EM assets weaker on economic concerns; Eskom, Belarus, BR Properties, Buenos Aires price

By Christine Van Dusen

Atlanta, Jan. 19 - Renewed concerns about the euro zone crisis, coupled with disappointing earnings from Goldman Sachs and disappointing housing data from the United States, made for a weaker Wednesday for emerging markets assets.

Still, the new issue pipeline continued to churn out deals, with notes from South Africa's Eskom Holdings, Belarus, Brazil's BR Properties SA and the Province of Buenos Aires.

"Disappointment over recent days' data and events triggered more aggressive weakness across core equity markets on Wednesday, setting a modestly negative backdrop for EM assets," according to a report from RBC Capital Markets. "Yields in most EM local markets were stuck in relatively tight ranges."

South Africa was tighter by 5 to 10 basis points, and Turkey was wider by 5 to 10 bps.

Some small profit-taking was noted, with the JPMorgan Emerging Markets Bond Index Plus spread widening by 5 bps. Argentina was up 17 bps, and Venezuela widened by 11 bps.

"The market is off ever-so-slightly across the board," a London-based trader said. "There's definitely a slightly weaker tone in the market; however, it's very much credit- and bond-specific."

Eskom, BR Properties price

South Africa's state-run power utility, Eskom Holdings, sold $1.75 billion 5¾% notes due Jan. 26, 2021 to yield 5.847%, or Treasuries plus 250 bps, a source close to the deal said.

Barclays Capital, Bank of America Merrill Lynch and JPMorgan were the bookrunners for the Rule 144A and Regulation S deal, which was whispered to yield in the mid- to high-200 bps area.

The day also saw Belarus price $800 million notes due Jan. 26, 2018 at par to yield 8.95%, an informed market source said.

BNP Paribas, Deutsche Bank, RBS and Sberbank were the bookrunners for the Regulation S-only notes, which were talked at a yield in the low 9% area.

And Brazil-based developer BR Properties priced an upsized $85 million issue of perpetual notes at par to yield 9%, a market source said.

Credit Suisse and Itau were the bookrunners for the Rule 144A and Regulation S deal, which was upsized from $50 million.

Proceeds will be used for property acquisition, improvement and working capital.

The original issue totaled $200 million and priced at par in September.

Buenos Aires does deal

Also pricing on Wednesday was the Province of Buenos Aires' $750 million 10 7/8% notes due July 26, 2021, which came to market at 97.916 to yield 11¼%, a source said.

Bank of America Merrill Lynch and Deutsche Bank were the bookrunners for the Rule 144A and Regulation S offering.

This followed Tuesday's pricing of $400 million notes due January 2016 from West China Cement Ltd., which came to market at par to yield 7½%, a market source said.

Deutsche Bank and ICBCI Capital were the bookrunners for the Rule 144A and Regulation S notes, which were talked at a yield in the 7 5/8% area.

Proceeds will be used to expand a production facility, to repay a bridge loan from ICBC International Finance Ltd. and for general corporate purposes to enhance liquidity.

"The new issue machine has cranked up," a market source said.

MENA region mixed

In noting the credit-specific nature of Wednesday's weakness, the London trader pointed to Dubai Water & Electricity Authority. The corporate saw its 8½% 2015s trading at 107.56 bid, 107.81 offered before closing at 107.45 bid, 107.70 offered while its 7 3/8% 2020s were at 97.5 bid, 98 offered before finishing up at 97 bid, 97.5 offered.

He also saw some support on Egypt paper, with better buyers. The sovereign's 8¾% notes due 2011 ended Wednesday at 103 bid, 103.75 offered. And its 6 7/8% 2040 notes closed at 100.25 bid, 101.25 offered.

"Certainly the retail selling pressure has abated on both Tunisia and Egypt paper," he said. "It's the usual market, though, with shorts going up more than the longs. Asset prices in Egypt, Jordan and Tunisia have calmed down."

The Egypt 2020 bonds were seen trading at par, he said. And Lebanon's bond prices experienced some weakness, while the sovereign's five-year credit default swaps traded near the 350 bps mark.

Sukuks gain favor

In other news Wednesday, Dubai-based property developer Emaar Properties set the size for its planned sukuk issue of notes at $2 billion, a market source said.

"At least it would be liquid," the London trader said.

HSBC, RBS and Standard Chartered are the bookrunners for the deal.

This comes at a time when sukuks are well supported in the market, the London trader said.

Buyers reappeared for Central Bank of Bahrain's 2014s and Abu Dhabi Islamic Bank's 3.745% 2015s, which closed Wednesday at 98.95 bid, 99.35 offered.

"Flow-wise it's another fairly active day, with demand again for sukuks," he said. "[Abu Dhabi-based] Aldar Properties seems to have found a line in the sand, with 112.50 trading a few times yesterday. Some paper came out today near the 112 level."

The trader also saw two-way activity on Qatar National Bank's 2021s and Qatar-based Qtel International's 2025s, with some interest in the Qtel's 2016s. There were also some better buyers of Abu Dhabi National Energy Co. paper. The corporate's 5.62% 2012s were trading at 105 bid, 105.12 offered before finishing the day at 105 bid, 105.15 offered. And its 7¼% 2018s were seen trading at 112.43 bid, 112.93 offered and ended Wednesday at those same levels.

Energisa, Halyk set talk

Also on Wednesday, Brazil-based electricity generator Energisa SA set price talk for its planned issue of $200 million perpetual notes at the 9½% area, a market source said.

Bank of America Merrill Lynch, Morgan Stanley and Santander are the bookrunners for the deal, which is expected to price this week.

Proceeds will be used for general corporate purposes.

Also releasing price guidance was JSC Halyk Bank. The Kazakhstan-based lender set price talk for its planned issue of dollar benchmark notes due 2021 at mid-swaps plus 415 bps to 430 bps, a market source said.

Citigroup, Deutsche Bank and Halyk Finance are the bookrunners for the Rule 144A and Regulation S deal, which was marketed on a roadshow from Jan. 12 to Jan. 18.

Wednesday also saw the Republic of Nigeria set the size for its planned offering of 10-year senior notes at $500 million, a market source said.

Citigroup and Deutsche Bank are the bookrunners for the deal, which is being marketed on a roadshow that began Tuesday.

PDVSA in focus

The market was also keeping a close eye on Venezuela''s state-owned oil company, Petroleos de Venezuela SA (PDVSA), and its planned issuance of a $3.15 billion add-on to its 8½% notes due 2017.

"The market appears to have largely anticipated the issuance of the new 17s," according to a Barclays Capital research report.

However, the bank expects some weakness once the bonds start "peeling off" through the central bank's foreign exchange system, SITME.

"We are encouraged that the government chose not to tap the new NY law 2013s and believe that they will become the new 2011s by summer and, as such, will likely evolve into the most resilient part of the capital structure," Barclays said.

"We advise clients to stay vigilant on price action within the next few weeks to take advantage of entry points caused by the new supply of 2017s and recommend expressing long views through 2013s, 2014s, or 2027s."

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