Egypt’s new sovereign trades tighter; trader says buyside now holding the reins in EM

By Paul A. Harris

Portland, Ore., Feb. 14 – Late Tuesday Egypt priced $4 billion of sovereign notes (/B-/B) in three tranches.

The notes in all three tranches were 2 basis points tighter on Wednesday, heading into the London close, according to a trader based there.

It was not the best time to bring a deal, the trader said, reckoning that Egypt paid a concession of 25 bps to get it done.

The issuer and the dealers may be patting themselves on the back for getting it done, the trader said. But they were generous.

Some of that generosity was extracted during the execution, the trader recounted.

The $1.25 billion five-year paper, which came at Treasuries plus 303 bps, was initially talked at 315 bps, before official talk of 305 to 310 bps surfaced.

The $1.25 billion 10-year bonds, which came at 373 bps, were initially talked at 385 bps, then officially talked at 375 to 380 bps.

The long tranche, $1.5 billion of 30-year paper, came at 478 bps. The long bonds were initially talked at 490 bps, then officially at 480 to 485 bps.

In this market you have to come with a big enough carrot, the trader said. You have to pay up.

There has been a sea-change, the source said, adding that the volatility and rising rates have shifted the momentum to the buyside. Gone are the days when massive demand would drive gargantuan book sizes that enabled issuers to shrink spreads to microscopic tights.

The Egypt deal might actually represent a modicum of improvement, the trader said, recounting that a week ago Credit Bank of Moscow priced $500 million of 5.55% notes at par, representing a market concession of 25 to 30 bps at that time.

GTKL Europe pulls deal

Or you can elect not to pay up, as was the case with GTLK Europe Capital DAC which withdrew its benchmark offering of dollar-denominated seven-year Regulation S senior notes (Ba3//BB) after setting the price at 5½% on Tuesday, the trader said.

In the wake of Egypt’s success, Kenya, which has better ratings than Egypt (B2/B+/B+) is on the road with dollar-denominated 10-year and 30-year paper.

The roadshow started on Tuesday and wraps up on Feb. 19.

No word yet on pricing, the trader said but added that Kenya too will have to pay up.

Meanwhile Belarus is measuring the global bond market for the possible issuance of dollar-denominated paper that would come with a maturity of 10 to 12 years, a trader said.

Citigroup and Raiffeisen Bank are in the lead of the potential deal that would come in a Rule 144A and Regulation S execution.

In late January Fitch Ratings upgraded Belarus’ long-term foreign- and local-currency issuer default ratings to B from B-.

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