Franshion sells notes; EM investors 'defensive' after Fed minutes; Russia sees sellers

By Christine Van Dusen

Atlanta, Aug. 21 - China's Franshion Properties (China) Ltd. sold notes on a Wednesday that had investors waiting with bated breath for the Federal Open Market Committee's minutes, which later in the day showed that the central bank will taper its bond-buying program soon.

Prior to the release of this news, the yield on 10-year U.S. Treasuries was about 2.83%. After the announcement that quantitative easing could end as soon as September, the yield moved up to 2.895%.

"A defensive start in Central and emerging Europe, the Middle East and Asia, with spreads a couple wider," a London-based analyst said.

Overall, though, spreads tightened for much of the emerging markets universe. The Markit iTraxx SovX CEEME ex-EU index spread on Wednesday opened at 255 basis points over Treasuries, 5 bps tighter from Tuesday. The Markit iTraxx Crossover index spread - seen Tuesday at 427 bps - moved in to a 424 bps spread on Wednesday.

"Russia 2042s are seeing several sellers this morning," the analyst said. "Again, however, limited activity as we move closer to the U.K. bank holiday weekend."

It was a mostly lackluster session for most emerging markets names, a London-based trader said.

"Not going to be a pretty market tomorrow," he said. "September and October are typically active and choppy months and markets, and we are potentially in for more of a ride. New issues, when they come, will have to come with a premium, which means secondary bonds will be sold to adjust to the clearing spreads."

Prior to May, new issues managed to attract large order books and reinvigorated curves, he said.

"That mindset is gone, as has, to some extent, the buy-on-dips mentality," he said.

New deal from Franshion

In its new deal, Hong Kong-based real estate company Franshion, through wholly owned subsidiary Franshion Brilliant Ltd., priced a $200 million issue of 6.4% notes due 2022 at par to yield 6.4%, according to a company filing.

Goldman Sachs was the bookrunner for the Regulation S deal.

The proceeds will be used for refinancing outstanding indebtedness, for working capital and for other general corporate purposes.

Market sources also were whispering about the possibility of an upcoming issue of Islamic bonds from Indonesia.

Lat-Am lower, wider

Bonds from Latin America saw better volumes and more two-way activity but ended Wednesday's session lower and wider, a New York-based trader said.

Five-year credit default swap spreads for Brazil moved out from 205 bps to 220 bps on the FOMC news and related Treasury moves, he said.

"Mexico moves to 139 from 127 and most other credits follow that move," he said. "Venezuela and PDVSA bonds drop 1¼ to 2½ points."

Venezuela's 2027 bonds were seen at 81¼ while PDVSA's 2017s moved to 891/4.

"Price action remains choppy, liquidity thin and most are trying to remain defensive," he said.

Ukraine bonds remain weak

Bonds from Ukraine continued to experience weakness mid-way through the week, said Svitlana Rusakova of Dragon Capital.

"Yet with the broader EM space stabilizing, there was little damage to the curve," she said.

Corporates also have been moving slightly lower, with some buying interest in OJSC Oschadbank's 2018s.

"Some sellers in [First Ukrainian International Bank] 2014s emerged after a long while," she said.

Middle East in focus

In trading from the Middle East on Wednesday morning, two-way activity was seen for Dubai-based Emirates' 2016s in the 104 3/8 to 104 5/8 context, a trader said.

"That's 20 bps tighter on the week," he said.

Bahrain's 2023s also saw two-way action but were 10 bps wider on the week at 98.56 bid, 99.06 offered.

"Emaar Properties' 2019 has pulled back 14 bps this week," he said. "The company stated they are not looking to issue bonds this year."

The notes were trading at 106½ bid, 107½ offered on Wednesday, about 5 bps tighter on the month.

Perpetuals struggle

The perpetual notes from Abu Dhabi Islamic Bank that Tuesday at 99.37 bid, 100.37 offered were unchanged on Wednesday morning, a London-based trader said.

The notes priced at par.

Dubai Islamic Bank's perpetuals - which also priced at par - moved to 95.37 bid, 96.37 offered after Tuesday's levels of 95½ bid, 96½ offered.

Sharjah trades down

The 2.95% Islamic bonds due 2018 that United Arab Emirates' Sharjah Islamic Bank priced at par traded Wednesday at 94¼ bid, 95 offered after Tuesday's levels of 94 bid, 943/4, a trader said.

Al Hilal Bank, HSBC, Kuwait's Liquidity Management House and Standard Chartered Bank were the bookrunners for the Regulation S deal.

ADCB notes tumble

The 2023 notes that Abu Dhabi Commercial Bank PJSC priced in May at 99.757 were trading Wednesday at 90, a trader said.

"They traded at 94 on July 22," he said.

The 3 1/8% notes due 2023 were priced to yield 3.178%, or mid-swaps plus 220 bps, via Standard Chartered Bank in a Regulation S-only deal.

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