Brazil prints bonds as EM spreads tighten; Turkey and Korea Development Bank deals ahead

By Christine Van Dusen

Atlanta, Sept. 5 - Brazil sold notes on a Wednesday that saw emerging markets assets continue to perform, even as China and Europe revealed mixed-to-weak economic data ahead of Thursday's European Central Bank meeting.

"A fairly constructive day," a trader said. "Active day, all told."

The tone was pessimistic at the start of the session on reports that China's price manufacturing index dropped.

"The rest of the morning was dominated by the European service sector PMI surveys, which revealed a mixed picture," a report from Barclays said. "Spanish and Italian numbers were weak, but better than consensus, while the overall euro area services and composite PMI surveys were marginally weaker than expected."

Risky assets, however, managed to recover from the resulting weakness, Barclays said.

The Markit iTraxx SovX index spread closed at about 233 basis points over Treasuries after the recent level of 236 bps.

"All eyes now focus on [European Central Bank]-related headlines," the Barclays report said.

Against this backdrop, several issuers took steps toward the market, including Turkey, Turkey's GarantiBank International NV and Korea Development Bank (KDB).

In its new deal, Brazil priced $1.25 billion 2 5/8% notes due Jan. 5, 2023 at 99.456 to yield 2.686%, or Treasuries plus 110 bps, according to an announcement from the sovereign's finance ministry.

BTG Pactual and Deutsche Bank were the bookrunners for the Securities and Exchange Commission-registered notes.

Proceeds will be used for general budgetary purposes.

"The supply front is starting to get going," a trader said.

Turkish issuers get busy

Turkey will go on a roadshow next week to market a possible, short-dated issue of Islamic bonds with Citigroup, HSBC and Liquidity House of Kuwait, a market source said.

The sovereign's existing 2030 notes printed at 191 on Wednesday.

Also from Turkey, lender GarantiBank International NV set initial price guidance for five- and 10-year notes via Bank of America Merrill Lynch, Citigroup, Commerzbank and Morgan Stanley, a market source said.

The five-year notes were talked at the Treasuries plus 375 bps area. The 10-year notes were talked at the Treasuries plus 390 bps area.

A roadshow was held from Monday to Wednesday of this week.

"We are constructive on the bank's fundamentals and we believe it is a strong credit with a solid balance sheet, good profitability and capital adequacy," a London-based trader said.

GarantiBank gives guidance

The price talk for GarantiBank's five-year notes is flat to Vakifbank's 2017 notes, 20 bps wider than Halkbank's notes and 45 bps through Yapi Kredi's 2017 notes, the London trader said.

"We believe this level is offering good value to investors, given the relatively stronger credit quality and business model of Garanti versus Vakif," he said. "For the 10-year bond, the only other long-dated outstanding bond in the bank space is the Garanti 2021s, which currently offer 380 bps over comparable U.S. Treasuries."

Garanti's 10-year will be the longest-dated bond in the sector, "so it should appeal to those favoring duration," he said.

Romania sees strong demand

The new €750 million tap of Romania's 6½% notes due June 18, 2018 received some attention on Wednesday.

The notes - via BNP Paribas, Deutsche Bank, JPMorgan and UniCredit - came to the market at 106.817 to yield 5.1%.

"Romania's debt managers initially planned to sell eurobonds worth €500 million but demand exceeded €3.5 billion and they decided to raise more money from the global markets," according to a report from Erste Group.

The sovereign was willing to pay up to 5¼% to place the tap but "demand was so strong that the yield was fixed below guidance at 5.1%," the report said. "The bond traded 0.75 to 1.25 ticks above the re-offer in the secondary market immediately post-issue."

Russian bonds improve

Looking to Russia, sovereign issues have seen some improvement as a result of rumors about bond-buying by the European Central Bank, according to a report from UFS Investment Co.

"Russia's 2030s close at 126 bid and the 2042s close at 119.25 bid, both unchanged spread-wise on the month," a trader said.

Most corporate issues have been growing about 0.2% to 0.3%, UFS said.

Eurobonds from Ukraine have also been strengthening this week, with the long end of the sovereign curve up about a point, according to Svitlana Rusakova of Dragon Capital.

The country's 2017s saw buying support at about 102, while the 2020s traded up at 94.5 bid, 95.5 offered. The 2021s climbed to about 95 bid, 96 offered.

"Among banking names, Oschadbank was hit at 89," she said, noting demand for First Ukrainian International Bank in the 96 to 98 area.

Dubai Water hits a high

From the Middle East, notes from Dubai Water and Electricity Authority hit their all-time high in cash price on Wednesday. The company's 2020 notes were trading at 114.5 bid, 115 offered, or 16 bps tighter on the week, a trader said.

Qatar-based Qtel International's 2021 notes were quoted at 110 1/8 bid, 110 5/8 offered, unchanged.

And Dubai's DPWorld was trading well on Wednesday, the trader said.

Overall, Gulf region names were a "mixed bag, with some names feeling like there's paper around," he said. "But others, like the Dubai government and Bahrain are trading fairly well."

Bahrain's 2022 notes saw two-way activity for most of the day, he added.

"Cash prices continue to push to, in some cases, all-time highs and the supply is, so far, nowhere to be seen from the Middle East and North Africa," he said.

Africa in focus

In other trading, South Africa-based Investec Ltd.'s 2017 notes saw demand, trading at 98.25 bid, 99.25 offered on Wednesday.

"Continues to see retail investor involvement," a trader said. "That's 15 bps tighter on the month."

Nigeria's Access Bank saw its 2017 notes trading at 103.125 bid, 104.125 offered. The notes priced in July at par.

"Africa-wise, the supply and demand dynamics are very sound," he said.

KDB plans deal

In other news, Seoul-based KDB is planning a dollar-denominated issue of notes due March 2020 that will price this month, according to a company filing.

Credit Suisse, HSBC, JPMorgan, KDB Asia, Morgan Stanley and RBS are the bookrunners for the SEC-registered deal.

Proceeds will be used for general operations, including extending foreign currency loans and repayment of maturing debt and other obligations.

© 2015 Prospect News.
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