Greek vote narrows EM spreads, lifts risk appetite, but volumes, issuance thin; Kiev ahead

By Christine Van Dusen

Atlanta, June 29 - Though Greece's vote to approve controversial austerity measures was seen as a positive for emerging markets - and managed to tighten spreads and improve risk sentiment - most of the good news already was priced in by Wednesday, so volumes and issuance stayed light.

Still, some EM assets did take on a "healthy glow" during the European session, a trader said.

"The concerns of last week are all behind us now," he said.

The JPMorgan Emerging Markets Bond Index Plus spread first narrowed 15 basis points to Treasuries plus 279 bps before heading into the New York afternoon at Treasuries plus 277 bps, the tightest level seen in two weeks, and ending the day at Treasuries plus 269 bps.

"Flows so far today are reflecting the buoyant mood," a London-based trader said, noting that VimpelCom Holdings BV, Turkey and Gazprombank were receiving special attention from buyers.

"As the rally has progressed, life has returned to the less frequently traded names," he said.

But that rally didn't extend to most Latin American names, which saw narrower spreads but very little activity, a Connecticut-based trader said, as rumors swirled around Venezuela president Hugo Chavez's health. The sovereign's spread tightened 33 bps in response.

"It has been unspectacular (for Latin America)," he said. "Definitely with the easing of Greece we started to see some buyers, particularly in the Ukraine and Dubai this morning. We also had some interest in more peripheral stuff, like Poland. But today saw a month-end bid feel that started in London and extended once New York opened."

Most issuers remained in hiding on Wednesday, with only a handful making moves toward the market. On that list were the City of Kiev, Brazil's Banco BTG Pactual SA, Brazil's Petroleo Brasileiro SA (Petrobras), Russia's Vnesheconombank (VEB) and Indian Bank.

Kiev sets guidance

For its planned issue of $200 million to $300 million notes, the City of Kiev set price talk at the 9½% area, a market source said.

Credit Suisse has been linked to the deal.

"That looks to be about 30 bps wide to the implied curve," a trader said. "But given how liquid the existing bonds are, it's a tough call."

Meanwhile, in trading, Ukraine saw "an amazing turnaround in the corporate space," another trader said.

And the sovereign's recent five-year notes - 6¼% notes due 2016 that priced at par on June 10 - were performing on Wednesday, another trader said.

BTG Pactual talks notes

Brazil-based lender Banco BTG Pactual set price talk at the 5 1/8% area for its planned dollar-denominated issue of benchmark-sized notes due 2016, a market source said.

Bradesco BBI, BTG Pactual and JPMorgan are the bookrunners for the Rule 144A and Regulation S notes.

And Brazil-based energy company Petrobras is considering an issue of euro- and sterling-denominated notes, a market source said.

"I think issuers will get an opportunity to get a few deals off during the month of July," the Connecticut trader said. "There may not be enough sponsorship. But issuers will get a chance to get some deals done in the next 30 days or so before people start to break for August."

Indian Bank plans notes

Also on Wednesday, Chennai, India-based Indian Bank was planning a benchmark-sized issue of dollar-denominated notes, a market source said.

Citigroup, HSBC, RBS and Standard Chartered are the bookrunners for the deal, which is expected to come to the market following a roadshow in July.

And VEB mandated BNP Paribas, JPMorgan, Morgan Stanley and RBS for a possible issue of notes, a market source said.

A roadshow will begin July 4.

San Antonio postpones

In other deal-related news, Latin America-focused drilling and well services company San Antonio Internacional Ltd. postponed its planned issue of $500 million seven- to 10-year notes due to market conditions, a source said.

Deutsche Bank, HSBC, Itau and Pareto Securities were the bookrunners for the deal, which was marketed on a roadshow that started June 14.

This news followed the recent pricing of RMB 1.38 billion 3.95% notes due 2014 from hospitality industry-focused investment holding company Genting Hong Kong Ltd.

CIMB, HSBC, Maybank Investment Bank Bhd. and UBS were the bookrunners for the Rule 144A and Regulation S offering.

Russian lenders in focus

In trading on Wednesday, Bank of Moscow's 6.8% notes due 2017 were seen at 97 bid, 98 offered early in the session.

"Given that Bank of Moscow did not call the 2015 subs, that the coupon on the 2017 sub looks set to reset 100 bps through a new issue level, and that the bank needs all the capital it can get, you have to price the 2017 subs to maturity," a trader said. "So it makes the bond look way too tight."

As the day went on, the notes caught a bid. "Alfa Bank's are quiet by comparison," he said.

Turkish sovereign performs

Looking to Turkey, the sovereign curve was well bid with strong local support, a trader said.

"The concerns of last week seem to be behind us now," he said. "Spreads are tighter by another 15 bps."

Corporates, however, were unchanged.

"They're trailing behind their peers," he said.

Better buying was seen for Garanti Bankasi AS' 2021 notes and selling for Garanti's 2017s and Yuksel Insaat AS' 2015s.

And Kazakhstan saw a "massive bounce," a trader said. "Liquidity is returning, even to JSC Kazkommertsbank."

LatAm spreads tighten

Latin American names tightened on Wednesday, particularly Brazil, Panama and Colombia.

"Part of that has been that there's been little to no new supply on the sovereign or corporate side for the last four to six weeks," the Connecticut trader said. "The deals have dried up as of late. Volumes are quite a bit lighter."

The market continues to see inflows into EM, and indexing funds are adding a lot of sovereign names, he said.

"We're getting some very, very small sell-offs when we get some bad news related to other parts of the world," he said. "Buyers have been stepping in to buy whatever paper comes out. A good example is Senegal. Even though it's trading at pretty lofty spread levels, it's not particularly attractive. But there are guys out there who didn't get enough in the original deal and are more than happy to buy on weakness."

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