Emerging market debt stable on Brazil, Ecuador election hopes; Turkey to reopen 2017 euro bonds

By Reshmi Basu and Paul A. Harris

New York, Oct. 10 - Emerging market debt edged higher Tuesday, shrugging off political worries over North Korea's announcement that it held its first nuclear test on Sunday.

In primary news, the Republic of Turkey announced that it would tap its 2017 euro-denominated bond to add €500 million via DZ Bank and Morgan Stanley.

Price guidance was set at mid-swaps plus 185 basis points area or a yield in the 5.89% area.

In the secondary, the 2017 bond was spotted slightly down at 97.25 bid, 97.75 offered, according to a trader.

He added that the retap would provide "more liquidity to the country's euro-curve."

The reopening would bring the total size of the deal to €1.5 billion.

Elsewhere, Majapahit Holding BV, a financing subsidiary of Indonesia's state-owned electric utility, PT Perusahaan Listrik Negara (PLN), set price talk and a new structure on its $1 billion offering of notes (expected B1/confirmed BB-) on Tuesday.

The company talked its tranche of 10-year notes at a yield of 8% to 8¼%.

Meanwhile PLN has introduced a tranche of five-year notes, which it talked at 7½% to 7¾%.

The roadshow for the Rule 144A/Regulation S notes offering is scheduled to conclude on Thursday in New York.

UBS is leading the offering.

The notes will come with a maintenance of sovereign ownership covenant and a negative pledge covenant, as well as debt incurrence limitation covenants.

The company's weak financials does not make this necessarily a buy for the weak hearted, according to an analyst. But the company does play a strategic role for the state.

The maintenance of state ownership clause coupled with a positive macroeconomic environment for the country makes this quasi-government credit a decent buy for investors looking to increase their Indonesian exposure, the analyst added.

Both tranches give a new issue premium, although the five-year tranche is recommended to avoid duration risk, according to the analyst.

EM stable

Overall emerging market debt was stable Tuesday, propelled by a year-end momentum, according to a market source.

U.S. stocks posted gains Tuesday, supported by a decline in oil prices, noted sources, adding that that helped sentiment in emerging markets.

Additionally, "cash is being put to work," noted one market source, who warned that the market is still apprehensive about declining commodity prices.

Nonetheless, the asset class was constructive Tuesday as it focused on potentially good news on the local election fronts.

Brazilian bonds recorded higher prices as some investors hedged their bets that presidential hopeful Geraldo Alckmin will surpass president Luiz Inacio Lula da Silva in opinion polls over the next few weeks.

Alckmin is the Wall Street-preferred candidate because he would be in better position to pass labor and tax reforms, according to a market source.

Lula's Workers Party has been recently caught up in political maelstrom involving allegations of a scheme to purchase documents meant to discredit the opposition party.

In a televised presidential debate on Sunday between the two candidates, Alckmin put Lula on the defensive as he lobbed questions at him regarding the government graft probe.

Lula said that he was not aware of the corruption and would continue to investigate the charges, punishing those found guilty of any wrong-doing. As expected, both sides claimed victory.

However, some analysts have given the edge to Alckmin.

Three more televised debates are scheduled before the runoff on Oct. 29.

Meanwhile Ecuador saw a poll which showed that the radical leftist candidate is losing support ahead of this Sunday's presidential election. New polls released Tuesday showed that Rafael Correa's momentum is tapering off, which is suggesting an increased likelihood that the presidential race will move to second round.

In trading, the benchmark Brazilian bond due 2040 was higher by 0.25 to 130.95 bid, 131 offered. The Ecuadorian bond due 2030 gained 0.40 to 92 bid, 92.40 offered.

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