Emerging markets weaker; Argentina battered; Noble Group prices $500 million

By Aaron Hochman-Zimmerman

New York, May 22 - Emerging markets bond prices suffered damage Thursday, but Treasury weakness helped spreads come in as the market finished its last full trading day of the week.

"It's been a very soft day price-wise," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

Argentina was hit the hardest as the government continued to make stern demands of the now back-at-work farmers.

Its benchmark discount bonds due 2033 gave up 2.5 points during trading.

However, in the primary market sentiment was feeling much better as China's Noble Group priced a $500 million five-year bond.

Many market watchers are hoping that the issue will open a window for other issuers, particularly Asian corporates.

"There's good stuff in the pipeline," a syndicate official said optimistically about the upcoming sessions after the holiday weekend.

Despite record-setting oil prices, equities edged higher, easing volatility lower by 0.54 to end at 18.05, according to the VIX index. The index is a common measure of market volatility.

Treasuries were pushed down, giving emerging markets room to tighten by 7 basis points to a spread of 251 bps, according to JPMorgan's EMBI+ index. The index calculates the amount of extra yield investors will require to keep money in emerging markets debt.

LatAm tigher, prices weaker

Spreads held in Latin America as Treasuries slipped.

"You could see it coming," IDEAglobal's Alvarez said about the Treasury action, but meanwhile prices took a "jaw shot," he said.

"Argentina is off big," he said, although there is a "domestic motive."

"They started negotiating and the government wants the farmers to sign onto some large economic package which [the government] intends to push out the door on the 25th of May," he said.

If the farmers agree to the economic package, the government will be willing to talk about the high export taxes, Alvarez said.

The steep demand from the government "leaves the thing on more unsteady terrain," he said.

The 8.28% Argentine discount bonds due 2033 sank 2.5 points to 81.5 bid, 82.25 offered.

Meanwhile, typically steady Brazil lost 0.75 point from its 7 1/8% bonds due 2037 and was seen at 113.75 bid, 114 offered.

Venezuela floats on oil

"Venezuela is the other extreme," Alvarez said.

"Venezuela is the only one on the EMBI+ to have a positive return on the day," he said.

Venezuela has often had trouble capitalizing on high oil prices, but Thursday new oil records helped buoy Venezuela in what was a "tough environment of Latin America," Alvarez said.

Light sweet crude was seen trading above $135 per barrel.

Also, reports surfaced of Caracas' purchase of $1 billion of Boden 15s from Argentina, a market source said.

The transaction adds support to a picture of a highly liquid Venezuela, the source added.

In trading Thursday, the Venezuelan 9¼% government bonds due 2027 lost only 0.25 point to 91.65 bid, 91.9 offered.

Noble prices $500 million

In the primary, the Noble Group priced a $500 million issue of five-year fixed-rate senior notes (Ba1/BB+/BBB-) at par to yield 8½% on Thursday.

The yield was printed in the middle of the revised 8 3/8% to 8 5/8% price talk, and on the tight end of the original 8½% to 8¾% talk.

Citigroup and JP Morgan were the physical bookrunners for the offering.

Proceeds will be used to repay debt.

The issuer is a Hong Kong-based commodities trading company.

The new Noble bonds traded at high as 101 bid, but closed at 100.625 bid, 101 offered, a trader said.

"It was more active than some of the other new issues before Asia starts to trade them," he said.

Because of the volatility "there is some concern over how Asia will trade it," he added.

As many had hoped, the trader does expect the deal to open opportunities for "tons of companies" in Asia who have been waiting to raise capital.

Meanwhile, Brazil's Braskem SA (Ba1/BB+/BB+) announced plans to issue $400 million of 10-year senior unsecured fixed-rate notes.

ABN Amro, Calyon and Citigroup will act as bookrunners for the deal.

Braskem is a Sao Paulo, Brazil-based petrochemical firm.

"The bridge is $1.2 billion," a syndicate official said, "but the rest will be done in the loan market."

