IPIC, Bank of East Asia sell notes amid appetite for risky assets; Bond inflows tick up

By Christine Van Dusen

Atlanta, Oct. 28 - Abu Dhabi-based IPIC GMTN Ltd. and Hong Kong's Bank of East Asia sold notes on Friday, ending a week that began with caution and ended with optimism, spurred by the European Union's new plan for bailing out debt-saddled nations and troubled banks.

"In the broader market, yesterday's euphoria is still evident," a London-based trader said.

The Markit iTraxx SovX index spread started the day 10 basis points wider.

"But the momentum in cash bonds is still there as retail investors keep buying," he said.

Only Ukraine showed any significant weakness on Friday, he said.

"That's understandable, given the 100-bps tightening yesterday," he said.

For the current rally to be sustained, emerging markets sovereigns must show improving economic fundamentals, according to a report from Barclays Capital Markets.

"Global risk sentiment has been skewed to the downside over the past few weeks, leaving financial markets vulnerable to positive surprises about the underlying global macro momentum and policy news out of Europe," the report said. "We've got both and we think the pain trade remains up across risky assets."

"For the rally to be sustained, economic fundamentals need to confirm the more positive tone to economic sentiment," Barclays said.

In other news on Friday, emerging markets bond funds saw inflows of $135 million for the week ended Oct. 26, according to a report from EPFR Global.

"There are definitely modest signs of an uptick in risk appetite," said senior analyst Cameron Brandt. "It's a modest turnaround."

IPIC prices $3.75 billion

Abu Dhabi-based IPIC priced a $3.75 billion three-tranche offering of notes due 2017, 2022 and 2041, a market source said.

The deal included $1.5 billion of 3¾% notes due March 1, 2017 that priced at 99.669 to yield Treasuries plus 262.5 bps after being talked at a spread in that area.

The 5½% notes due March 1, 2022 totaled $1.5 billion and priced at 99.743 to yield Treasuries plus 312.5 bps. The notes were talked at a spread in the 312.5 bps area.

And the third tranche - $750 million 6 7/8% notes due Nov. 1, 2041 - priced at 99.097 to yield Treasuries plus 350 bps.

Barclays Capital, Goldman Sachs, JPMorgan, Mitsubishi UFJ Securities, Natixis and Societe Generale were the bookrunners for the Rule 144A and Regulation S deal.

The notes - which include a put at par if the government of Abu Dhabi ceases to own 100% of IPIC - are guaranteed by Abu Dhabi-based International Petroleum Investment Co. PJSC.

IPIC notes active

In trading on Friday, the five-year notes opened at 100.2 bid, 100.5 offered and saw buyers. The 10-year notes traded at 99.85 bid, 100.1 offered and saw sellers. And the 30-year notes were seen at par bid, 102 offered with buyers.

"The five-year is the most active," a trader said. "The 10-year is trading heavy. Buyers are emerging in the 30-years. There's good two-way in all the bonds. The 30-year is an untested beast, but the curve is too steep."

Another trader called the IPIC deal "awesome."

"The strong placement has led to relatively light Street activity for such a big transaction," he said.

Turk Eximbank revises talk

In other trading on Friday, Turkey weakened a bit as the day went on, a trader said.

Meanwhile, Export Credit Bank of Turkey (Turk Eximbank) revised talk for its $500 million offering of five-year notes to the mid-swaps plus 412.5 bps area, a market source said.

"That's understandable, given the demand for Turkish banks," he said.

The notes were initially talked at the mid-swaps plus 437.5 bps area.

Barclays Capital, Citigroup, Commerzbank and ING are the bookrunners for the Rule 144A and Regulation S deal.

Bank of East Asia sells bonds

Hong Kong's Bank of East Asia priced $500 million 6 3/8% notes due May 4, 2022 at 99.849 to yield 6.395%, or Treasuries plus 400 bps, a market source said.

The notes priced below talk, which was set at Treasuries plus 450 bps to 475 bps.

Deutsche Bank and UBS were the bookrunners for the Regulation S notes, which are non-callable for 5.5 years.

The coupon will be reset to a fixed rate equal to the prevailing Treasury rate on the first call date, plus the initial spread.

In other deal-related news, Poland-based engineering and construction company PBG SA is considering an issue of global notes, a market source said.

No other details were immediately available on Friday.

Inflows rise

The $135 million in inflows seen for emerging markets bond funds for the week ended Oct. 26 represented a six-week high, according to EPFR's report.

Hard-currency funds had their best week in about seven, Brandt said.

Last week, EM bond funds saw inflows of $105 million.

"Flows into emerging markets corporate bonds were also positive, taking year-to-date inflows back over the $900 million mark to 102% of the full-year total for 2010," EPFR said.

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