Emerging market debt rallies with equities; Gol sells new debt

By Reshmi Basu and Paul Deckelman

New York, March 19 - Emerging market debt posted solid gains Monday, bolstered by a strong performance in global equity markets on the back of a string of merger and acquisition deals.

In the primary market, Sao Paulo-based low-cost airline company Gol Linhas Aereas Inteligentes sold a $225 million offering of 10-year bullet notes (Ba2//BB+) at 98.274 to yield 7¾%.

The notes will be non-callable for life. The issuer will also be able to exercise a make-whole call option at 50 basis points over Treasuries.

Morgan Stanley was the bookrunner for the Rule 144A and Regulation S (with registration rights) deal, which was issued via GOL Finance, a Cayman Islands-based subsidiary. Citigroup was joint lead manager.

Proceeds will be used to finance the acquisition of aircraft, equipment and supply materials.

Gol and its subsidiary, Gol Transportes Aereos SA, will guarantee the notes.

Mexico's CCM to sell peso bonds

Adding to the pipeline, Mexico city-based retailer Controladora Comercial Mexicana SAB de CV plans to sell a $200 million to $250 million equivalent of peso-denominated 20-year senior unsecured bonds (Baa2/BBB-/BBB-).

The fixed rate coupon will be payable in U.S. dollars at the prevailing peso/dollar exchange rate or in Mexican pesos if the holder chooses so.

A roadshow is scheduled to take place from Tuesday, March 20 through Thursday, March 22.

Merrill Lynch is the bookrunner for the Rule 144A and Regulation S deal transaction.

And coming out of Brazil, Rede Empresas de Energia Eletrica SA plans to sell a $200 million offering of perpetual senior unsecured notes (B3//B expected).

The fixed-rate notes will be non-callable for five years. Starting from 2012, the notes will be callable at par.

Investor presentations will take place in Europe and the United States from March 26 to March 30.

Merrill Lynch is the bookrunner for the Rule 144A and Regulation S transaction.

The Sao Paolo-based issuer, formerly known as Caiua Servicos de Eletricidade SA, is involved in the operation, generation, transmission and distribution of electric energy.

EM rides higher with equities

Emerging market debt posted solid gains Monday as global stocks rallied in response to heavy mergers and acquisition activity, which helped investors shrug off worries surrounding the U.S. sub-prime mortgage market.

During Asian trading hours Monday, Asian sovereigns saw most activity in the long end of the cash curve and credit derivative swaps. Cash bonds and five-year credit default swaps were each 5 basis points tighter from Friday's Asian close.

A surprisingly firm performance in Asian currency and equity markets paved the way for a solid opening in London, as risk appetite appeared to be back on track for emerging market debt, according to a market source.

And that sentiment spilled over into the New York session as the Dow Jones Industrial Average index advanced 115.76 points to finish at 12,226.17 points.

A rally in U.S. stocks equated into a rally for emerging markets, particularly high beta names.

Turkey, Argentina and Brazil were the top three performers.

The bellwether Brazilian bond due 2040 recorded an all-time high at 134.35.

Among the high scoring names, the Argentine discount bond due 2033 added 0.60 to 115.50 bid, 116 offered. The Turkish bond due 2030 gained 0.88 to 153.50 bid, 154 offered.

At the close of the session, the JP Morgan EMBI+ Global index rose 0.11% while spreads narrowed 3 basis points to 181 basis points versus U.S. Treasuries.

Nonetheless, sources noted that volumes stayed light as investors remained cautious ahead of Wednesday's benchmark rate setting decision by the Federal Open Market Committee.

Asian credits firm in New York

A New York-based trader in Asian issues characterized his market as "relatively quiet, actually.

"Its tone is firmer by a reasonable amount, with equities rallying further, but it's been a thin session."

He said CDS contracts based on Philippine and Indonesian sovereign debt, normally briskly traded instruments, are scheduled to roll over on Tuesday, "so that tended to dampen activity, ahead of the roll," though overall, they were "pretty firm."

He saw both instruments on average about 5 bps tighter from where they had first traded during the Asian session, at about 122-126 bps for the pair. The cash spreads on the underlying sovereign bonds of each were about 2 bps to 3 bps tighter, with prices edging up a little.

He saw little activity among corporates in his market.

All told, with the CDS contracts rolling over Tuesday, "a fair amount of [U.S economic] data to get through," and a two-day Federal Reserve policy-making meeting starting "it seemed on the thin side," with more players than not hugging the sidelines.

Ecuador under pressure

In other news, Ecuadorian global bonds remained under pressure as risk aversion for the country's debt cranked higher, triggered by the continued stand-off between the country's president and congress and the renewal of debt restructuring talk.

During a weekend interview, president Rafael Correa said that an Argentina-style debt proposal was not out of the question.

Correa was quoted as saying "we would like to renegotiate external debt as Argentina did, but it's quite difficult to do that now, because Argentina took advantage of its tragedy to renegotiate when bond priced had fallen," according to the local newspaper El Clarin.

And those worries were compounded by the gridlock between the nation's ousted legislators and Correa.

The lawmakers promised to break through a police barricade and retake their seats following their dismissal after 57 of their number attempted to stop a referendum by Correa to rewrite the constitution.

During Monday's session, the volatile Andean nation could not keep up with the broad rally.

In trading, the Ecuadorian bond due 2030 was unchanged at 85.50 bid, 86.75 offered.

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