Ireland aid package fails to comfort investors; EM issuance nil; VTB drops note offering

By Christine Van Dusen

Atlanta, Nov. 29 - The European Union's weekend decision to give Ireland an $89 billion-equivalent bailout managed to provide a small boost on Monday morning but ultimately failed to assuage investors' concerns about the debt crisis, leading to a weaker session for emerging market debt.

The primary market was nearly paralyzed, with Russia-based VTB Bank canceling a deal and several other issuers - including Belarus, Poland's PKN Orlen and Russia - considering a similar route.

"The market is very heavy as we continue to track the euro, Spain and Ireland problems," a London-based trader said.

Still, some issuers took tentative steps toward new deals, including Bahrain's Al Baraka Banking Group and Development Bank of Kazakhstan.

Calling these issuers "also-rans," a Connecticut-based trader said he didn't expect to see any deals coming from big names until after the new year.

"Eastern European deals are still trying to come to market," he said. "But overall the emerging markets world has grown very, very quiet."

Spreads widen

Volumes were thin for the day, the Connecticut trader said.

"The emerging markets world is going to try to ignore this Europe and Ireland negative news as long as they possibly can and try to skim into the new year without doing much, if they can," he said. "They're definitely reluctant to do anything too drastic at this point in the year."

Some selling was seen in Venezuela, but that was mostly locally driven, he said. Argentina was a touch lower but still saw some underlying strength after asking the International Monetary Fund to help design a national consumer price index. And Brazil's 2041 bonds "continue to trade pretty well," he said.

The JPMorgan Emerging Markets Bond Index Plus closed 13 bps wider with Argentina's spread up 16 bps, Venezuela's up 39 bps and Ukraine's up 31 bps.

"The external mood will continue to dominate EM assets over the next few days, and we would not rule out a short-term relief rally materializing," according to an RBC Capital Markets report.

VTB cancels deal

For now, though, the volatile state of the market is inspiring issuers to reconsider their plans for new deals.

VTB Bank has postponed its planned issue of real-denominated five-year notes via BTG Pactual and VTB Capital in a Regulation S-only deal, which was whispered at a yield in the 12½% area.

Market sources were also whispering on Monday about other issues that could get shelved, including Belarus' planned notes, Russia's ruble-denominated notes and Poland-based oil refiner and petrol retailer Polski Koncern Naftowy Orlen SA's euro-denominated notes.

And the Poland sovereign is not moving forward with an expected issue of samurai bonds, a market source said.

"I think that's a reflection of the fact that for the last two or three weeks it has become very difficult to get buyside guys excited about pretty much anything," a market source said. "They're not looking to do much if they don't have to."

Investors are a bit defensive as a result of the European debt crisis, a trader said.

"It's very much a 'protect your keister' time of year," he said. "Even though a lot of buyside gains have kind of whittled down and are relatively modest for the year, they don't want to jeopardize them at this point in the game. They'd prefer to get a clean slate of it in 2011 and try again."

Al Baraka plans sukuk

At the same time, some issuers did move forward with planned deals, including Bahrain-based Al Bakara's sukuk issue of up to $500 million in notes, a source said.

The deal is expected to come to market in 2011.

And Astana, Kazakhstan-based Development Bank of Kazakhstan JSC has mandated Deutsche Bank, Citigroup, JPMorgan and Halyk Finance as bookrunners for a possible issue of notes. A roadshow is expected to begin Dec. 1, a market source said.

Market sources are now keeping an eye out for this week's index releases from China and other EM markets, as well as payroll data from the United States.

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