The Croatian Bank for Reconstruction and Development (HBOR)
and Russias VTB postponed international bond issues this
week as rising credit spreads amid profit taking in emerging
markets shut the door on new issues for the first time in
nearly three months.
Croatias Bank for Reconstruction and Development HBOR
cancelled its Eu300m five year offering on Tuesday via Deutsche
Bank and Royal Bank of Scotland after poor investor interest.
The A3/BBB rated borrower had not embarked on a formal roadshow
but the leads had been gauging investor demand over the past
month. The government-owned issuer has outstanding 2011s, 2012s
and more liquid 2017 notes.
However, Croatias (Baa3/BBB/BBB-) Eu750m long five year
bond launched at end-May provides a better guide to pricing. On
Tuesday, official price guidance at 8.5% to 8.75% was released.
This triggered Croatias 2014s to plunge to 95.75 compared
with its 99.675 reoffer price, according to a banker away from
the transaction. The deal would have offered a juicy 200bp
pick-up to Croatias 2014 notes. State-backed development
bank paper from the CEE region has traditionally offered a
100bp concession to the sovereign.
Bankers away from the deal were surprised by the lack of
investor demand. "This was the right level for pricing for both
dedicated emerging market investors and investment grade
accounts," said one head of emerging market bond origination in
London. Another banker said investors were reluctant to step up
exposure to new Croatia risk as markets have yet to price in
deterioration in the sovereigns medium-term
creditworthiness. "This was never going to be an easy sell from
a pricing level, relative value and credit story perspective
because of concerns about Croatias economic and political
problems," he said. Croatias bid to join the EU has been
blocked by Slovenia since December over a border dispute while
the IMF estimates the economy will contract 3.5% this
The volatility in western stock markets and US Treasuries has
led to a wave of profit taking and widening emerging market
bond spreads. After rallying by 200bp over the past two months,
the JPMorgan EMBI index has drifted wider this week to around
450bp compared with 410bp three weeks ago.
VTB switches to Swiss
Against this backdrop, Russian state-owned bank VTB has
postponed its Eurobond issue following its recent meetings with
investors via Citi, Deutsche Bank, JPMorgan and VTB Capital.
"When we finished the non-deal roadshow [two weeks ago] the
general market conditions seemed to just go downhill from
there, so the timing wasnt great and VTB is in no hurry
to issue," said a syndicate banker.
The benchmark-setter for Russian issuers was considering a 9%
$1bn to $2bn Eurobond with a seven year maturity and three year
put option, said bankers. This would have represented a 30bp to
40bp pick-up over VTBs outstanding curve. VTB is now
heading on a roadshow to Zurich, Lucerne and Geneva next week
with BNP Paribas and VTB Capital for a short-dated Swiss franc
deal. "It makes sense for VTB to access a new capital base and
lock in short-dated funds before yield curves steepen, however,
the US dollar primary market is still open for VTB if it is
willing to pay the premium," said a banker away from the
Macedonia mulls summer lull
The new issue pipeline for emerging European credits is now
made up almost exclusively of sovereign names. The Republic of
Macedonia is eyeing a long three year bond for Eu150m to Eu300m
at 9% to 9.5% via HSBC. However, the news has sent the
sovereigns existing 2015s to sell-off. This upward
repricing of its yield may mean the deal is put off until after
the summer. Poland which is expected to be the only
economy to escape the regional recession will finish a
roadshow in New York on Tuesday. The A2/A/A
borrower is hoping to issue a Eu1bn benchmark via Barclays
Capital, Citigroup and HSBC. Meanwhile, Hungary has hired BNP
Paribas, Citi and ING for a non-deal roadshow to take place
over the next two weeks.