China Merchants prices small add-on during confused session for EM; Turkey well timed

By Christine Van Dusen

Atlanta, Oct. 18 - China Merchants Bank Co. Ltd. priced a small tap of its 2014 notes on Tuesday as emerging markets bond investors remained somewhat nervous about the European financial crisis, even as France and Germany agreed to a trillion-dollar rescue plan.

"Another choppy session and again a mixed bag, spread-wise," a trader said.

The Markit iTraxx SovX index spread was wider by about 5 basis points.

"The broader market may be a little nervous," another trader said during the European morning. "But in general, retail investors keep nibbling at emerging Europe, Middle East and Asia bonds, which is providing support to prices."

Later in the session, the tone was one of confusion, he said.

"The market has spent the day oscillating between periods of self-doubt and periods of continued EM demand," he said. "Client flow is definitely more cautious, but Street and retail investor demand is ensuring that EM is trading well overall, with Russia outperforming."

The Republic of Turkey also received a lot of attention for its new issue of notes, which one trader said was timed perfectly. And several bonds from the Middle East - including those from HSBC Bank Middle East and Qatar Islamic Bank - were tighter by 30 bps on the month.

With China Merchants alone in pricing a deal on Tuesday, market-watchers were keeping an eye on the issuance pipeline, which continued to fill up, this time with a planned deal from Hong Kong's Victor Soar Ltd.

"Pending supply is suddenly back in focus," a trader said.

China Merchants sells notes

Commercial lender China Merchants Bank priced a $25 million tap of its 3¾% notes due Oct. 21, 2014 at 99.799 to yield 3.8215%, or mid-swaps plus 300 bps, a market source said.

ANZ and Standard Chartered Bank were the bookrunners for the deal, which now totals $275 million.

The original issue priced Monday at 99.681 to yield 3.8635%, or mid-swaps plus 300 bps.

Also from Asia, Hong Kong's Victor Soar Ltd. has mandated DBS Bank, Citic Bank, Deutsche Bank, JPMorgan, Standard Chartered Bank, UBS and Wing Lung Bank for an issue of renminbi-denominated notes, a market source said.

Investor meetings will be held in Hong Kong and Singapore starting Oct. 20.

The Regulation S notes are guaranteed by parent company Tsinlien Group Co. Ltd., a Hong Kong-based investment holding company.

Turkey in focus

In trading, Turkey's new issue of 10-year notes was somewhat active on Tuesday.

The $1 billion issue of 5 1/8% notes due 2022 came to the market on Monday at 98.94 to yield 5.259% via Bank of America Merrill Lynch and HSBC in a Securities and Exchange Commission-registered transaction.

The new notes hit a low of 98.5 on Tuesday before recovering to 98.9375 later in the day, a trader said.

"It's amazing to think that despite the dislocations in the credit markets, thanks to the crazy-low rate environment that we are in, Turkey still gets to issue at a record low dollar yield," he said. "It's fairly quiet for the corporates so far."

Said another trader: "You have to admire the Turkish Finance Ministry for their consistent ability to time the market. They've taken advantage perfectly of the recent pop, paying up 20 bps to get $1 billion bonds away."

Good flow for Ukraine paper

Ukraine was also having a quiet day on Tuesday, with retail investors nibbling at some corporate names as earnings results came in strong, a trader said.

Toward the end of the day, some good two-way flow was noted for corporates.

Russia's quasi-sovereign bonds also saw good two-way flow, he said.

Meanwhile, bonds from Africa saw some buying as spreads improved for names like Gabon, Ghana and Nigeria.

"Egypt and Morocco are holding steady," he said. "Nigeria and Gabon are nearly 60 bps better on the week. But liquidity is still patchy."

IPIC ahead

Looking to the Middle East, Abu Dhabi-based oil industry investment company International Petroleum Investment Co. was preparing to kick off its roadshow for an issue of notes via Barclays Capital, JPMorgan, Mitsubishi UFJ Securities, Natixis and Societe Generale.

"Their bonds have traded heavy today, with the 2020s and 2021s closing 10 bps wider," a trader said. "The rest of Abu Dhabi is actually trading OK. Mubadala's 2021s hold well at 16 bps tighter on the week, and we saw buyers for Dolphin Energy, Aldar Properties and Waha Capital as the day went on."

Some action was also noted for the long end of Qatar, as well as two-way activity for Qtel International's 2019s. Buyers were seen for Qtel's 2021s and 2025s.

"Bahrain was quiet, and BBK continues to be leaned on," he said. "It's now 90 bps wider on the month. Meanwhile Bahrain's 2020s are holding well at 16 bps tighter on the week, and we have seen some buyers this week," he said.

Quiet session for sukuks

Bonds from Dubai were slightly wider on Tuesday, a trader said, though more buyers were seen for Emirates airline and Dubai Water and Electricity Authority's 2016s.

"It's a quiet day for sukuks," he said. "But if anything it feels like there is a little more paper around than normal. It still takes a brave person to short them, though."

HSBC Bank Middle East, Abu Dhabi Islamic Bank, Sharjah Islamic Bank and Qatar Islamic Bank are all about 30 bps tighter on the month, he said.

"Super performance," he said. "Good liquidity and activity in Abu Dhabi National Energy Co. too, for most of the day. It's also worth noting that Emaar Properties is just 15 bps wider on the month. There's ongoing demand."

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