Turmoil in Egypt puts issuance on hold, ups risk aversion; trading mixed; Zhong An delayed

By Christine Van Dusen

Atlanta, Jan. 31 - Though several emerging markets issuers made moves toward the market on Monday - including Bank of India, Russia's VTB Bank, Russia's Gazprom, City of Kiev and Argentina's Raghsa SA - the continuing crisis in Egypt kept the primary market quiet and sent investors looking for safer investments.

Adding to the malaise was an uninspiring uptick in U.S. consumer spending for December, a slight sense of indigestion from the recent spate of new issuance and the current forecast for yet more poor weather in New York City.

"It's pretty slow, and we're expecting more snow," a New York-based trader said.

Said another New York-based market source: "Clients, when they want to add to their buckets, they're waiting for the primary market. There are no new issues right now, because it's a pretty poor environment. It's just unenthusiastic."

Egypt remains in focus

Still, some better buyers were seen on what was a choppy and active morning, a London-based trader said.

"I was definitely fearing the worst this morning, and while spreads are under pressure and dealers' bid and offer spreads have widened, it has been not as bad as I feared," he said. "My gut feeling is that this is an opportunity to pick up solid credits and sovereigns that are being thrown out with the bathwater. However, I will need to see bond outflow stats, and I also want to see some calm and order restored in Egypt."

The sovereign remained under pressure on Monday as news reports counted the dead at around 100 and the injured at 4,000 from the continuing riots.

Egypt's debt rating was downgraded to Ba2 by Moody's Investors Service. And five-year credit default swaps rose to 475 basis points from 424 bps on Friday, a source said.

"Currently both Egyptian bonds - the 2020s and 2040s - would print in the high 80s, about 3 to 4 points lower versus Friday," the London trader said.

Middle Eastern issues mixed

Other issuers from the Middle East were impacted by the continuing turmoil in Egypt.

Abu Dhabi's five-year credit default swap spread experienced a "panic lift" to 120 bps on Monday before settling down at 112 bps bid, 117 bps offered, the London trader said.

Qatar's five-year CDS were wider by 5 bps on the day. "Keep an eye on Qatar here as a few bids creep in," he said.

Morocco's 4½% euro notes due 2020 that priced on Sept. 28 at 99.495 to yield 4.563% were seen trading on Monday at 90 bid, 91 offered.

At the same time, Qatar Islamic Bank's fixed-rate sukuk notes due 2015, which came to market on Oct. 7 at par to yield 3.856%, were trading at 100.50 bid, 100.75 offered on Monday.

"It's a classic bond not to get too bearish on," the trader said. "It's holding very well and just 12 bps wider on the week. Solid effort."

Meanwhile the recent $500 million sukuk notes due 2016 from Dubai-based developer Emaar Properties - which priced on Jan. 26 at par to yield 8½% - opened Monday at 98 bid, 99 offered.

And Dubai's 2014 bonds were seen trading Monday at 98.62 bid, 99.37 offered, which was 60 bps wider on the week.

Significant headwinds for EM

Egypt provided investors with an excuse to sell last week, the New York-based market source said.

"That didn't surprise me. The question now is, 'now what?'" he said. "What we're finding in EM is that investment grade is a better value around the globe. With Brazil at 120 bps over, when you can buy similarly or better rated paper in investment grade at a higher spread, it's hard to allocate funds to this stuff. That's sort of the theme we're hearing. Between the valuations and the fact that inflows have slowed significantly, it's a turbulent landscape, and there are a lot of headwinds to overcome."

Certain credits have collapsed, he said, pointing to Argentina.

"Argentina had a 100 bps move last week. That took some guys out. We haven't seen something like that in a long time," he said. "That's the landscape, and it's not great."

Bank of India taps dealers

In deal news, Bank of India mandated Barclays Capital, Deutsche Bank, HSBC, RBS and Standard Chartered for a possible issue of dollar-denominated notes, a market source said.

A roadshow for the Regulation S transaction is expected to take place soon in London, Singapore and Hong Kong.

Also planning a new issue is Ukraine's City of Kiev. Credit Suisse has been linked to the $300 million deal.

And Argentina-based real estate developer Raghsa will market a planned $100 million issue of six-year fixed-rate notes during a roadshow starting Tuesday, a market source said.

The marketing trip will begin in Buenos Aires and travel to Miami on Feb. 4, Geneva and Zurich on Feb. 7 and wrap up on Feb. 8 in New York.

JPMorgan and Banco Itau are the bookrunners for the Rule 144A and Regulation S transaction.

Russian issuers plan deals

Monday also saw Russia-based lender VTB Bank planning to issue more than R$100 million by July, a market source said.

This would follow the company's issuance of RMB 1 billion notes due 2013 that priced on Dec. 10 at par to yield 2.95% via HSBC and VTB Capital in a Regulation S-only deal.

Also from Russia, energy company Gazprom is expected to issue as much as $4 billion of notes this year, a market source said.

The deals will be mostly dollar denominated but could include some other currencies.

Market-watchers were also talking on Monday about a possible issue of notes from Bank of Moscow.

Zhong An postpones offering

In other news, China-based developer Zhong An Real Estate Ltd. delayed its planned issue of three-year renminbi-denominated notes via Barclays Capital and UBS in a Regulation S transaction, a market source said.

The notes were talked at a yield in the 12½% area and were to be payable in dollars.

Proceeds were to be used for general corporate purposes and to fund land acquisitions.

The postponement comes as China seeks to slow down the property market with several measures, including the raising of down payments, a ban on additional home purchases for buyers who already own two or more properties, and a 5½% tax on all properties sold within five years of their purchase.

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