Emerging market debt tightens; Kazkommertsbank narrows talk

By Reshmi Basu and Paul A. Harris

New York, March 15 - Emerging market debt saw tighter spreads Wednesday on the back of a firmer tone seen in Brazil.

In the primary market, JSC Kazkommertsbank revised price talk for a €200 million to €300 million offering of five-year fixed-rate bonds (Baa2/BB+) to 163 to 165 basis points over euro mid-swaps from 160 to 170 basis points.

ABN Amro is the bookrunner for the Regulation S transaction.

Pricing is expected during Thursday's session.

Moving over to Russia, Absolut Capital (Luxembourg) SA, a special purpose vehicle of Moscow-based Absolut Bank, will begin a roadshow this week for its debut eurobond offering (B1).

Merrill Lynch International will manage the Regulation S offering, according to a press release from the company.

And Kremikovtzi AD, Bulgaria's largest steel company, announced in a filing with the Bulgarian Stock Exchange that it plans to make a €300 million offering of corporate bonds.

The filing added that the company has started negotiations with a leading international financial intuition to manage the deal, but did not identify that institution.

Proceeds will be used to fund capital expenditures and planned investments for making the company environmentally friendly, as well as to repay debt and for general operational and business purposes.

EM spreads tighter

Spreads for emerging market debt tightened Wednesday on the back of Tuesday's announcement that the Brazilian Social Democracy Party (PSDB) picked Sao Paolo governor Geraldo Alckmin as its presidential nominee.

Investors like Brazilian president Luiz Inacio Lula da Silva, but they seem to like Alckmin more since there have not been any corruption charges levied against him, said a source.

The source added that both candidates are seen as market friendly, and therefore economic policy should stay intact no matter who surfaces as the victor during this year's presidential election. But Alckim may be able to accomplish more fiscally sound policies than Lula due to the absence of corruption allegations, noted the source.

Tuesday's firm tone carried over into Wednesday's session. At late afternoon, the Brazilian bond due 2040 was spotted at 131.15 bid, 131.20 offered, up 0.35.

Moreover, another source noted that Brazilian paper was helped as locals had to cover Tuesday. Locals sold short on last week's allegations that Brazilian finance minister Antonio Palocci frequented a house in Brasilia where former advisers would divide cash received from bribes. The story turned out to be inconsequential, noted the source. Therefore, locals were forced to cover shorts.

Meanwhile Brazil's firmer mood also carried over into Argentina, although trading volumes were light. During the session, the Argentinean discount bond due 2033 added 1.30 to 99.60 bid, 100.05 offered.

Elsewhere the Colombian bond due 2033 moved up 0.10 to 141.85 bid, 142.85 offered. The Mexican bond due 2033 shed 0.30 to 115 bid, 115.70 offered. The Russian bond due 2030 lost 0.25 to 110.50 bid, 110.625 offered. And the Venezuelan bond due 2027 gave up 0.15 to 126.50 bid, 126.90 offered.

Overall, the JP Morgan EMBI+ Index tightened seven basis points to 192 basis points more than U.S. Treasuries.

Overall, the assert class appears to have emerged intact from last week's correction.

But one emerging markets analyst cautioned that it is still not possible to say for sure that the declines are over or whether there is worse to come.

"It is too hard to draw a very firm conclusion from the recent price action," the analyst said.

"One thing is for sure, though, and that's that the huge pile of cash that was supposedly sitting on the sidelines waiting to buy the market on dips didn't really materialize, at least not to the degree that some of the EM bulls had been promising at the beginning of March."

Peru down on volatility

In other developments, Peruvian bonds continued to come under pressure from election uncertainty. Sunday polls showed that nationalist Ollanta Humala was in a deadlock tie with Lourdes Flores in the country's presidential race.

On Wednesday, the Peruvian bond due 2015 lost 0.75 to 119.25 bid, 120.25 offered.

Peru is trading wide to countries with comparable credit ratings, which means that the market is pricing in some sort of event risk, according to a research note.

As of March 14, Peru's five-year credit derivative swap was trading at 187 basis points, which is 59 basis points wide to Brazil and 63 basis points wide to Colombia.

Increased volatility on future poll results could create trading opportunities, noted the analyst.

Ecuador to buy back $750 million

Finance Minister Diego Borja repeated the country's plan to buy back $750 million in global bonds due 2012, according to a market source.

The source noted that Borja told a local daily that he intends to announce a partial call for the bonds by the end of this month. The bonds carry a call date of May 15. Additionally, Borja said the country would scale back its plans to restructure its domestic debt.

And according to the 2006 budget, the country will earmark $150 million for domestic buybacks.

During the session, Ecuador's 2012 bonds added 0.25 to 101.25 bid, 102.25 offered.

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