Egypt and contagion fears hamstring EM; Russian Railways, Oschadbank, Bimbo advance deals

By Christine Van Dusen

Atlanta, Feb. 2 - The escalating violence in Egypt - as well as news from Jordan and contagion effects in Yemen and Algeria - captured the attention of emerging markets issuers and investors on Wednesday, slowing activity in the primary market and raising risk aversion.

Though on Tuesday it seemed as though a peaceful resolution might soon be forthcoming in Egypt, that possibility was erased Wednesday afternoon when pro-government demonstrators clashed with anti-government demonstrators.

"Egypt's spreads tightened this morning as news emerging from the country suggested that a peaceful transition from the current Mubarak regime was more likely that it seemed earlier this week," said Gavan Nolan, analyst with Markit, in a report. "But by the afternoon the rally had gone into reverse and the sovereign's spreads were back above 400 basis points."

Even the news of better-than-expected U.S. job growth for January did little to calm fears and kick the market into gear. Only a few issuers - including OAO Russian Railways, Ukraine's OJSC Oschadbank and Mexico's Grupo Bimbo SA de CV - took tentative steps toward doing new deals.

Jordan in focus

Jordan's 3 7/8% notes due 2015 hovered around 90.5 for most of Tuesday until word came that King Abdullah II had deposed the sovereign's government as a means to head off the kind of violent protests seen in Tunisia and Egypt.

"There's definitely some weakness across EM on the back of all of this," a market source said. "A lot of buyside guys are trying to figure out what's going on."

Jordan's bonds closed Tuesday at 92 bid. On Wednesday they opened at 92 bid, 93 offered and continued trading during the European afternoon at about 93.

Meanwhile, Bahrain's 2020 dollar notes were trading heavy on Wednesday, a London-based trader said. "It's was up at 100, now down at 99.5."

Said Nolan: "Bahrain ... has been one of the worst performers."

Dubai trades tighter

Dubai's 6.396% 2014 notes opened Wednesday at 99.375 bid, 99.875 offered, which was about 5 basis points tighter.

"The Dubai 2014 dollar sukuk has traded a few times at 99.75 and 99.875," a London-based trader said.

Qatar-based Qtel International's 3 3/8% notes due 2016 were inching higher, seen trading at 95.87 bid, 96.37 offered.

And the 8½% sukuk notes due 2016 from Dubai-based developer Emaar Properties, which priced at par on Jan. 26, were seen trading at 98.5 bid, 99 offered on Wednesday.

"The day's range was 98.375 to 99.375," the trader said.

The 3% notes due 2015 that priced at par on Oct. 26 from Saudi Arabia-based petrochemical, fertilizer and metals conglomerate Sabic were trading Wednesday at about 98.

"There's not a tremendous amount of Saudi tradable risk out there," he said. "This is one of them, and is a fairly recent deal, albeit it is a solid credit."

ICA trades flat

The $400 million 8.9% notes due 2021 from Mexico-based construction company Empresas ICA SAB de CV that priced Tuesday at 98.545 to yield 9 1/8% started off Wednesday a bit weaker, a New York-based market source said.

Bank of America Merrill Lynch, Morgan Stanley and Santander were the bookrunners for the Rule 144A and Regulation S notes, which are non-callable for five years and priced in line with talk.

"It seems a little bit weak off the break but seems to be cleaning up and better supported at this point," he said at mid-afternoon in New York. "I haven't seen a run in quite some time, but this morning it was flat to issue price."

A New York-based trader was keeping an eye on ICA and said: "It looks like the ICA paper has been trading throughout the entire day right around the new issue price and in a very tight range, between 98½ and 98.60."

Three issuers plan deals

In other news, Moscow-based Russian Railways is planning to issue at least $500 million of notes, a market source said.

No other details were available Wednesday.

Also planning a new deal is Ukraine-based lender Oschadbank.

Credit Suisse and Morgan Stanley have been linked to the debut offering of eurobonds.

And Mexico-based baking and food corporation Grupo Bimbo plans to issue between $500 million and $700 million of notes, a market source said.

The tenor is likely to be seven or 10 years, and issuance is expected to take place in the second quarter.

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