Prices soar on slow, softer day; Latin America remains in focus; Coastal Road prices notes

By Christine Van Dusen

Atlanta, Aug. 20 - "Astronomical," "stratospherical," "incredibly expensive" - those are just some of the words used to describe prices in the secondary market for emerging market debt on a mostly softer, mixed and slow summer Friday that saw scant new issuance.

"It's very quiet," a New York-based market source said.

A Connecticut-based market source agreed. "It's been a slow day."

Overall, "it's been a very mixed session with a little chop to it. The market is very mixed at this point in time," a strategist said. "Essentially the yield hunt that has been guiding the market has for now calmed and there's no further push to historical price highs. We're taking a breather."

Prices climb high

Prices, meanwhile, were "incredibly expensive" on Friday, "and 'incredibly' is a minor descriptive," said Enrique Alvarez, debt strategist for think tank IDEAglobal.

The Brazil 2034s, for example, were seeing highs of 134 to 136, he said. "It's now at 147 bid, with a spread of 119 bps over Treasuries," he said.

He noted a similar trend for Mexico. The sovereign's 2031 global bond was "150 bid on the day, up $2, and the spread is 90 bps," Alvarez said. "That's unheard of. It's just astronomical, stratospherical, out of any sort of reasonable historical margin."

The reason for these high prices, he said, is "we have a global glut of liquidity because rates in the developed world continue to be low and there is a promise that this is going to be extended and there will be more quantitative easing on the U.S. side."

By pushing rates in this direction, "the Fed has essentially mandated that fixed income instruments around the world be revalued. That's creating a bubble, a very large one."

Venezuela in focus

Venezuela's recent $3 billion issue of 12¾% bonds, which priced at par, remained on radar screens Friday after being three times oversubscribed and experiencing heavy demand earlier in the week.

"What they do with these issues is they give the local market access to foreign exchange dollars. That was the objective," Alvarez said. "The difference was that they had to pay an enormous coupon."

The upcoming $2 billion issue of bonds from Petroleos de Venezuela SA (PDVSA) is using "the same method. That's catered to the local market in order to provide dollars to corporations and the like," he said.

In other deal-flow news, Jordan mandated Arab Bank, Credit Suisse, HSBC and JPMorgan for a planned issue of $500 million bonds due 2015, a market source said.

No other details were available Friday.

Market-watchers also were whispering about a possible dollar-denominated issue of bonds due 2020 from Ukraine.

Coastal Road prices notes

Friday saw one new emerging market deal cross radar screens. Philippines-based toll operator Coastal Road Corp. priced $160 million notes due 2022 at par to yield 12%, an informed market source said.

Bank of America Merrill Lynch and Standard Bank were the bookrunners for the Rule 144A and Regulation S deal, which was talked at 12%.

Proceeds will be used to fund the purchase of toll road revenue and rights.

For the most part, though, the day was spent chewing on the deals that priced late the night before, including Hong Kong-based telecommunications holding company PCCW Ltd.'s $500 million 4¼% notes due 2016, which priced at 99.607 to yield 4.331%, or Treasuries plus 288 bps, according to a market source.

Morgan Stanley, Standard Chartered, RBS and HSBC were the bookrunners for the Regulation S deal, which was talked at Treasuries plus 295 bps to 300 bps.

Proceeds will be used for general corporate purposes, including debt refinancing, according to Moody's Investors Service.

Other issuers active

Also on the list was Turkey-based participation bank Kuveyt Turk Katilim Bankasi AS, with a $100 million 5¼% sukuk issue of fixed-rate notes due 2013 that priced at par to yield 5¼%, a market source said.

Citigroup and Liquidity House were the bookrunners for the Regulation S deal.

Proceeds will be used for general corporate purposes, according to a Fitch Ratings report.

And Gate Capital Cayman Two Ltd. priced $112.227 million 2.637% guaranteed secured notes due 2021 at par to yield mid-swaps plus 73 bps, a market source said.

Citigroup was the bookrunner for the deal, which was upsized from $74.675 million and includes a make-whole call at 20 bps.

The notes are guaranteed by the Export-Import Bank of the United States and sponsored by Dubai Aerospace Enterprises.

Other details on the issuer were not available Friday.

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