Petroleo & Gas Participacoes SA's bonds also fell, giving back some of the gains earned earlier in the week, on reports that the majority shareholder was considering a potential distressed debt exchange.

OGX's 8½% notes due 2018 traded off 1½ points to 211/4, according to one trader.

But another trader said the debt was "about where it's been," trading between 21 and 22.

"It was not overly active," the second trader remarked.

Meanwhile, Chilean grocery store operator SMU SA saw its bonds rising a deuce, even as it was downgraded by Moody's Investors Service.

Funds still see outflows

In other news, emerging markets bond funds saw outflows of $1.1 billion for the week ended July 24, according to a report from data-tracker EPFR Global.

"Fixed income investors continued to keep their distance from funds dedicated to emerging markets," EPFR said in its report.

But it was less of an outpouring than was seen during the previous week, when $1.32 billion flowed away from EM bond funds.

This week, about 80% of the outflows were from funds with a hard-currency mandate, EPFR said.

Overall, bond funds took in a nine-week high of $4.36 billion.

"Flows into EPFR Global-tracked funds during the week ending July 24 highlighted investor faith in the US recovery and their growing conviction that Europe's battered economy is finally on the mend," the report said.

Ruwais Power prints notes

In its new deal, Abu Dhabi-based Ruwais Power, a consortium led by Abu Dhabi National Energy Co. (TAQA), priced $825 million 6% notes due 2036 at par to yield 6%, or Treasuries plus 233.30 bps, a market source said.

BNP Paribas, Citigroup, HSBC, Mitsubishi UFJ, National Bank of Abu Dhabi and Standard Chartered Bank were the bookrunners for the Regulation S deal.

The proceeds will be used to finance the Shuweihat 2 independent water and power project.

"Free to trade this morning and it already feels like a well-placed transaction," a trader said. "At 103 to 104 at the moment. Very solid performance. The Ramadan excuse clearly not a valid one for not getting deals done."

The notes closed at 103 bid, 104 offered to end the week.

Bahrain bonds close higher

Bahrain's new $1.5 billion 6 1/8% 10-year notes that priced at 99.447 hit a high of 101 5/8 in trading on Friday before closing at 101 bid, 101¼ offered, a trader said.

"The shorts were beaten up and some money was put to work," he said. "On the week, the 2020s and 2022s are closing wider, but on the month, the credit has done well."

The notes were priced to yield 6.2% via BNP Paribas, JPMorgan, Citigroup and Gulf International.

Middle East in focus

Most names from Dubai were about 75 bps to 100 bps tighter on the month, the London-based trader said.

"This week there is really only selling of Dubai and Qatar and some belly and long end of [TAQA] and International Petroleum Investment Co.," he said. "Otherwise the technical picture feels considerably better than it was in June."

And Kuwait-based Kipco's 2016s were popular in trading on Friday, he said.

"It's the month-end next week, and then probably even more people out of the office on holidays in August," he said. "One would surely bet the next supply will be in September."

Perpetuals see some interest

The recent perpetual notes that Abu Dhabi Islamic Bank priced at par traded early Friday at 101½ bid, 102½ offered.

The perpetual notes that Dubai Islamic Bank priced at par traded at 97½ bid, 98¼ early in the session before moving to 97½ bid, 98½ offered.

Ghana's notes active

Ghana's new $750 million issue of 7 7/8% 10-year notes opened on Friday at 99 3/8 bid, 99 7/8 offered, a trader said.

Later in the day the notes moved to par bid, 100½ offered, then were quoted at 100.37 bid, 101.12 offered.

Near the end of the session the bonds settled near 99.62 bid, 100.37 offered.

Stephanie N. Rotondo contributed to this article.

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