Emerging markets soaked in more supply; Eletrobras, Dolphin, KNOC price; spreads tighter

By Aaron Hochman-Zimmerman

New York, July 23 - Emerging markets refused to stray from the pattern of the week.

Trading volumes improved in some areas, but the primary was still the star of the show.

Brazil's Centrais Eletricas Brasileiras SA, Abu Dhabi's Dolphin Energy Ltd. and Korea National Oil Corp. combined to price $3.25 billion.

The paper which did trade almost universally performed well.

Poland, which began the week's spate of new issues, held its upward trajectory as it was quoted at 102 bid, after pricing on Monday at 99.786.

Sentiment was very strong and money continued to move from the sidelines back onto the field.

From the major markets, the equity rally only served to lower volatility by 0.04 to 23.43, according to the VIX index. The index is a common measure of market volatility.

Treasury yields spiked with equities and as a sector, emerging markets tightened by 12 basis points to a spread of 396 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

Three more price

In primary activity Thursday, Eletrobras priced $1 billion of 10-year senior unsecured fixed-rate notes (/BBB-/BBB-) at 99.112 with a coupon of 6 7/8% to yield 7%.

The notes came at a spread of Treasuries plus 336.2 bps.

Pricing followed a roadshow was held on July 21 in London and on the U.S. west coast as well as New York and Boston on July 22.

Credit Suisse acted as bookrunner for the deal.

Proceeds will be used for general corporate purposes.

Eletrobras is a Rio de Janeiro-based, government-owned power firm.

By comparison, on Wednesday an issuer from the same sector and region, Colombia's Empresas Publica de Medellin, priced a $500 million 10-year senior unsecured bond (Baa3//BB+) at Treasuries plus 432.5 bps.

Back among Thursday's deals, from the Mid-East, Dolphin Energy priced a $1.25 billion 10-year bond (Aa2/AA/AA) at a spread of Treasuries plus 337.5 bps.

The bonds came with a 5.888% coupon at par.

BNP Paribas and RBS acted as bookrunners for the deal.

Dolphin's bonds initially traded ½ point better in the gray market, but local sellers subsequently pushed it below reoffer by 3/8 point, a trader said.

Dolphin Energy is an energy firm 51% owned by Mubadala Development Co. of the Emirate of Abu Dhabi.

Finally Thursday, from Asia, Korea National Oil Corp. priced $1 billion of five-year bonds at 99.344 with a coupon of 5 3/8% (A2/A/), according to a market source.

Asian Development Bank, Bank of America Merrill Lynch, Barclays Capital, BNP Paribas, Deutsche Bank and Korea Development Bank acted as bookrunners for the deal.

KNOC is an Anyang, South Korea-based energy firm.

Money back into emerging Europe

Emerging Europe traded in a flurry on Thursday, a London-based trader said.

"Everything is just better bid," he said. "More of the same."

"As quick as the market can go down it can go back up again," he added.

No particular market force has pushed investors back to the table, he said, but "people were underinvested and it still feels that way."

Poland, which retapped its 6 3/8% bonds due 2019 for $1.5 billion at 99.786 on Monday, was seen tightening and trading at 102 bid, 103 offered.

In the region's news, Russian prime minister Vladimir Putin encouraged banks to relax lending standards in order to unlock frozen credit markets, reports said.

Putin encouraged all Russian banks to spur lending, but he particularly focused his comments on state-run banks such as OAO Sberbank, which he visited Wednesday.

He tempered his remarks by saying that overzealous lending will create a new problem, but banks must find a new balance.

In trading the Russian sovereign bonds due 2030 added 5/8 point to 100½ bid, 100¾ offered.

Also Russia continued its talks with Belarus over a $500 million loan which Minsk expects before the end of the year.

"The loan negotiations continue. A meeting has been recently held between experts. I had a talk with the Russian Finance Ministry. I think, we have done a great job with the Finance Ministry of Russia," Belarus finance minister Andrei Kharkovets said in a statement.

Also in emerging Europe, Turkey's bonds were seen lower by ½ at 155 bid, 156 offered.

The bonds "just don't trade anymore," a trader said.

Asia aims at new deals

Asia's recently active primary market has been relatively quiet in the past few sessions, but syndicate desks were not ready to close the pipeline for the season.

China's Hong Kong Mortgage Corp. finished a roadshow on Thursday for a benchmark sized dollar-denominated bond (AA+).

HSBC and JP Morgan will act as bookrunners.

Also, after Indonesia's placement of ¥35 billion 10-year samurai bonds at par with a coupon of 2.73% last Friday, the Philippines may try a similar issue.

Like Jakarta, Manila also has the backing of the Japan Bank for International Cooperation for its issue which may arrive in the fourth quarter, the Manila Times reported.

Finance secretary Margarito Teves is examining how to satisfy the country's $1.5 billion funding needs for 2010, the report said.

"The main issue is the guarantee fee. We hope the guarantee fee can be reduced. We're looking if JBIC's term[s] would be competitive with [the] global bonds," Teves said.

Argentina still strong

Investors were hopeful, but saw no major progress in Argentina regarding the possibility of true reform to the statistics reporting agency Indec.

Buyers also came out for the country's sovereign bonds on the mounting expectation that the government will offer some sort of swap or buyback for the inflation-linked notes.

Holders of the inflation-linked paper have been frustrated over the years by what is widely believed to be inaccurate CPI reporting by Indec.

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