Emerging markets buyers appear; Korea, Malaysia at tights; Senegal soft; Brazil adds greenshoe

By Christine Van Dusen

Atlanta, Dec. 16 - Emerging markets were sleepy early Wednesday on the primary side but picked up some steam near the New York close in the secondary as investors did a steady amount of buying in advance of the Christmas holiday and year-end, market sources said.

At the European close, things were "fairly quiet," a London-based trader said. "I'm really struggling for inspiration, to be honest with you. We've seen limited customer participation."

Investors were focused on "heading into holiday mode, in terms of market liquidity," a New York-based trader said. But as the day went on there was a "very, very steady amount of buying from a number of different constituents on investment- and non-investment-grade sovereigns and corporates."

The market "is incredibly strong and very, very firm," the source said.

He pointed to issues from Korea and Malaysia as trading at "all-time tights. Some Korean issues have tightened as much as 15 basis points this week. Sovereign paper is trading very, very nicely, with good buying."

On the corporate side, "it's pretty good buying," the source said. "It's not massive volume. But it's consistent enough to move the issues higher."

Senegal eases

Senegal's recent issue, however, didn't fare so well on Wednesday.

The $200 million of 8¾% notes that priced Tuesday - the sovereign's first dollar bonds - were "trading a little softer," the London-based source said.

The deal, which initially priced at 98.034 to yield 9¼% or Treasuries plus 691 basis points, saw its yield widen by "50 basis points and it still isn't performing particularly well in the secondary," the source said.

This the trader chalked the weakness up to "the time of year. Had they waited a couple of weeks and done it in early January or the first quarter of this year, it would have been seen as a decent diversification asset worth taking a small position in," he said.

"But coming now, just before Christmas, lots of people have closed up for the year and can't be bothered to do anything. It is surprising, for their first time, to come to the market at this time of year."

Naftogaz auction prompts trading

On Wednesday investors were also keeping an eye on Kiev, Ukraine-based energy company NJSC Naftogaz, which held an auction to settle its credit derivative trades. Naftogaz had restructured $1.6 billion in debt after failing to receive bigger tariffs on gas shipments and missing a payment on its 8.125% eurobonds.

In the auction, the credit-default swap price was set at 83.5 cents on the dollar.

"So there's been a bit of action on Naftogaz," the London trader said. "It traded higher" as the European close neared.

Also on Wednesday, the Federative Republic of Brazil exercised the 5% greenshoe for its 5.875% global bonds due 2019, boosting the issue by $25 million to $525 million. The total outstanding is now $2.3 billion.

Two no-shows

And two prospective issuers continued to stay out of the picture: Latvia, with its planned euro-denominated offering of notes via Citigroup and Credit Suisse, and the Dominican Republic with its expected benchmark-sized dollar-denominated sale of sovereign global bonds via Barclays Capital and Citigroup.

It's difficult to say whether these issuers, or any others, will try to squeeze in deals before the close of the year, the London-based source said.

"There's nothing all that concrete out there," he said. "It may be that there are no obvious plans formulated now and that it could take a week or two for anything new. Then we could have a nice rally into the supply."

Brazil exercises greenshoe

Brazil (Baa3/BBB-/BBB-) increased its deal priced Tuesday with the addition of the 5% greenshoe for its 5.875% global bonds due Jan. 15, 2019, upping the issue by $25 million to a total of $525 million, according to a market source.

The sovereign on Tuesday priced a $500 million add-on to the issue at 108.204 to yield 4.75% or Treasuries plus 113.9 basis points. This came in line with talk for a yield in the 4.78% area.

The bookrunners for the Securities and Exchange Commission-registered deal were Goldman, Sachs & Co. and Morgan Stanley.

Brazil previously sold a total of $1.775 billion of the securities on Jan. 13 and May 14.

Proceeds of $27.1 million, not including accrued interest, will be used for general budgetary purposes.

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