Emerging market debt softer on Venezuela; two corporates issue new debt

By Reshmi Basu and Paul Deckelman

New York, May 3 - Emerging market debt edged lower Thursday as political risk in Venezuela cranked higher on threats that the country would leave the World Bank and the International Monetary Fund.

In the primary market, Intergas Finance BV priced $600 million of 10-year bonds (Baa1/BB/BB+) at 99.091 to yield 6½%.

The deal came at the tight end of guidance, which was set for a yield of 6½% to 6 5/8%.

ABN Amro and BNP Paribas were joint bookrunners for the Rule 144A and Regulation S deal.

JSC Intergas Central Asia will guarantee the issue.

Intergas Central Asia is a main subsidiary of Kaztransgaz and is an indirectly 100% state-owned monopoly gas transmission company in Kazakhstan.

Coming from Mexico, Desarrolladora Metropolitana SA de CV sold a $200 million debut offering of 10-year senior notes (B2) at par to yield 10 7/8%, according to a market source.

The deal came within guidance, which was set for a yield of 10½% to 11%.

The notes will be callable on May 9, 2012 at par.

Dresdner Kleinwort was the bookrunner for the Rule 144A and Regulation S transaction.

The Mexico City-based issuer is involved in home building and construction.

In other primary news, Mexican cement producer Cemex SA de SV set price talk for a euro-denominated offering of perpetual bonds (//BBB) at mid-swaps plus 180 to 185 basis points.

The issue will be structured as fixed-to-floating rate bonds and will be non-callable for 10 years.

The size of the deal is expected to be €750 million.

Barclays Capital and JP Morgan are managing the Regulation S sale, which will be issued via special purpose vehicle C10-EUR Capital (SPV) Ltd.

Elsewhere, New World Resources BV will start a roadshow on Monday for its €300 million offering of eight-year senior notes (B3/B).

The offering is expected to price late next week or early the following week.

Morgan Stanley, Barclays Capital and Citigroup are leading the Rule 144A/Regulation S offering.

The notes will come with four years of call protection.

Proceeds will be used to repay bank debt and to fund capital expenditures.

The prospective issuer is a Netherlands-based holding company whose activities include coal mining and coke production in the Czech Republic.

Venezuela dampens spirits

Back to secondary trading, Venezuelan president Hugo Chavez' threat to pull his country out of the International Monetary Fund continued to roil the emerging debt market Thursday, as investors feared that such a step could produce a technical default on many of those bond issues, and as they digested Wednesday's advice from several investment banks to stay away from the bonds until the situation is resolved.

Venezuela's benchmark 9¼% bonds due 2027, which on Wednesday lost more than ½ point to end at around the 122 level, on Thursday were seen to have slid more than 1¾ points, all the way to 120.20 at the close - their lowest level in six months.

The yield on the bonds, which had widened out by about by 6 basis points on Wednesday, ballooned out another 15 bps to 7.32%.

Apart from the benchmark issue, Venezuela's 5¾% notes due 2016 fell nearly a full point to 92.60%, while their yield was also 15 bps wider, at 6.86%.

Investors were apparently not mollified by Wednesday's statement from finance minister Rodrigo Cabezas that Venezuela would not default on its debt and would continue servicing the borrowings, making the scheduled interest payments and otherwise adhering to the conditions of the bonds' indentures, even if the country did turn its back on the IMF.

However, analysts and other market-watchers were quoted in the financial media on Thursday as saying that even if the interest payments were made, and on time, a careful parsing of the indenture language indicated that Venezuela would clearly be in technical default just for the mere act of withdrawing from the international lending body, which Chavez considers to be a tool of the United States in its ongoing confrontation with the oil-rich Latin nation.

They speculate that the fiery Chavez made his threat earlier this week to bolt the IMF without realizing the potential severity that such a step might pose for his country's international financial standing, and project that when push comes to shove, Venezuela probably won't actually leave the IMF, but may find some way to stay in the body but still not lose face, while taking some other symbolic step to demonstrate Chavez's displeasure with international lending agencies, which he said have hobbled Latin America on Washington's behalf "for decades."

Mexico's local bonds firmer

Elsewhere in Latin American dealings Thursday, Mexico's peso-denominated bonds were firmer, as that country's currency unit held at its highest level in more than three months, buoyed by stronger U.S. economic data - seen as good news for Mexico's economy, since the U.S. is by far its biggest trading partner and buys four-fifths of its exports.

The 10% peso bond due 2024 rose about a third of a point to 121, while the bonds' yield tightened by 3 bps to 7.80%.

Spreads tighter in Asia overnight

Earlier in Asian trading, spreads tightened by about a basis point or so, as the market appeared to shrug off the bad karma from recent political developments in Turkey and Latin America - soothed by the moves Turkey's government announced to defuse a political crisis that could have pitted the country's military and other secularist forces against Islamist factions, and apparently reassured by Venezuela's vow to continue servicing its debt.

Spreads on the five-year CDS contracts linked to Philippines sovereigns were about 1 bp tighter at 107-111 bps, although that's still about 3 or 4 bps over where those contracts were a week earlier, before the Turkish constitutional controversy began to heat up and before Venezuelan strongman Chavez made his threat to pull his country out of the IMF and the World Bank.

Spreads on the five-year CDS contracts linked to Indonesia's government bonds were also seen in about 1 bp, around the 105-111 bps vicinity.

Investors in Philippines debt were meantime studying Thursday's announcement out of Manila that the government plans to cut its total borrowing next year by 17% from current levels, to 325.57 billion pesos, or about $6.8 billion, versus this year's projected borrowings of $390.7 billion pesos, about $8.2 billion.

The cuts will come in all areas of borrowing, whether through local-currency borrowings in the peso-denominated domestic market, which will be down 12% from this year's projected levels, or from foreign loans, the sale of dollar-denominated foreign bonds and borrowings from overseas development agencies, which will collectively be down 20%. The government hopes to bring overseas borrowings down to about 30% of its total debt from its projected ratio of 33%

The government is in the process of trying to bring down its ratio of debt as a percentage of gross domestic product, which peaked at 78% in 2004. It was 65% last year, is projected to fall to 58% this year, and to 52% next year.

By lowering its ratio of debt as percentage of the economy and cutting interest costs, Manila is hoping to convince the major agencies to upgrade its ratings, allowing it to further lower its borrowing costs. Its debt is currently rated B1 by Moody's Investors Service, BB- by Standard & Poor's and BB by Fitch Ratings.

MangaChip rides higher

A trader saw MagnaChip International Inc.'s bonds continuing their rise of the past few sessions, although he did not know why the South Korean computer chip-maker's bonds were lately doing so well, with the floating-rate notes moving up to 89.75 bid, 90.75 offered from 89 bid, 90 offered previously, its 6 7/8% notes due 2011 rising to 86.75 bid, 87.75 offered, from 84 bid, 86 offered, while its 8% notes due 2011 were at 69 bid, 70 offered, from 67 bid, 69 offered.

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