VTB prices bonds as EM investors stay cautious about European finances; funds see inflows

By Christine Van Dusen

Atlanta, Oct. 21 - Emerging markets investors remained confused, cautious and skeptical on Friday as E.U. leaders said they would not announce the details of their debt bailout plan at the weekend's upcoming summit, instead waiting until Wednesday's subsequent gathering.

"Unsurprisingly, credit markets are treading water while the nonsense goes on," a London-based trader said.

The Markit iTraxx SovX index spread opened at 318 basis points.

"We recommend caution," a Barclays Capital report said. "Bearish sentiment is resurfacing in some EM-related assets. Investors might be concerned about specific economic and financial stresses themselves, and not only about their potential to generate a hard landing."

As the European close neared on Friday, traders were focused on the thinness of the market.

"It's the end of a solid week, but I cannot stress how thin this market is becoming," a trader said. "It's very tricky, and there is a lot of skullduggery and flakiness going on. I still get the sense there is a backlog of supply. Volumes are typical for an average Friday."

Against this backdrop, Russia's JSC VTB Bank priced an issue of Swiss franc notes.

Turkey stays in focus

The Republic of Turkey remained in focus on Friday following the week's new issues from the sovereign and KT Sukuk Varlik Kiralama AS (Kuveyt Turk).

The sovereign's bonds were very quiet at the open. "So far there's little interest, either direct or in the Street," a trader said. "Corporates continue to trade well even when the sovereign curve is trading weaker."

By the afternoon, retail investors were looking for offers on Yasar Holdings and Akbank's 2015s. And after Fitch Ratings raised Yasar Insaat's outlook to positive the bonds went up more than 1.5 points, he said. The company's bonds were trading between 96.5 and 98, about 90 bps tighter on the week.

"Retail investor interest continued," he said.

Akbank's 2018s were the most actively traded bonds on the Street, he said, and were seen at about 99.5.

"We've seen a few prints on the Kuveyt Turk paper," he said. "But the overall activity on it was limited in the absence of Middle Eastern investors."

Dubai names rebound

In other trading on Friday, solid interest was shown for Dubai Holdings.

"Dubai names, in particular, have come back very nicely in the past fortnight or so," a trader said. "Dubai Holdings paper is well sought after, with the 2014s going out 210 bps tighter on the week. And there's ongoing demand for Dubai Water and Electricity Authority (DEWA), Dubai and Emirates airlines."

He was also keeping an eye on Abu Dhabi's International Petroleum Investment Co. (IPIC), which is on a roadshow with Barclays Capital, JPMorgan, Mitsubishi UFJ Securities, Natixis and Societe Generale.

"Hopefully we will hear what the investor feedback and talk is on tenors," he said. "IPIC paper is a good 15 to 20 bps wider with the exception of the 2020s, which seem to have some local support, closing only 5 bps wider."

African bonds lifted

Friday also saw small buying for Mumtalakat and Bahrain's 2020s.

And Africa ended the week on a solid note.

"It's really turned around, this part of the world, in recent days. It's very difficult to replace bonds," a trader said.

As Nigeria was revised to stable from negative by Fitch Ratings, the sovereign's 2021 bonds were lifted to 104 bid, he said.

And GTB Finance announced that their nine-month profit was up 32%, boosting their bonds back to near par.

"It was a great week for Gabon and Ghana, and meanwhile African Export-Import Bank's 2016s are up nearly 5 points from the low print," he said. "Egypt and Morocco are stable, and South Africa is strong like a bull."

Aldar, DEWA stand out

Two bonds tied for the distinction of "bond of the week," according to one trader. Aldar Properties' 2014s were 85 bps tighter on strong local sponsorship and a new chief financial officer. Investors were seen switching out of the company's 2011s during the week.

"Also DEWA's 2015s have come back almost 4½ points from the low and still look appealing versus the squeezed 2016s," he said.

Long-dated Qatar assets were very difficult to source on Friday, he said.

"There has simply been no decent supply out of Qatar of late," he said.

And looking at Lebanon, the sovereign was readying another exchange.

VTB prints notes

In its new deal, Russia-based lender VTB Bank sold CHF 225 million notes due Nov. 17, 2015 at par to yield 5%, or mid-swaps plus 445.7 bps, a market source said.

BNP Paribas, Credit Suisse and VTB Bank were the bookrunners for the deal.

This issue followed the late-Thursday pricing of Mexico-based telecommunications company America Movil SAB de CV's two-tranche issue of RMB 12 billion notes due 2014 and 2016, a market source said.

The deal included RMB 6.9 billion notes due Oct. 27, 2014 that priced at par to yield 1.23% and RMB 5.1 billion notes due Oct. 27, 2016 that priced at par to yield 1.53%.

Mizuho Securities, Mitsubishi UFJ and Morgan Stanley were the bookrunners for the deal.

Market sources were whispering Friday about a possible follow-up deal from the issuer.

Outflow streak ends

In other news, inflows into emerging markets assets totaled $105 million for the week ended Oct. 19, according to data tracker EPFR Global.

This broke the funds' longest outflows streak - totaling $5.6 billion - since a 10-week run ended in mid-March of 2009.

"Hopes that a credible plan to contain the euro zone debt crisis and stabilize the region's banking system will emerge from this weekend's summit of European Union leaders encouraged investors to move back up the risk curve during the third week of October," EPFR wrote in its report.

Funds with a hard-currency mandate or a focus on emerging Asia fared best.

Last week, the emerging markets bond funds reported outflows of $305 million, EPFR said.

Year-to-date inflows for all EM bond funds now stand at $16.7 billion, versus $43 billion during the same period a year ago.

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