Local currency movers

Local currency deals were also moving in the primary as the Philippines' Chinabank announced it will offer up to PHP 8 billion in long-term negotiable certificates of time deposit.

The offer will come in at least two tranches of no more than PHP 5 billion and PHP 3 billion.

Chinabank is a Manila, Philippines-based commercial and retail bank.

Singapore's Fraser & Neave Holdings Bhd. announced plans to offer a 1 billion ringgit seven-year bond.

Proceeds will be used for working capital.

Also, the Singapore-based bank and real estate developer priced S$125 million one-year 2.43% bonds.

The bonds were priced from a S$2 billion medium-term note program.

China's FerroChina Ltd. priced a $75 million reopening of its 13.5% bonds due 2011 with warrants.

The retap was priced at par to yield 13.5%.

The total issue is now $130 million.

One warrant will be issued for $2 of bonds purchased and can be redeemed for one share of common stock at the exercise price of S$1.68.

Proceeds will be used for general working capital.

The Ferro China is a Changshu, China-based steel producer.

Asia 'quiet, but weak'

Looking at activity in Asia, "it was kind of quiet, but weak," a trader said.

The weakness has been a symptom of the equity sell-off which hit the market at the beginning of the week, he said.

In general Thursday's session saw Asia widen "another 5 to 7 basis points," he said.

In Indonesia, the oil and gas industry has missed the production quota of 977,000 barrels per day for the first four months of the year, according to the Jakarta Post.

The government-run energy firm PT Pertamina was among the 22 of 37 companies which fell behind in production.

Pertamina was still the largest producer of the 37, the report said.

Director general of oil and gas Luluk Sumiarso favored publicly announcing the shortcomings rather than more substantive punishments.

The Indonesian government bonds due 2017 lost 0.75 point to 101 bid.

"They underperformed," the trader said about Indonesia.

In Pakistan, which has been weaker since the May 16 downgrade to B from B+ by Standard & Poor's, the bonds due 2017 were quoted at 83 bid.

Philippines tone stays positive

Business sentiment in the Philippines "remained positive as indicated by the overall confidence index (CI) of 12.6%" in the second quarter, the central bank said in a press release.

Confidence is measured by a survey to determine whether a respondent has a positive or negative outlook.

Despite the generally positive response, the CI has dropped off by 17.3 index points quarter on quarter and 33.8 points year on year.

The credit access outlook was positive, but dropped to 3% from 6.6% in the first quarter and 9% in the second quarter of 2007.

In Thursday's session, the Philippine sovereign bonds due 2030 were lower by 0.25 point to 130.25 bid.

Emerging Europe slips

Emerging Europe saw prices dropping even as Treasuries kept spreads in tact.

In Russia, president Dmitry Medvedev began his first international trip as the Russian president to Kazakhstan.

His next stop will be in China, which made BBC analysts feel as though his priorities may be eastward.

While in Kazakhstan, Medvedev signed an agreement with president Nursultan Nazarbayev for greater cooperation between the two, especially in the economic sphere.

The Russian sovereigns due 2030 fell 0.5 point to 115.05 bid.

Meanwhile in Georgia, with 63% of the vote in its favor, the ruling United National Movement celebrated what seems to be a parliamentary election victory.

The Organization for Security and Cooperation in Europe (OSCE) identified some instances of improper polling, but generally evaluated the elections favorably.

President Mikhail Saakashvili, also of the United National Movement, said he would not make any changes to the constitution, even as his party may have captured a legislative majority.

Elsewhere, in Turkey, investors from Italy, Israel, China and France are preparing to add investments to the government's $12.5 billion energy project in the Southeast, the Turkish Daily News reported.

Domestically, Turkey's Koc Holdings is considering investments in the region in the agriculture and automotive sectors.

Agriculture in the Southeast may reach a value of $50 billion to $75 billion, the firm said.

There are also plans for two hydroelectric plants to be completed by 2010.

The Turkish sovereigns due 2030 lost 0.875 to 152.125 bid.

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