CB Renaissance Capital, Petrobras eye issuance as euro zone problems hurt market sentiment

By Christine Van Dusen

Atlanta, Sept. 19 - Russia-based CB Renaissance Capital and Brazil's Petroleo Brasiliero SA (Petrobras) mulled the possibility of issuing new notes as spreads widened, risk aversion remained and volumes lightened for emerging markets assets on Monday.

"Markets have reacted negatively to European news over the weekend. The ongoing problems in Greece and the euro zone continue to weigh heavily on market sentiment," according to a report from RBC Capital Markets. "A heightened sense of anxiety continued to hang over markets Monday."

External debt spreads widened significantly during the morning, with the JPMorgan Emerging Markets Bond Index Plus spread adding 12 basis points to Treasuries plus 367 bps. By day's end, the EMBI Plus spread had widened a total of 18 bps, with sovereign spread-widening ranging from 10 bps to 35 bps.

"As the E.U. politicians continue to vacillate, the market takes another leg lower," a London-based trader said. "The now-familiar defensive positions are in full effect. Liquidity is constrained to a handful of assets with technically underlying strength."

Another trader termed the day's session "painful."

"However, again I would say that versus its peer group and the broader markets the [EM] asset class remains an outperformer," he said. "How much longer this can go on, I have no idea. Maybe it will continue to outperform into year-end, but I'm cautious. One has to weigh the local demand, the tenor sweet spot, Street position and likely holders of any loose bonds to ascertain where some serious widening can come."

Thus, he said, front-dated Abu Dhabi and Qatar should fare pretty well, as should sukuks in general.

"Lebanon is a case in point," he said. "There are no international sellers versus locals flush with cash, so the bonds are up on the day."

Said another trader, "With locals long on cash and obviously fairly limited supply on balance this year, there are some decent pockets of value out there. But this doesn't feel like a market to discuss value at the moment. It's about survival and preservation of capital."

EM under some pressure

Against the backdrop of continued turmoil for the European Union - as well as a give-back of Friday's gains for the Markit iTraxx SovX index - emerging Europe, Middle East and Asia did come under some pressure on Monday, a trader said.

"There's not massive flow, but cash-rich accounts are sitting on their hands and dealers are hiding, so the marginal seller pushes things lower," he said.

That meant Ukraine - which opened well but gave way to weakness - was 30 bps wider, Russia's Gazprom was 15 bps wider and KazMunaiGaz was 20 bps wider.

"Cyclical corporates like Evraz Group and Metalloinvest are widening 40 bps," he said.

Still, good demand remained for names like Qatar, Emirates, Sharjah Islamic Bank and Egypt.

As the European session went on, another wave of selling was reported.

"Even benchmark assets are trading off," he said. "EM almost feels punch-drunk right now, having stood up well to a barrage of negative news all year. Can it hold on?"

Morocco's 2017s stand out

In other trading, names from Abu Dhabi opened 3 bps to 5 bps wider while Morocco was a standout.

"It's a big effort by Morocco's 2017s over the week," a trader said. "In fact, over the month, it's outperformed the 2020s by 50 bps."

Said another trader, "Once again I've only really seen buyers of Emaar Properties and Emirates paper. There's also some interest on Kuwait names."

He pointed to Burgan Bank and Kipco, which saw some lifting and small-size trades.

Some good bids were reported for Bahrain, Qatar-based Qtel International's 2019s and 2025s, Abu Dhabi National Energy Co.'s 2016s, 2017s and 2018s, HSBC Middle East and Qatar's 2015s and 2015s.

"Overall flow in this region is balanced, with some bids hit in the afternoon on the more go-go names," a trader said. "Sukuks are holding."

Kazakhstan quiet

Meanwhile, bonds from Kazakhstan were quiet.

"This sector has really gone into hiding," he said.

Looking to Russia, corporates there were a bit wider, with Vimpelcom showing the best liquidity.

And names from South Africa were "slowly waking up to the weakness," he said.

"There are still a few bonds living in a bubble, like Halyk Finance's 2021s, FirstRand's 2016s and Turkiye Is Bankasi AS' 2016s that are close to unchanged in the last month," the London trader said. "Elsewhere it's weak in off-the-run risk."

Turkish sovereigns pummeled

Taking a closer look at Turkey, the sovereign bonds took a beating on Monday afternoon, closing 22 bps to 25 bps wider, a trader said.

"Banks, apart from Akbank and YapiKredi, have slightly outperformed the sovereigns," he said. "International retail were the main sellers of banks today, but they showed some interest on Yuksel Insaat in smalls. Maybe retail are buying into [prime minister Recep Tayyip Erdogan's] comments on the possibility of Turks rebuilding the damaged infrastructure in shelled Libyan cities, and are trying to cautiously have small exposure to it."

Two issuers mull deals

In deal-related news, Russia-based lender CB Renaissance Capital is mulling an issue of global bonds, a market source said.

No other details were immediately available on Monday.

And Brazil-based energy company Petrobras is considering a real-denominated offering of notes, a market source said.

This followed the issuer's announcement that it was not planning further dollar-denominated issuance in 2011. But the company also has said it was considering euro and sterling notes via Citigroup, HSBC, RBS and Standard Chartered.

"The big question remains how a new issue from a big blue chip name would go," a trader said. "But with the color red awash on my screen, that question is firmly on hold at the moment."

© 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.