Ukraine instability has market shunning long-dated notes; Bahrain sees sellers; roadshows set

By Christine Van Dusen

Atlanta, March 3 - Emerging markets assets put in a fairly active trading session on Monday as tensions in Ukraine pushed spreads wider and investors sought to shed long-dated bonds.

The United Nations Security Council held a meeting on Monday as a result of the political instability and violence in Ukraine and the mobilization of Russian troops.

Against this backdrop, Latin American corporates continued to trade well on Monday, though activity was fairly subdued, a New York-based trader said.

Most prices stuck close to Friday's levels, though Brazil's Vale SA outperformed as a result of positive earnings.

Bank paper was "particularly quiet," he said, and spreads on low-beta names widened as much as 4 basis points on Monday while volumes decreased for Venezuela and PDVSA bonds.

Meanwhile, bonds from the Middle East were "fairly defensive" in trading on Monday, a trader said.

"Trading desks are attempting to de-risk whatever longs they had on their books," he said. "Spreads are generally wider, failing to keep up with the government moves."

Sellers were spotted for perpetual bonds and buyers were seen for 2015 and 2016 paper.

"This market has had a very good run, and shorts have been cleaned out," said a London-based trader who focuses on the Middle East.

Bahrain bonds attracted sellers on Monday while two-way activity was seen for Lebanon.

"Supply has been limited here. If there is supply coming and there are three to four decent-sized deals all at once, who will be buying in the secondary?" he said. "Of course, with nearly $18 billion of Gulf region dollar bonds maturing this year, with huge local liquidity, with light dealer inventory and with most issuers not needing to borrow, it's very hard to see the market totally collapsing."

Azerbaijan on roadshow

Azerbaijan set out on Monday for roadshow to market a dollar-denominated issue of notes, a market source said.

Barclays, Citigroup and Deutsche Bank are the bookrunners for the Rule 144A and Regulation S deal.

The sovereign first announced plans for a debut bond issue in 2007, but the deal never came to the market.

Daycoval sets marketing trip

Brazil's Banco Daycoval SA has mandated Bradesco BBI, Itax BBA, J Safra Sarasin and Standard Chartered Bank to lead a roadshow for a dollar-denominated issue of notes, a market source said.

The roadshow begins March 6 in London and will travel to Zurich, Geneva, Hong Kong and Miami before concluding on March 11 in Singapore and New York.

A Rule 144A and Regulation S deal is expected to follow.

Daycoval is based in Sao Paulo.

Russian bank postpones deal

Russia's Promsvyazbank has postponed a planned issue of dollar-denominated notes due to market conditions, a market source said.

The Moscow-based lender was expected to set out on Monday for a roadshow to market the deal.

Goldman Sachs, ING, Promsvyazbank and UBS were the bookrunners for the Rule 144A and Regulation S transaction.

Chile's Banco Bice is looking to issue Swiss franc-denominated notes, a market source said.

No other details were immediately available on Monday.

The lender is based in Santiago.

GEMS hits highs

GEMS MEA Sukuk Ltd.'s recent $200 million issue of 12% perpetual notes that priced at par hit fresh highs in trading on Monday, a trader said.

"Only buyers," he said.

Abu Dhabi Islamic Bank, Credit Suisse and Morgan Stanley were the bookrunners for the Regulation S deal.

The issuer is a subsidiary of Global Education Management Systems Ltd., based in the United Arab Emirates.

Dubai bonds mixed

Bonds from Dubai were mixed on Monday, with the sovereign's 2022s tightening 12 bps over the week and the 2023s widening 10 bps, a trader said.

"Typically the lower-dollar-priced bond trades tighter," he said. "These are 20 points apart."

And Dubai-based Emaar Properties' 6.4% notes due 2019 that priced at par were quoted Monday at 1123/4.

Al Hilal Bank, Barwa Bank, Dubai Islamic Bank, Emirates NBD Capital, HSBC, Noor Islamic Bank and Standard Chartered Bank were the bookrunners for the Regulation S-only deal.

Kipco climbs

Kuwait Projects Co.'s (Kipco) 4.8% notes due 2019 that priced at par were spotted Monday morning at 103¾ bid, 104¼ offered, a trader said.

BNP Paribas, HSBC and JPMorgan were the bookrunners for the Regulation S deal.

Ukraine in focus

"The impact of the escalation in global capital markets is something it seems we've now seen countless times recently," according to a report from Erste Group Research. "Equities down, commodities like gold and oil up, safe-haven bonds and currencies stronger."

The bank expects long-dated bonds from emerging and Central Europe to sell off as money moves out of the region or moves toward shorter durations.

"Romania will most likely witness a surge in yields as the National Bank of Romania attempts to control volatility in the FX markets at the expense of higher interest rates," the report said. "For the time being, all bets are off as investors batten down the hatches and ask questions later."

Russian yields decline

Bonds from Russia remained under pressure on Monday, given the tensions in Ukraine, according to a report from UFS Investment Co.

Yields are expected to continue declining, following Friday's 5 bps-move lower for Russia's 2023s and the 1 bp dip for Russia's 2043s.

"We recommend investors focus on issues of relatively short duration, denominated in dollars and euro by Russian companies with investment rating," the report said.

On that list are bonds from OAO Rosneft, OAO Lukoil, OAO Gazprom and OJSC Alfa Bank.

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