Emerging markets see surge of new bond deals ahead of late-summer primary market slowdown

By Christine Van Dusen

Atlanta, July 8 - The new deal pipeline finally broke open on Thursday as sovereign and corporate issuers in emerging markets took advantage of a stronger tone to price notes before the real summer doldrums could take hold - and before more bad economic news from Europe could create additional unease.

New issues came from Mexico, Poland, Korea Exchange Bank, Korea Housing Finance Corp., Icici Bank and Kuwait Projects Co.

"What's happening is the capital markets world is becoming comfortable with volatility in the stock market and is not afraid to issue paper now because it will be well received, because of the way credit markets perform in the face of equity volatility," a New York-based market source said.

"So I think these guys are pretty smart," the source said. "These are the absolute best levels we've seen the whole year. Rates are low. Spreads are wider, but rates are 100 basis points lower than three or four months ago."

Not all the news was rosy for issuers on Thursday, however. Moscow-based lender Transcreditbank postponed an issue of three-year notes via JPMorgan and BNP Paribas due to market volatility, a market source said.

"It's a mixed bag. But the underlying tone is good. With equities getting higher guys are getting a little more brave," the New York-based market source said. "So I think we'll probably continue to see some issuance this month.

"August is going to be a ghost town. So if you want to issue paper, it's a pretty good month to do it."

Korea Exchange taps primary

The new wave of issuance began late Wednesday with $500 million 4 7/8% notes due 2016 from Seoul-based lender Korea Exchange Bank pricing at 99.32 to yield Treasuries plus 325 bps, a market source said.

Bank of America Merrill Lynch, Citi, HSBC and Morgan Stanley were the bookrunners for the Regulation S-only deal.

The book was more than $2 billion from 195 accounts, a source said. About 82% came from Asia and 18% from Europe, with 53% from fund and asset managers, 22% from banks, 13% from private banks, 6% from insurers and 6% from others.

Also from Seoul, Korea Housing Finance priced $500 million 4 1/8% notes due 2015 at 99.878 to yield Treasuries plus 235 bps in a Rule 144A and Regulation S offering. Bookrunners were BNP Paribas and Standard Chartered Bank.

Meanwhile, Poland priced $1.5 billion 3 7/8% notes due 2015 at 99.703 to yield 3.941%, or Treasuries plus 215 bps, via Barclays, HSBC and Nomura in a Securities and Exchange Commission-registered deal.

Mexico, Icici, Kipco price

Also printing notes was Mexico, which sold €850 million 4¼% notes due 2017 at 99.757 to yield 4.291%, or mid-swaps plus 180 bps, via Barclays, BNP Paribas and Deutsche Bank in an SEC-registered deal. The notes were talked at mid-swaps plus 185 bps area and included a make-whole call.

India's Icici Bank also came to market with $500 million 5% notes due 2016, which priced Thursday at par to yield Treasuries plus 320 bps via Bank of America Merrill Lynch, Deutsche Bank and HSBC in a Rule 144A and Regulation S deal.

And investment firm Kuwait Projects (Kipco) priced $500 million 9 3/8% notes due 2020 at 99.204 to yield Treasuries plus 647 bps. Bookrunners were BNP Paribas, Citi and HSBC for the Regulation S deal, which was whispered to yield 9½%.

In other news, Qatar's sovereign wealth fund Qatari Diar mandated Barclays Capital, HSBC, Qatar National Bank, Standard Chartered and RBS as bookrunners for a benchmark-sized dollar-denominated offering of bonds.

Also on Thursday, Belo Horizonte, Brazil-based Banco Mercantil do Brasil set price talk for its planned issue of 10-year bonds - possibly totaling $150 million - at 9¾%, a market source said.

And some sources were whispering about a possible roadshow starting July 19 for an issue of notes from the State Bank of India.

Market firm

With this new surge of supply, "some cash is getting soaked up a little bit," the New York-based source said. "Guys have cash and are willing to invest again, and they're becoming more comfortable with volatility. Equities are up 5% but that's not a big deal anymore for fixed income.

"Flows are going into fixed income every single day. They're taking money out of equities and putting it into fixed income."

A London-based trader agreed: "There are good buyers around," he said. "With stocks bouncing and Treasuries lower, there's a solid tone. The market is very firm indeed."

Venezuela, for one, traded better on Thursday after being an underperformer during the last week. The sovereign was "up 1 to 1¾ points with the '27s at 68.00 bid," a New York-based trader said.

But while volumes were "better than last week," he said, they were "still on the lighter side" on Thursday.

Recent new issues are "going OK," the New York market source said. "Nothing's really rallying and nothing's getting hit very hard either."

For example, only 3 million of the 6% bonds due 2020 from Mexico's state-owned petroleum company Pemex have traded in the last four days. "This is a bellwether, and nothing's trading," he said. "If guys were bulled up, they would be buying Pemex and selling sovereigns and picking up yield. Instead they're saying, 'That's a nice trade. Whatever.'"

The market source said he's seeing a lot of indecision among investors.

"It's a big wait and see across the board in terms of what's going to happen globally," he said. "We're in a transition period. People don't know what to make of it. Nobody has ever seen a sovereign debt crisis hit G7 countries. So they're waiting to see how it will play out. It's a tough one."

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