Emerging market debt firmer on U.S. equities uplift; Korea tightens price talk

By Reshmi Basu and Paul A. Harris

New York, Nov. 29 - Emerging market debt pushed ahead Wednesday as U.S. stocks gained on a surprisingly strong gross domestic product report in the United States.

On the primary front, The Republic of Korea lowered price guidance for its $1 billion equivalent two-part offering of senior unsecured notes (A3/A/A+).

Price talk for the tranche of 10-year dollar-denominated global notes was narrowed to mid-swaps plus 22 to 24 basis points from initial guidance of 23 to 26 basis points.

Meanwhile guidance for the tranche of 15-year euro-denominated global notes was trimmed to 25 to 27 basis points more than mid-swaps from initial talk of 26 to 29 basis points.

Orders stood at more than $2.3 billion equivalent while demand appears to be evenly distributed across the tranches.

The country intends to price the two-part deal Thursday morning, following the completion of investor presentations.

Barclays Capital, Citigroup, Credit Suisse and Korea Development Bank are joint bookrunners for the issue, which has been registered with the Securities and Exchange Commission.

Meanwhile the country's existing bonds were in the red Wednesday in anticipation of the new supply, noted one source.

During the session, the Korean bond due 2014 gave up 0.13 to 97.881 bid, 98.132 offered.

Hong Kong corporate to tap

Adding to the pipeline, Hong Kong property developer HKI Property Ltd. set price guidance for a $100 million offering of five-year bullet bonds (B2/B+) at 10¼% to 10¾%.

Proceeds from the private placement of senior unsecured bonds will be used for new land acquisitions and for general corporate purposes.

Credit Suisse is managing the Regulation S transaction.

On the local primary front, Russian oil company OAO LUKoil plans to raise RUR 14 billion by issuing RUR 8 billion of five-year domestic bonds and RUR 6 billion of seven-year domestic bonds (BB+/Baa2/BBB-).

The five-year bonds will price at par while coupon guidance has been set at 7.05% to 7.30%.

The seven-year bonds will also price at par while coupon guidance has been set at 7.60% to 7.85%.

The issue will be offered through an open subscription by tender at the Moscow Interbank Currency Exchange. The auction is set for Dec. 14, following a roadshow on Dec. 11 in Moscow.

ABN Amro, Dresdner Kleinwort and Renaissance Capital are the underwriters for the placement.

EM treads higher

Returning to the secondary market, emerging market debt climbed higher, trigged by a strong performance in the U.S. equities market.

The Commerce Department reported that the economy grew at a faster rate than previously reported, which helped alleviate fears that the economy was headed for a hard-landing.

Additionally, the personal consumption expenditure index came in line with expectations, suggesting that inflation was under control.

On that strong GDP data, U.S. stocks jumped as some investors interpreted the data as evidence that the Federal Reserve was poised to lower rates.

A strong equities market meant higher emerging market debt prices. Among the winners were high beta credits such as Argentina and Brazil.

In trading, the Argentinean discount bond due 2033 added 0.55 to 100.80, 101.25 offered. The bellwether Brazilian bond due 2040 gained 0.25 to 132.50 bid, 132.60 offered.

Second straight win for Ecuador

In other news, Ecuador posted gains for the second straight session, even as left winger Rafael Correa emerged as the winner in Sunday's presidential run-off election.

Sources noted that market participants are waiting for clarity regarding Correa's debt strategy and furthermore are hoping that, once in office, Correa will be more pragmatic, despite his hard-line campaign rhetoric.

On the campaign trail, the president-electe tested Wall Street's nerves by toying with the possibility of an Argentina-like default.

In the week ahead of the first round election, Ecuador's bonds were crushed as the bond due 2015 fell below 96 on the bid side, noted an analyst report.

On Monday, the country saw spreads kick out by 68 basis points. The market has since regained some footing as hedge funds have become buyers, noted another source.

In trading Wednesday, the 2015 bond was spotted at 101 bid, 101.50 offered, up 0.50.

Additionally, the analyst predicted that valuations would remain choppy around current levels until there was more clarity regarding the servicing of foreign debt, which may not happen until Feb. 15 when the first coupon payment comes due.

Turkey higher despite E.U. problems

Turning to Turkey, the market paid little attention to the unraveling of Turkey's membership bid to the European Union. The European Commission proposed partially suspending talks with the country, citing Ankara's refusal to open its ports to Cyprus - although the country's effort to join the European league did get backing from the Pope.

In trading, Turkish bonds were firmer on the back of the equities rally as well as a rebound in risk appetite, according to a market source.

But the source noted that the market is making a misstep by shrugging off the E.U. news and not fully understanding the implication of the story and how it will impact the local political landscape as well as jeopardize any push for E.U. reforms leading up to an election.

During the session, the Turkish bond due 2030 moved up 0.88 to 151.625 bid, 152 offered.

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