Impsa prices $225 million; 'boring' day in EM; trading mixed on low volumes

By Aaron Hochman-Zimmerman

New York, Oct. 12 - Emerging markets had one eye on the weekend as quiet trading did not break out many big winners or losers.

But the primary produced one deal worth $225 million from Argentina's Industrias Metalúrgicas Pescarmona SAIC&F (Impsa).

In a light volume day for trading, Venezuela led the high-beta names, adding 1.00 to its benchmark sovereign.

Latin American names did better than Europe's, but both had very quiet sessions. Asia was seen falling off slightly, but not enough cause much anxiety for market watchers.

Over the course of the week ending Wednesday, emerging markets funds took money into the sector due to "big inflows into EM local currency bond funds this week," according to EPFR Global.

A total of $267 million came into emerging market sector funds, which made it the third straight week of inflows.

The inflow figures were the largest since the second week of June.

The VIX index put on a show Thursday afternoon reminiscent of more violently volatile days this summer, but Friday it dropped back down by a healthy 1.15 to end the day at 17.73. The index is the standard measure of market volatility.

The EMBI+ index reflected the broadly positive, but unmotivated tone in the market by narrowing 2 basis points to a spread around 181 bps. JP Morgan's index gauges how much yield investors require to hold emerging markets debt.

Europe slow and flat

The upturn in volatility which caught some off guard Thursday seemed to have skipped emerging Europe. The late day equity sell-off did not last long enough to cause any noticeable damage to European trading.

"It was not so dramatic, a boring day I would say," a syndicate desk official said.

Even banks in Kazakhstan have seen some buying from short-term players, the official said, although he recommended avoiding Alliance Bank.

The Kazakh banks are in a recovery period, but their stumble reminded some of the Asian collapse in 1997, when emerging markets were really emerging, the source said.

Foreign liquidity was pulled out from under the Kazakh banks, but the central bank, to its credit, was strong enough and prepared enough to keep them afloat, the source added.

"People are not panicking anymore," the syndicate official said about the market in general. The recovery seems like it has some sustainability.

In Turkey, relations with the United States were nervy after Thursday's vote in the foreign relations committee of the U.S. House of Representatives which labeled the deaths of 1.5 million Armenians during World War I a genocide.

The Turks are also warning they may invade Iraq in order to deny Kurdish separatists a safe haven along their southern boarder.

Trading in the sovereign has not been seriously affected by the saber-rattling. The Turkish benchmark bonds due 2030 lost 0.38 to close at 157.10 on Friday.

However in currencies, the lira has lost some ground to the dollar.

"People went out, I think that's wise," the syndicate official said, but "in the long term, maybe the Turkish lira will get stronger."

The lira was seen down at 1.191 to the dollar.

LatAm smooth after rutted Thursday

Thursday afternoon's wild ride in equities remained a mystery to market watchers, but on a lazy Friday "we're back to the levels we were before," a syndicate desk official said.

Only Venezuela showed a great deal of movement on the trading floor.

The Venezuelan high-beta 9.25% sovereign due 2027 was seen up 1, trading at 108.

Brazil's 11% government bonds due 2040 were unchanged from Thursday, trading at 133.90.

In Argentina, where Impsa was able to price its downsized $225 million deal, the benchmark 8.25% sovereign picked up just 0.05 as it traded around 94.45.

In corporate trading, recently priced deals were seen performing well.

Brasil's Construtora Norberto Odebrecht SA was up approximately 1.75 and was trading around 100.25, better than where it priced Thursday at 98.282.

Mexico's Grupo KUO was trading around 101.325 and has gained 2.10 since pricing at 99.217 on Wednesday.

Asia weaker, expecting new supply

Asia took another small step back with very light trading, as many countries celebrated Eid al-Fitr, the final day of Ramadan.

"The tone has been OK," a trader specializing in Asia said. "We backed up a bit, but not a great deal."

With the exception of Friday, the secondary has been strong, which will likely lead to new supply in the primary in days to come, the trader said.

Indonesia's market was closed for the Muslim holiday, but bonds in the Philippines traded up.

The Philippine sovereign due 2031 ended the session at 133.50 bid, 134.00 offered.

In Pakistan, the supreme court is expected to hand down a decision which will determine the legality of rescinding corruption charges against former prime minister Benazir Bhutto, who is expected to return to share power with recently re-elected president Pervez Musharraf.

Bhutto has said her return to Pakistan is conditional, and is based upon the removal of the corruption charges against her.

The Pakistani government bonds due 2017 closed at 93.

Impsa prices, others quiet

Little energy was put into the primary, but the market saw one new deal price at $225 million. Other issues expected to price were content to ride out the week and start fresh on Monday.

Impsa priced $225 million seven-year amortizing senior unsecured notes (/B/B) at 99.011 with a coupon of 11¼% to yield 11½%.

The deal which was downsized by $25 million priced cheaper than guidance for 11¼%.

Merrill Lynch had the books for the bonds which carry four years of call protection.

Impsa is a Mendoza, Argentina-based wind and hydropower producer.

"The deal struggled to get done," a market source said about the $25 million cut in size. "It's a tough industry."

Rumors of Asian issues

Strong Asian trading in recent sessions may manifest itself into new issues as early as next week, according to a trader.

Banks in Korea may be bringing some "senior paper," along with possible lower tier II offers from north Asia.

Sri Lanka is also scheduled to end the roadshow for its benchmark-sized sovereign on Tuesday.

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