Emerging markets 'on fire'; Turkey, BNDES sell dollar deals; EMBI Plus tightest since 2008

By Christine Van Dusen and Paul A. Harris

Atlanta, Jan. 5 - Emerging markets began to heat up again on Tuesday as pricing and planned deals came out of Latin American corporates, the Republic of Turkey priced its issue of $2 billion 6¾% 30-year fixed-rate notes and investors were heartened by positive global economic news, market sources said.

"It's on fire," a New York-based source said. "I think we're going to start to see people try to accelerate plans and get out there. I just expect January to be extremely busy."

Leading the way on Tuesday was Turkey's deal, in which 30-year notes were priced at 98.655 to yield 6.85%, or Treasuries plus 224.7 basis points. In addition, Rio de Janeiro-based Banco Nacional de Desenvolvimento Economico e Social (BNDES) sold $1 billion 5.5% fixed-rate notes due 2020 at 98.949 to yield 5.634%, or Treasuries plus 187.5 bps.

Also from Latin America came news that Acapulco, Mexico-based Grupo Posadas SAB was planning to sell $200 million five-year bonds via JPMorgan and Sao Paulo-based Banco Industrial e Comercial SA (BicBanco) was setting out on a roadshow starting Thursday for an issue of three-year bonds.

But it wasn't just corporates that perked up on Tuesday. Latin American sovereigns Argentina, Venezuela and Colombia saw better bond prices during the day, according to Enrique Alvarez, a debt strategist with think tank IDEAglobal.

"The combination of positive data points from China, the U.K. and the U.S. served to sort of rekindle the recovery story on a broader basis. The commodity story and, to a certain extent, the carry trade story revived," he said. "All of those elements filtered through quite positively for bond prices in Latin America."

Argentina "continues to be the outstanding story," he said.

All of this could lead to a surge in new issuance from Latin American sovereigns, he said.

"The sovereigns who weren't able to get off at the end of last year due to a crunch in liquidity and book-squaring will probably be tempted to come around," he said. "However, there's sort of a limited window here because obviously Treasury yields are higher and that has squeezed spreads. They'll have to test and see if investor interest will hold at these new, compressed spread levels."

The Emerging Markets Bond Index Plus is at 273. "That's the tightest I can recall since June 2008," he said. "If you look at the combined countries of Brazil, Colombia, Panama, Peru and Mexico - which is to a large extent the core Latin American debt category - all credits are trading inside of 200 basis points. But if you extract Brazil, all the other four are below 185 [bps]. Overall, on a relative basis, that's quite tight."

Liquidity abounds

All of this reflects an abundance of liquidity and a sense from investors that Latin America will "continue to be pushed by commodity consumption, and that will be positive for domestic finances across the board," Alvarez said.

Perhaps this means the Dominican Republic will finally come to market with its expected dollar-denominated sovereign global bonds via Barclays and Citigroup, but Alvarez cautions that "it's hard to see the appetite for that. It's very specific, not widespread. Some people don't have mandates to buy something like that at this point.

"The Dominican Republic last year was one of the top performers in the Latin American debt category. It appreciated enormously.

"Still, I'm not sure what type of appetite they'll find for this. But this has been in the grapevine for quite a long time, so I assume they've lined up buyers and that there will be demand."

Turkey prices notes

The Republic of Turkey (Ba3/BB-/BB+) priced $2 billion 6¾% notes due May 30, 2040 at 98.655 to yield 6.85%, or Treasuries plus 224.7 bps, according to a market source.

HSBC, JPMorgan and UBS were the bookrunners for the Securities and Exchange Commission-registered deal. T.C. Ziraat Bankasi AS was the co-manager.

Proceeds will be used for general financing purposes, which may include the repayment of debt, according to a filing with the SEC.

BNDES prices

Brazil's BNDES priced $1 billion 5½% fixed-rate notes due July 2020 (expected Baa2/BBB-/BBB-) at 98.949 to yield 5.634%, or Treasuries plus 187.5 bps, according to an informed market source.

The bookrunners for the Rule 144A and Regulation S deal are HSBC and Barclays.

Proceeds will be used for general corporate purposes.

BNDES is the state development bank based in Rio de Janeiro.

Grupo Posadas plans bonds

Mexico's Grupo Posadas (B2/B+/B+) is planning to sell $200 million five-year bonds via JPMorgan, according to a market source.

This follows the hotel chain's mid-December non-deal roadshow in Los Angeles, New York, Boston and London.

The bonds are non-callable for life.

Proceeds will be used to refinance existing debt, according to rating agency Moody's Investors Service, which expects the notes to boost the company's liquidity position.

Grupo Posadas is based in Acapulco, Mexico.

BicBanco roadshow starts Thursday

Brazil's BicBanco will set out on a roadshow on Thursday for an issue of three-year bonds, an informed market source said.

The deal will come via bookrunners Bank of America Merrill Lynch, HSBC and Banco Itau.

The size of the issue and other details were not immediately available.

BicBanco is a lender.

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