Burgan Bank, Vista Land price deals on sleepy Friday; volumes stay thin; Buenos Aires on tap

By Christine Van Dusen

Atlanta, Sept. 24 - The emerging markets new issuance pipeline barely dripped on Friday, with the session only seeing deals from Kuwait-based lender Burgan Bank SAK and Philippines-based property developer Vista Land & Lifescapes Inc.

Investors were caught between strong cash-driven demand and caution while they continue to digest recent economic news.

"It's been a sleepy Friday," said Nick Chamie, global head of emerging market research for RBC Capital Markets. "Most of the action seems to be occurring on the currency side today, and equities, while bonds aren't doing that much. Treasuries have backed up and EM debt has followed. So that's allowed spreads to tighten in without prices changing much."

The JPMorgan Emerging Markets Bond Fund Index Plus was at a spread of 280 basis points on Friday afternoon, tighter by 11 bps on the day. "But in terms of price movement, it's up not even 0.2% on the day," he said.

There isn't follow-through "on selling in EM debt to keep the spread constant," he said. "There really isn't any major desire by investors to unload EM holdings. Demand remains quite strong, given the recent pickup in issuance and how well it's been taken down."

He pointed to the recent $1.25 billion issue of 5¾% senior notes due 2021 from Brazil-based steelmaker Gerdau Trade Inc., which priced at 99.051 to yield 5 7/8%, or Treasuries plus 333.8 bps.

"It was issued around 99 and now it's trading at par and 5/8, almost par and 3/4," Chamie said. "That's very good, very strong performance."

Inflows up again

Interest in EM debt, he said, "remains solid."

Indeed, inflows into emerging markets bond funds totaled $1.05 billion for the week ended Sept. 22, up from $678 million the previous week and "extending their current inflow streak to 17 consecutive weeks," according to a report from data tracker EPFR Global.

"With the U.S. Federal Reserve signaling further efforts to bolster the U.S. economy and public finances in Europe again under the microscope, investors piled into emerging markets assets" during the week, the report said.

Flows once again favored funds with local currency mandates.

Of the total inflows into EM bond funds, "$683 million went into funds focused on investing in local currency bonds," according to the report.

Fed clouds picture

Volumes, though, have not seen that kind of upward movement. They stayed thin on Friday as investors continued to sort through the Federal Open Market Committee's recent indication that rates would remain low and measures would be taken to support the United States economy if necessary.

The news is rippling through emerging markets, an economic strategist said.

"As the Fed keeps keeping rates low, that's likely to complicate matters for central banks across the EM region," he said. "A lot peg their currency to the dollar, so they'll have difficulties as a result of the Fed activity. The story remains the inflation and currency story for the regions, and it will be an ongoing story for some time. It's not going away anytime soon."

Market-watchers are waiting to see if the Fed proceeds with any quantitative easing to support the economy.

"I think the talk is around quantitative easing and how that will help credit products perform," Chamie said. "It's important for EM debt."

The economic strategist agreed: "How the Fed proceeds with quantitative easing will have impact throughout the EM regions and how various central banks respond."

Burgan, Vista Land print notes

Friday's primary market was mostly quiet. But Burgan Bank priced $400 million of 7 7/8% notes due 2020 at 98.311 to yield 8 1/8%, or Treasuries plus 560.6 bps, according to a market source.

The offering came tighter than talk for a yield of 8¼%.

JPMorgan, Morgan Stanley and Standard Chartered Bank were the bookrunners for the Regulation S deal.

The final book was $1.4 billion from 140 orders, with 49% from the Middle East, 24% from the United Kingdom, 17% from Asia, 5% from Switzerland and Europe and 5% from offshore. Banks accounted for 50% while funds were 30% and issuers and pensions were 20%

Vista Land & Lifescapes also brought a new deal on Friday, its $100 million 8¼% notes due 2015 pricing at par via Morgan Stanley and UBS in a Regulation S transaction.

"There's almost nothing today," a source said.

BCI, others move forward

Friday did see Buenos Aires' planned dollar-denominated benchmark-sized issue of notes due 2015 whispered to yield 11 7/8% to 12%, a market source said.

Bank of America Merrill Lynch and Deutsche Bank are the bookrunners for the Rule 144A and Regulation S deal, which could price as soon as the week of Sept. 27.

Also getting closer to doing a deal: Chile-based lender Banco Credito e Inversiones (BCI), which is looking at a dollar-denominated issue of five-year notes via BNP Paribas and JPMorgan, a market source said.

Meanwhile The Republic of Panama is planning its first issue of samurai bonds that could total as much as $500 million. The deal is expected to price in 2011, a market source said.

And Peru-based lender BBVA Banco Continental SA is planning an issue of dollar-denominated senior notes due 2040 with bookrunners Credit Suisse and BBVA, a market source said.

In other news, the final book for Hong Kong-based property developer Cheung Kong Infrastructure Holdings Ltd.'s $1 billion 6.625% perpetual notes - which priced at par - was $5.2 billion from 167 orders, with 87% from Asia and 13% from Europe. Retail accounted for 55%, asset and fund managers 36%, commercial banks 7% and others 2%.

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