Risk aversion remains; Turkey in focus; Middle East bonds mixed; Seven Energy revives deal

By Christine Van Dusen

Atlanta, Oct. 2 – Singapore’s Tuan Sing Holdings Ltd. sold notes as emerging markets assets opened slightly wider on a Thursday that saw investors maintaining a risk-off posture ahead of jobs numbers from the United States and remarks from the European Central Bank.

“Investor focus will turn to the ECB today, particularly [ECB President Mario Draghi]’s conference and any changes in rhetoric, as well as non-farm payrolls tomorrow,” a London-based analyst said. “Fitch’s review of Turkey’s rating tomorrow evening adds further uncertainty.”

The ratings agency is expected to revise the sovereign’s outlook to negative due to a sharp downturn in capital flows, bank rate cuts that could hurt Turkey’s current account deficit and political instability.

“The key drivers of a downgrade have yet to materialize, but the possibility of that happening is very real,” the analyst said.

Sovereign bonds aren’t expected to suffer much if the ratings change occurs; the notes have already widened about 50 basis points on the month, a trader said.

Turkey’s credit default swaps spreads were 1 bp wider on Thursday.

Meanwhile, the crisis in Ukraine was in the spotlight again amid reports that a school in Donestk was shelled. Tensions have reportedly increased in the Luhansk area as well, the analyst said.

In response, credit default swaps spreads moved out 4 bps for Russia.

“Overall, a fairly quiet start,” he said.

At the end of the session, Middle Eastern bonds were “a real mixed bag,” a London-based trader said.

“Overall, spreads are struggling,” he said. “This traditionally does happen with a U.S. Treasury rally, as we simply cannot keep pace with their move.”

Oil prices raise concern

The London trader also pointed to the drop in oil prices as a source of investor concern.

“Seen some accounts lighten up,” he said. “Let’s not forget that supply has reappeared, post-summer lull. So it’s a combination of factors, really. Throw in some dealer apathy and playing pass-the-parcel on decreased risk- and line item-tolerance, and we’ve definitely been on the defensive.”

This could hurt the upcoming issue of notes expected from oil-focused Kazakhstan, a market source said.

Thursday also saw bonds from Abu Dhabi and Qatar widen, a trader said.

“Fairly active, flow-wise, but not expecting much activity tomorrow or the best part of next week, with Eid celebrations,” he said.

Kuwait Energy stands out

The best-performing bond so far this week has been Kuwait Energy’s 2019s, the trader said.

“It’s the only bond to be able to muster any real tightening of any shape or form,” he said.

Investors were also focused on Venezuela and PDVSA, which have $4.5 billion in bond repayments due on or before Oct. 28, a trader said.

There’s concern that the payments won’t be made on time, and that’s pushed credit default swaps prices up, he said.

Tuan Sing prices bonds

Singapore’s Tuan Sing Holdings sold S$80 million 4½% notes due Oct. 14, 2019 at par to yield 4½%, a market source said.

DBS and HSBC were the bookrunners for the transaction.

The proceeds will be used for property development and investment as well as for general corporate purposes, which include refinancing borrowings and financing investments and general working capital.

Tuan Sing’s businesses include property, hotel investment and industrial services.

Seven Energy sets talk again

Nigeria-focused Seven Energy International Ltd. has revived plans for a dollar-denominated offering of notes, setting talk in the 10½% area, a market source said.

In July the issuer announced talk in the mid-9% area for a $500 million issue of seven-year notes through Seven Energy Finance Ltd., but the deal never materialized.

Deutsche Bank, Morgan Stanley and Standard Chartered Bank are the bookrunners for the new Rule 144A and Regulation S deal.

The energy company is based in Lagos and London.

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