Emerging market debt sees bout of profit-taking; funds see $78 million of inflows; 3 corporates issue debt

By Reshmi Basu and Paul Deckelman

New York, April 26 - Emerging market debt slipped in cautious trading Thursday as investors took some profits ahead of Friday's key release of U.S. gross domestic product data.

In other news, emerging market dedicated bond funds posted muted inflows of $78.53 million for the week ending April 25, according to Emerging Portfolio Funds Research.

Last week, the firm reported ABN Amro's Luxembourg-domiciled AAF Global Emerging Markets Bond Fund posted outflows of $1.6 billion in the wake of a management change.

For the week ending April 18, emerging markets bond funds recorded whopping outflows of $1.44 billion, the worst number recorded by EPFR since the beginning of 2001.

$975 million of corporate deals

Meanwhile the primary market continued to be in full swing as three corporate issuers sold $975 million in new debt.

Coming from South Korea, Hyundai Card Co., Ltd. (/BBB/BBB+) sold a $400 million offering of three-year floating-rate notes at par to yield Libor plus 43 basis points.

The deal came at the tight end of talk, which was set at 43 to 45 basis points more than Libor.

Barclays Capital, Morgan Stanley, Royal Bank of Scotland and UBS Investment Bank were lead managers for the Regulation S transaction.

Seoul-based Hyundai Card is the credit card unit of Hyundai Motor.

From Russia, two banks issued new debt.

JSCB Bank of Moscow sold a $400 million offering of 10-year lower tier II subordinated notes (Baa1/BBB-) at par to yield mid-swaps plus 180 basis points.

The deal came inside of guidance, which was set in the area mid-swaps plus 190 basis points.

The notes will be non-callable for five years.

Deutsche Bank and JP Morgan were joint bookrunners for the Regulation S issue of loan participation notes, which were sold via special purpose vehicle Kuznetski Capital SA.

Commercial bank Transcapital Bank (B1) priced a $175 million debut offering of three-year senior unsecured eurobonds at par to yield 9 1/8%,

The deal came at the tight end of revised guidance, which was cut to 9 1/8 to 9¼% from initial talk of 9¼% to 9½%.

ABN Amro and Deutsche Bank were lead managers for the Regulation S transaction, which was issued via TransRegionalCapital Ltd.

China Properties cuts talk

In other pipeline news, Shanghai-based developer China Properties Group Ltd. lowered price talk on its $300 million offering of seven-year senior notes (B1/B+). Guidance is now 9 1/8% to 9 ¼%, cut from previous talk of 9¼% to 9½%.

The deal, which is being led by Merrill Lynch & Co., is expected to price on Friday.

The Rule 144A for life notes come with four years of call protection.

Proceeds will be used to finance existing projects and potentially to acquire new properties.

Also two corporates will hit the road Friday. Kazakhstan's JSC Temirbank BV plans to begin a roadshow for a benchmark-sized offering of dollar-denominated seven-year notes (Baa3/B+/BB-).

The roadshow will run from April 27 to May 7, with stops in Asia, Europe and the United States. JP Morgan and Standard Bank plc are joint bookrunners for the Rule 144A and Regulation S offering.

The notes will be issued via financing subsidiary Temirbank Capital BV.

And Transportadora de Gas del Sur (TGS) plans to begin investor presentations for a $500 million offering of 10-year amortizing notes (B1/B+).

Presentations will kick off in Buenos Aires on April 27, move to London for April 30 to May 1, then Boston on May 2, the West Coast on May 4 and the New York area from May 7 to May 8.

The notes will be non-callable for five years.

Merrill Lynch and JP Morgan have been mandated as bookrunners for the Rule 144A and Regulation S deal.

The Buenos Aires-based issuer is a transporter of natural gas in Argentina.

EM sees profit-taking

Back to secondary trading, emerging market debt saw returns nipped as investors took profits. There was also some selling into strength ahead of Friday's GDP numbers, observed market sources.

Amid the overnight Asian session Thursday, Asian credits bounced back, bolstered by the strong performance among regional equity markets.

On the high grade front, trades were mostly seen in the credit default swap market as the cash bond market underperformed, according to a market source, who added that the market is seeing a preference for basis trades.

On the sovereign side, the CDS market also outperformed the cash market as it witnessed decent two-way flow.

During Asian trading, Philippines government paper due 2031 being quoted at a price of around 113.25, up ¼ point, while its 2032 bonds were at 97.75, up 1/8 point.

Five-year CDS contracts on the Philippine sovereigns tightened 2 bps to 104-108 bps.

EM cautious ahead of GDP

Returning to New York trading, a trader in Latin American debt said that in his market, "our prices were lower on the day - but most of our spreads were able to hang in there," with U.S. Treasury issues taking their biggest tumble in three weeks as investors wondered whether first-quarter economic growth numbers due out Friday morning would put an end to talk about the Federal Reserve planning additional rate cuts this year.

He said that depending on what part of the curve one was looking at, Latin debt prices were off by about ½ point to a full point, while spreads ranged from 1 bp tighter to "a couple of basis points wider - but net-net, I'd guess we performed in line with other markets."

He saw Ecuador's bonds as the major underperformer on the day, with Quito's benchmark 10% notes due 2030 down about 2 to 2¼ points at 91.25 bid, 92 offered.

Another source noted that the Andean nation slumped on renewed talks of debt negotiations.

Nothing really stood out as an out-performer, remarked the trader, figuring that "the bonds that were unchanged were close to being the out-performers."

He saw the most actively traded Latin issue, Brazil's benchmark bonds due 2040, at 135.60, down about ¼ point.

Toward the shorter end of the curve, Brazil's 7 7/8% global notes due 2015 were seen to have similarly retreated ¼ point to the 114.75 range. The yield on those bonds widened about 4 bps to 5.50%.

Mexico hovers around all-time highs

Among other bonds in the region, Mexico's dollar-denominated 6 5/8% benchmarks due 2015 were quoted at about the 108.20 level, down nearly 0.10 on the session, while their yield widened by 2 bps to 5.27%.

While the prices on emerging bonds, at least in Latin America, were seen to have softened a little, they remained near recently achieved all-time high levels, and spreads stayed near their all-time lows.

The widely followed EMBI + index compiled by JP Morgan and Co. was as low as 156 bps over Treasuries in intraday dealings, around its all-time nadir of 155 bps. As recently as late February, the index had ballooned out to the low 190s, as EM prices fell in the wake of investors risk-aversion following a global equity slide, but that spread has been gradually come in since then to stand at present levels.

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