Industrial Bank of Korea prices; investor sentiment dampens, market 'limps' into October

By Christine Van Dusen

Atlanta, Sept. 26 - Industrial Bank of Korea sold notes on a weaker Wednesday for most emerging markets assets as investors once again turned fearful, their anxiety sparked by Spain and a Federal Reserve official's pessimistic comments about the newest round of quantitative easing in the United States.

"Heavy tone again today," a London-based trader said. "The market limps into October."

The negativity overshadowed fairly strong economic data from the United States, which showed that home prices continue to climb and consumer confidence is improving.

"Data from Europe, however, were less reassuring," according to a report from Barclays.

Trading was again mixed for bonds from the Middle East and North Africa, with better buyers on some names, a trader said.

"But for the likes of Dubai, Dubai Electricity and Water Authority, Bahrain and International Petroleum Investment Co., it feels like there's paper around, as the bonds got a little ahead of themselves two to three weeks ago," he said. "Bear in mind, however, there are still plenty of technical bonds that are still very tricky to source in the Gulf region. And while they are optically wider with the Treasury move, they are still difficult replacing."

The new issues from Novolipetsk Steel, Ukraine and Turkey faltered on Wednesday, a trader said. However, the recent deals from Eurasian Development Bank and Petrobras looked relatively strong.

"It's clear the moves, pre-quantitative easing and European Central Bank, cleaned out a lot of shorts," a London-based trader said. "With a few cups of complacency mixed with some canny new issues and a chorus of singing to the tune of EM, the market exposed itself to what we have right now - a decent re-pricing. Which is ultimately healthy, as it was all getting a little silly in early September."

Middle East in focus

Taking a closer look at trading from the Middle East, spreads struggled as U.S. Treasuries fell, a trader said.

"This move, coupled with some decent lightening up over the past six to seven sessions and the emergence of supply has capped this market for the time being," he said. "There are still pockets of technical bonds out there."

The trader pointed to Abu Dhabi National Energy Co.'s 2021s and 2036s, which traded well, along with Emaar Properties' 2019s.

"The Qatar 2018 sukuk, National Bank of Abu Dhabi's 2019s and IPIC's 2031s, 2016s and 2021s are also holding OK," he said.

The 2017s were staying at 98 bid, 99 offered while buyers were seen for the 2016s and 2041s. The company's 2020s, though, were neglected, he said.

"Lebanon is also ticking along nicely, having emerged over the past fortnight from its summer slumber. Yet on many others there is paper around."

Angola, Afrexim perform

Looking to Africa, there were some performers, a trader said, pointing to African Export-Import Bank (Afrexim)'s 2016s and Angola.

South Africa's five-year bonds were seen trading in the low-150s on Wednesday, and the 2024s closed unchanged.

Zambia's 2022 notes closed Wednesday at 100.4375 bid, 100.9375 offered after pricing at 98.108.

In other trading on Wednesday, most bonds from Kazakhstan were wider, with KazMunaiGas' 2020s 25 basis points wider on the week.

Ukraine bonds mostly unchanged

Eurobonds from Ukraine were mostly unchanged in trading, said Svitlana Rusakova of Dragon Capital.

The sovereign's 2020s were seen at 99.75 bid, 100.75 offered while its 2021s were quoted at 100.25 bid, 101.25 offered.

"Oschadbank saw some selling pressure," she said, noting that it has recently moved down to 96.375 before recovering to 97.

Metinvest's 2015s have slipped this week to 101.75 bid, 102.75 offered while its 2018s were seen at 95.75 bid, 96.75 offered.

"Sellers appeared on the market," she said.

Korean bank prices notes

In its new deal, Seoul-based Industrial Bank of Korea priced $300 million 1 3/8% notes due 2015 at 99.649 to yield 1.495%, or Treasuries plus 115 bps, a market source said.

Deutsche Bank and Standard Chartered were the bookrunners for the Rule 144A and Regulation S deal.

"There's still a fair pipeline of issuers waiting to tap the market," a trader said. "The key for me will be obviously inflows and outflows. One thing for sure is there is a lot more value back in the market. And for all that cash on the sidelines, there arguably are some interesting opportunities."

Qatar Islamic taps leads

In deal-related news, Qatar Islamic Bank SAQ tapped Deutsche Bank, HSBC, Standard Chartered and QInvest for a dollar-denominated issue of Islamic bonds, a market source said.

The sukuk will be marketed on a roadshow starting Friday and traveling to Kuala Lumpur, Singapore, Abu Dhabi, Dubai and London before wrapping up on Oct. 1.

"The existing 2015s are at 104.75 bid, 105.50 offered and hold pretty well," a trader said. "They're just 5 bps wider on the week, and 12 bps tighter on the month."

Also on Wednesday, Turkish oil refiner Turkiye Petrol Rafinerileri AS applied to the Capital Market Board and the Energy Market Regulatory Authority to issue up to $1 billion of bonds or other borrowing instruments, according to a company release.

The deal may be a single issue or multiple issues of fixed- or floating-rate bonds during the course of one year, based on market conditions at the time of issuance.

EM debt sees solid returns

Returns on emerging markets debt for the third quarter to-date have been strong, according to a report from Barclays.

"Our sovereign benchmark is up 6.6% on a total return basis and 6.9% on an excess return basis," the report said. "Year-to-date, total returns of our sovereign benchmark are now 13.7%."

Barclays recommends investors move to underweight in Brazil and Peru while going overweight in bonds from Argentina and Venezuela, particularly Petroleos de Venezuela SA (PDVSA).

"We recommend taking profits in Hungary and recommend switching from the Hungary 10-year sector into Romania 2022s," Barclays said. "We have also turned more cautious on Turkey credit and suggest buying five-year credit default swaps against Russia."

Aleesia Forni contributed to this article.

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