Greece concerns hamper EM issuance but not trading; Russian names, Dubai Islamic in demand

By Christine Van Dusen

Atlanta, May 23 - Anxiety about Greece continued to dominate headlines on Wednesday, putting a pause on issuance for emerging markets debt but doing little to hurt morning trading of bonds from Russia and the Middle East, market sources said.

The Markit iTraxx SovX index spread closed a "decent" 17 basis points wider at 337 bps over Treasuries, a trader said.

"You have to hand it to [emerging markets] today, putting in a great performance on the open, with Russia once again dominating the show," a London-based trader said during the European morning. "Flows are totally split, with retail investors still out there supporting the market, while real-money investors look to take advantage of the bounce by letting paper go."

He noted significant demand for Russia's Evraz Group and Vimpelcom, even as oil prices weakened and equities were off 1%. Vimpelcom's 7.504% notes due 2022 traded at 93 bid, 93.50 offered on Wednesday.

Gazprom's 6.51% notes due 2022 were trading at 106.75 bid, 107.25 offered while Lukoil's 6.656% notes due 2022 were seen at 108.75 bid, 109.75 offered. Russia's 4½% notes due 2022 traded at 102.15 bid, 102.65 offered.

"To make sense of the price action you just have to ignore the broader financial press, which continues to supply a stream of negative news," he said. "[Emerging markets] is an impressive asset class when the market rallies, but you also have to respect it on days like today when we perform well despite the world all around being in chaos."

Liquidity thins

During the European afternoon, liquidity dried up significantly, another trader said.

"The bonds that people were clambering over yesterday to get their hands on were, today, without much in the way of support," he said. "Some front-dated bonds do remain as places to park one's cash over the summer, but otherwise there was paper around."

Credit default swaps were well bid, he said.

"Buy on dips or sell on rallies? I'm favoring the latter, given I think I know the upside line in the sand," he said. "I'm not sure of the downside one."

Dubai Islamic trades up

Among recent new issues, the $500 million 4.752% five-year notes from Dubai Islamic Bank were getting attention on Wednesday.

The deal priced at par to yield mid-swaps plus 365 bps.

HSBC, Deutsche Bank, Dubai Islamic Bank, Emirates NBD and National Bank of Abu Dhabi were the bookrunners for the Dubai, United Arab Emirates-based bank's deal.

The notes opened Wednesday at 100.45 bid, 100.60 offered and were later quoted at 100.40 bid, 100.55 offered.

"The new Dubai Islamic Bank deal captures the mood perfectly," the London trader said. "It was talked at Libor plus 375 bps, priced at Libor plus 365 bps and is currently bid at Libor plus 355 bps. Dubai credits in general are dominating the flow in the Middle East and North Africa, with big two-way interest in Dubai and Dubai Water and Electricity Authority."

Middle East in focus

Dubai's 6.45% notes due 2022 were seen at 101 bid, 101.50 offered early in the session and 100.62 bid, 101.12 offered later in the day. Also from the region, Qatar's 4½% notes due 2022 opened at 106 bid, 106.75 offered and later traded at 105.87 bid, 106.62 offered.

"Qatar's 2020s are trading at 112.3125, unchanged on the month in spread," a trader said. "It's a solid effort. Abu Dhabi National Energy Co. is also holding fairly well."

But most names from the Middle East widened by day's end, he said.

"It didn't feel great in the market this afternoon," he said.

In other trading on Wednesday, South Africa's 4.665% notes due 2024 were quoted at 104 bid, 104.75 offered, while Turkey's 6¼% notes due 2022 were seen at 108.15 bid, 108.65 offered.

EM bonds mostly steady

Ukraine's 7.95% notes due 2021 traded at 89.25 bid, 90.25 offered.

"The market is barely flinching," a trader said at midday in Europe.

Meanwhile, Kazakhstan-based BTA Bank's 2018 notes were trading at 181/2, he said.

"There was a rare sighting for BTA," he said. "There's still no progress on due diligence ahead of its restructuring proposal."

In terms of selling overall, it was difficult to see a pattern, another trader said.

"There's no particular theme to the selling, aside from a small preference for illiquid names, as you would expect," he said.

Asian Development prices notes

Tuesday's deal from Philippines-based lender Asian Development Bank - a $1.25 billion issue of 0.5% notes due 2015 that yielded mid-swaps plus 19.55 bps - attracted significant attention from Asian investors, the bank said in a statement.

The notes priced at 99.666 to yield 0.605% via Credit Suisse, Deutsche Bank, HSBC and Nomura.

About 52% of the bonds were placed in Asia, 26% in the Americas and 22% in Europe, the Middle East and Africa.

About 63% were bought by central banks and official institutions, 20% by fund managers and 17% by banks and others.

"We are quite pleased with the transaction and the broad interest from investors, resulting in a book in excess of $1.25 billion with over 40 investors," said ADB Treasurer Mikio Kashiwagi.

Bahrain taps bookrunners

In other deal-related news, Bahrain mandated Standard Chartered, JPMorgan, Gulf International Bank and Citigroup as bookrunners for a planned issue of $1.25 billion of bonds, a market source said.

The deal is expected to come to the market in June and carry a tenor of between seven and 10 years.

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