EM activity pauses before Greece vote; Beijing Enterprises Water taps leads; Dolphin ahead

By Christine Van Dusen

Atlanta, June 20 - Most emerging markets investors and issuers stayed on the sidelines on Monday - with just China's Beijing Enterprises Water Group Ltd. announcing plans for notes - and awaited Tuesday's key vote on Greece and its debt restructuring.

"The market is very subdued versus normal, with the Greece issue providing ample excuse to sit tight," a London-based trader said. "At this stage, investors are sitting tight waiting for tomorrow's key Greek no-confidence vote."

The JPMorgan Emerging Markets Bond Index Plus spread moved wider to Treasuries plus 300 basis points, close to the upper end of the recent trading range.

"News flow over the weekend provided little grounds for confidence that a quick and viable solution will be found, with the European Union delaying any decisions about the details of a new relief package to early July," according to a report from RBC Capital Markets.

"A confidence vote in the new government is due tomorrow, keeping headline risk at elevated levels. A failure would be market-negative and almost certainly mean early elections, in turn fueling higher uncertainty around a renegotiation of EU and International Monetary Fund bailout terms and a possible debt restructuring," the report said.

In trading, there were some deep bids on credit default swaps, a trader said. And issues from the Middle East were surprisingly resilient.

"We're not seeing much in the way of client buying," he said. "In fact, it feels easier to pick up paper."

Beijing Enterprises eyed

For its planned issue of renminbi-denominated notes, China's Beijing Enterprises Water Group - an investment holding company that focuses on sewage and water treatment - mandated Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley, according to a company filing.

Proceeds from the Regulation S transaction will be used to make shareholder loans to subsidiaries, to finance capital expenditures, for general corporate purposes and for working capital.

In other deal-related news, the final book for the $350 million issue of 7¾% notes due 2016 from Russia-based coke and pig iron producer and miner KOKS Group was about $2 billion, a market source said.

About 45% of the orders came from Europe, 30% from Russia, 20% from the United States and 5% from Asia.

The deal priced at par on June 16 via Bank of America Merrill Lynch, Credit Suisse, Troika Dialog and VTB Capital in a Rule 144A and Regulation S transaction. Proceeds will be used for the repayment of secured debt.

"Activity today is focused on new issues, so KOKS is back down at 100, down a half-point," a trader said.

No new notes for IPIC

Also on Monday, Abu Dhabi-based oil industry investment entity International Petroleum Investment Co. (IPIC) opted not to issue notes following a roadshow on June 14 and June 15, a market source said.

The company had mandated BNP Paribas, Goldman Sachs, Societe Generale and UBS for the marketing trip and a possible issue of notes.

"IPIC is not looking to issue, post-roadshow, but their paper still feels heavy in the Street," a trader said. "It has moved 30 to 40 bps wider over the month."

Most other names from the Middle East were performing very well on Monday, particularly considering the tumultuous backdrop, a London-based trader said.

"Decent size Abu Dhabi Commercial Bank 2014 dollar notes traded earlier at 105.125," he said. "Abu Dhabi 2019s are heavy in the Street, trading down a few times."

And good two-way flow was seen for the recent 2016 notes from Emirates airline, while the front end of Dubai Water and Electricity Authority was strong with good volume, he said.

Dolphin deal ahead

Traders were also keeping an eye on Abu Dhabi-based Dolphin Energy Ltd. LLC, which is readying a Rule 144A and Regulation S issue of up to $1.93 billion of notes with RBS, BNP Paribas, Abu Dhabi Commercial Bank, Mitsubishi UFJ Securities and Societe Generale.

"The market is expecting the new Dolphin deal this week," a trader said.

Also from the Middle East, Dubai opened on Monday 2 bps to 3 bps wider, though the sovereign's 2021 notes saw some solid two-way flow. And Sharjah-based SIB Sukuk Co. II Ltd.'s 2016 notes - which last week were seen at 102.70 bid, 103.10 offered - were trading at 103 bid, 103.25 offered.

"Five bps tighter over the month in the face of a 10-year U.S. Treasury move - that's solid," he said.

Turkey 'subdued'

Looking to Turkey, Monday's was a subdued session, a trader said.

"Screens on Turkish papers were at least better supported on the Street, but the activity was low with relatively thin volumes," he said. "We last sighted Akbank's 2018s trading down on the Street in the afternoon. Other than that, screen quotes just continued weakening."

Better buying was seen for Turkey-based Turkiye Garanti Bankasi AS' 2021 notes, which came to the market at 98.086 on April 14. The notes were trading Monday at 96.625 bid, 97.375 offered.

This occurred against the backdrop of new restrictions from Turkey's Banking Regulation and Supervision Agency, designed to curb loan growth.

"Although we do not expect material impact on loan growth to follow, we acknowledge these measures will give some room to the central bank to postpone rate hikes in the immediate future," an analyst said. "However, on the other hand, we expect more measures to come."

South Africa mixed

In other trading on Monday, South Africa's banks were weaker, but the rest of the names were "remarkably firm," a trader said. "The South African curve is 5 bps tighter on real money demand, particularly in the long end."

And Senegal was a little bit heavy, he said.

Meanwhile, Russia's quasi-sovereign names were all 5 bps to 10 bps weaker early Monday, he said. "But there's very little activity."

Also on Monday, banks, overall, traded poorly.

"The flow has been unanimous," a trader said.

BTA Bank drops again

Some market-watchers were paying particular attention to Kazakhstan-based BTA Bank's 2018s, which dropped 4 points to yield more than 20% on the back of rumors about the next coupon.

"They saw a new low today, trading at 72.50 to 73.50 cash price, on the back of market speculations that the bank will not be able to pay its coupon due July 1," the analyst said. "Although it is not impossible that the board could make such a decision, we believe it is unlikely that BTA defaults."

The bank's liquidity position isn't particularly strong, but BTA has about 18% liquid assets on its balance sheet, which are sufficient to cover short-term liabilities, she said.

"While we acknowledge the bank is having substantial operating difficulties, we believe there are both the ability of the bank and the willingness ... to pay the coupon, given their substantial investments to date."

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