Bank of Moscow, Novatek sell notes as violence in Egypt, snow in New York slow activity

By Christine Van Dusen

Atlanta, Jan. 27 - Bank of Moscow and Russia's OAO Novatek priced notes on a Thursday that saw several forces - including violent protests in Egypt and the weather in New York City - conspiring against market strength and activity.

"The market feels a little bit weaker," a London-based market source said. "Treasuries are lower and there's obviously some concern about Europe and what's happened in Tunisia, and with Egypt and Yemen. Countries are getting emboldened by what's happened in Tunisia."

Also contributing to the general sense of weakness on Thursday was controversy for China Forestry Holdings Ltd. and Brazil's Banco PanAmericano, as well as the news that durable goods orders in the United States unexpectedly declined 2½% in December.

"And it's pretty slow today with the snowstorm," a New York-based market source said. "Desks are not fully staffed."

The JPMorgan Emerging Markets Bond Index Plus spread widened 6 basis points, with Argentina up by 19 bps, Ukraine by 34 bps and Venezuela by 16 bps.

Egypt bonds heavy

As violent anti-government protests continued in Egypt, the sovereign's bonds were very heavy, according to a London-based trader.

The 5¾% 2020 notes - which were seen trading Tuesday at 99.75 after closing Monday at 100.25 bid, 101 offered - opened Thursday at 98 bid, 99 offered.

"They're now offered in the street at 96 - ouch," the trader said near the European close.

The sovereign's five-year spread widened 32.66 bps to 377.76 bps, according to data tracker Credit Market Analysis Ltd.

VimpelCom does well

Another London-based market source was watching the $1.5 billion notes due 2016 and 2021 that priced Wednesday from Russia-based telecommunications company VimpelCom Communications OJSC. Both tranches - $500 million 6.493% notes due 2016 and $1 billion 7.748% due 2021 - came to market at par.

"They've done well in trading," he said. "It's up about a point on both tranches. The high prints were probably up a half or three-quarters."

The total book was $7.5 billion, a source said, with $3 billion in orders for the five-year tranche and $4.5 billion for the 10-year tranche.

Russian issuers do deals

In the primary market, Russia-based independent gas producer Novatek priced $1.25 billion of notes due 2016 and 2021 at mid-swaps plus 312.5 bps, a market source said.

The deal included $600 million notes due Feb. 3, 2016 that priced at par to yield 5.326% and $650 million notes due Feb. 3, 2021 that priced at par to yield 6.604%.

Both tranches came in line with talk of mid-swaps plus the low- to mid-300 bps area.

BNP Paribas, Citigroup and RBS were the bookrunners for the Rule 144A and Regulation S deal.

Also from Russia, Bank of Moscow priced S$150 million notes due Feb. 1, 2013 at par to yield 4¼%, a market source said.

ING and UBS were the bookrunners for the Regulation S-only deal, which came in below price talk of 4 3/8%.

Proceeds will be used for general corporate purposes.

Emaar oversubscribed

This followed the late Wednesday pricing of Dubai-based developer Emaar Properties' $500 million sukuk notes due Aug. 3, 2016, which came to market at par to yield 8½%, a market source said.

HSBC, RBS and Standard Chartered were the bookrunners for the Regulation S-only deal.

The final book was $1.7 billion with more than 140 orders. About 52% came from Europe, 38% from the Middle East, 7% from Asia and 3% from offshore United States.

Fund managers accounted for 60%, banks 29%, private banks 8% and insurers 3%.

"Certainly a lot of paper has come, and the pipeline is pretty solid as well, but as we've seen over the last weeks and months, there is healthy demand," the London-based market source said.

Zhong An talks notes

Chinese issuers got a lot of attention on Thursday. Keeping up the streak of new and planned deals from the property development sector, Zhong An Real Estate Ltd. set price talk at the 12½% area for a three-year offering of renminbi-denominated notes, a market source said.

Barclays Capital and UBS are the bookrunners for the Regulation S deal, which is expected to price this week. The notes will be payable in dollars, and proceeds will be used for general corporate purposes and to fund land acquisitions.

This 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.

"These measures could act as a drag on global market sentiment if seen slowing the construction sector and easing demand for commodities," according to a report from RBC Capital Markets.

China Forestry in trouble

Property developers now make up 50% of the Asian high-yield market's composition, said Luz Padilla, portfolio manager for the DoubleLine Emerging Markets Fixed Income Fund.

That's inspired investors to seek out deals from other Chinese industries, like the 7¾% notes due 2015 from plantation forest operator China Forestry Holdings that priced in November at par.

But now that issuer's share trading has been suspended amid allegations of fraud, and Moody's Investors Service has put the company on review for a possible downgrade.

In response, the 2015 notes went from par-plus to being bid in the high 40s on Thursday, Padilla said. "They're not even at their first coupon date yet and there seems to be trouble brewing there."

That has her concern about the Chinese market as a whole. "We were able to sidestep that one, because we were never involved. But I don't like to hear stuff like that because it means that the market isn't imposing the right amount of discipline in order to keep these types of deals out.

"Maybe people were too quick to go into that credit, and maybe for the wrong reasons," she said. "It's a negative development and doesn't bode well for the market as a whole."

PanAmericano seeks bailout

Another fraud-related case was on the market's mind on Thursday. Brazilian lender Banco PanAmericano saw its bond yields climb amid reports that the company will need yet another financial bailout.

In 2010, PanAmericano got a capital boost after accounting inconsistencies were found.

Sources are waiting to see whether this impacts other Brazilian banks, including Banco BVA SA, which has set price talk at the low 9% area for its planned three-year dollar notes via BCP Securities and UBS.

Brazil's Banco BMG is also said to be mulling an issue of notes.

In unrelated news on Thursday, South Africa-based rail, port and pipeline company Transnet mandated Barclays Capital and Goldman Sachs as the joint bookrunners for a benchmark-sized issue of dollar-denominated notes, a market source said.

A roadshow for the Rule 144A and Regulation S offering will start on Tuesday and travel through New York and London.

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