Lithuania, Korea Development Bank, Mazovian Railways price notes; investors stay cautious

By Christine Van Dusen

Atlanta, March 2 - Though the continuing turmoil in the Middle East inspired an abundance of caution and kept investors skittish on Wednesday, several emerging markets issuers took steps toward doing new deals in a bet that borrowing costs could soon rise and risk aversion could recede.

"Either guys are thinking that they need to issue now, before funding becomes more expensive as the year goes on," a market source said, "or they're trying to tap into still very positive investor appetite for EM debt. It's probably a mix of both."

Among the issuers to sell notes on Wednesday were the Republic of Lithuania, Korea Development Bank and Poland-based Koleje Mazowieckie (Mazovian Railways).

Numerous others advanced deals. On that list were Ukraine's OJSC Oschadbank, Kazakhstan's Eurasian Bank JSC, Turkey's Akbank TAS, Brazil's Banco BMG SA, Mexico's Petroleos Mexicanos (Pemex), Mexico's BBVA Bancomer and Brazil's OGX Petroleo e Gas Participacoes SA.

"I think that's very much reflective of a still relatively yield-hungry environment for EM corporates. Despite the external jitters that we're seeing, I do think there's no real panic out of EM at the moment," he said. "And with the inflation problem, yields are going higher, so it's going to become more expensive to issue. So there's now a flood of corporate issuance coming in EM."

Middle East weighs on market

All of this comes against an increasingly tense geopolitical backdrop, with escalating violence in Libya eclipsing the news of stronger private sector job growth in the United States in February.

"Concerns about Libya and the broader Middle East have continued to weigh on market sentiment, with weaker risk appetite," according to a report from RBC Capital Markets. "Oil prices have continued to inch higher following large gains during the New York session.

In trading, Bahrain's 2020 notes were seen 92 bid, 93 offered after trading Tuesday at 92.25 bid, 93.25 offered.

And Qatar's Qtel International Finance Ltd.'s 2025 notes, which priced at 98.96 to yield 5.1% in October, were seen trading Wednesday at 87.25 bid, 87.75 offered.

"There were few sellers on the long-dated 2025s yesterday," the London-based trader said.

Light activity

The trader saw the typical morning buyers for Dubai's 2014 notes. "I still like that bond on dips," he said.

On a spread basis, the Philippines was trading at 124 basis points bid, 117 bps offered after Tuesday's levels of 120 bps bid, 114 offered.

Russia's spread was 156 bps bid, 152 bps offered versus Tuesday's 158 bps bid, 153 bps offered.

And Qatar was seen at 157 bps bid, 146 bps offered after the previous day's 156 bps bid, 145 bps offered.

"There's very light activity, generally speaking, in both the cash bond market and the CDS market," a Toronto-based market source said. "We are seeing a bit of bid back for the higher-yielders, which are marginally outperforming today."

He pointed to Argentina, which had been a laggard and on Wednesday was 14 bps tighter.

KDB does deal

In the primary market, Seoul-based lender Korea Development Bank priced $750 million 4% notes due Sept. 9, 2016 at 99.512 to yield 4.1%, or Treasuries plus 195 bps, a market source said.

The notes priced at the lower end of talk, which was set at the Treasuries plus 200 bps area.

Bank of America Merrill Lynch, HSBC, Korea Development Bank, RBS, Standard Chartered and UBS were the bookrunners for the Securities and Exchange Commission-registered deal.

And Poland-based Mazovian Railways priced €100 million 6¾% notes due March 9, 2016 at 99.486 to yield 6 7/8% via Standard Bank in a Regulation S deal.

Proceeds will be used to acquire rolling stock and to repay debt.

Lithuania prints notes

In another new deal, Lithuania priced $750 million 6 1/8% notes due March 9, 2021 at 98.172 to yield 6 3/8%, or Treasuries plus 294 bps, a market source said.

Price talk was set at the 6½% area.

BNP Paribas and JPMorgan were the bookrunners for the Rule 144A and Regulation S deal.

The sale by Lithuania followed the Tuesday pricing of Russia-based aluminum company subsidiary OJSC Rusal Bratsk's RUB 15 billion notes due 2018 at an 8.3% coupon, according to a company announcement.

The notes priced below initial guidance of 9% to 9½% and include a put option in 2014.

Proceeds will be used to refinance debt.

The final book was RUB 35 billion with more than 100 orders received, according to Rusal's announcement.

"Obviously because of the strong demand the coupon came down," a source said. "Russian markets are strong all around. The ruble is having a good day. It's one of the biggest beneficiaries in EM and around the world from the oil price spike."

Akbank sets price talk

Also on Wednesday, Turkey-based financing company Akbank set price talk for its planned benchmark-sized issue of dollar-denominated notes due 2018 at Treasuries plus 350 bps, a market source said.

Citigroup, Credit Agricole, HSBC and Standard Chartered Bank are the bookrunners for the Rule 144A and Regulation S deal, which is expected to price this week.

Proceeds will be used for general corporate purposes.

Ukraine-based lender Oschadbank is moving forward with its planned benchmark-sized offering of dollar-denominated notes after a recent delay, a market source said.

Credit Suisse and Morgan Stanley are the bookrunners for the Regulation S deal, which is expected to launch soon.

And from Kazakhstan, lender Eurasian Bank is planning to issue up to $300 million of bonds during the fourth quarter of this year, a market source said.

The company also is mulling an issue of ruble-denominated notes.

No other details were immediately available on Wednesday.

BMG whispers notes

Wednesday also saw Brazil's Banco BMG whisper its planned dollar-denominated issue of notes due 2014 at the high 6% area, a market source said.

Barclays Capital, BCP and Banco Bradesco are the bookrunners for the deal, which is being marketed during a roadshow this week.

In another possible deal from Brazil, oil and gas exploration and production company OGX Petroleo e Gas Participacoes was mulling a dollar-denominated issue of bonds, a market source said.

Credit Suisse, HSBC, Itau and JPMorgan are the bookrunners for the deal.

Pemex, Bancomer plan deals

Also from Latin America, petrochemical company Pemex planning up to $3 billion in two or three tranches of notes, a market source said.

The deal is expected to launch as soon as May. Proceeds will be used to refinance outstanding debt.

Pemex recently completed a non-deal roadshow with JPMorgan and Goldman Sachs.

And in another upcoming deal from Mexico, lender BBVA Bancomer has mandated BBVA, Deutsche Bank and Goldman Sachs for two-tranche issue of dollar notes due in 2016 and 2021, a market source said.

The Rule 144A and Regulation S deal is expected to price on Thursday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.