Russia's Vneshtorgbank prices $1.75 billion; new Indonesian, Philippines utility paper firm

By Paul A. Harris

St. Louis, Oct. 27 - Sources saw strength throughout the emerging markets during the Friday session.

A late morning spot had the JP Morgan EMBI Global at a 188 basis points spread, two wider from the Thursday close and moving along with weaker Treasuries.

However, late in the day a trader who focuses on Asian fixed income said that the market was firm, and added that the new issue market seems conspicuously open to credits that might at other times face difficulty getting their deals done.

Friday saw terms emerge from two issuers separated by a broad expanse of the credit spectrum.

From the high-grade end came Russia's Vneshtorgbank with $1.75 billion of 21-month paper that priced at the tight end of price talk.

Meanwhile, Dominican Republic-based resort developer, Cap Cana SA completed an upsized $250 million single-B deal inside of the price talk.

Technicals remain strong

As the final full week in October wound down, sources seemed to be in accord: emerging markets technicals remain phenomenally strong.

"The market was quieter this week than it was last week, but it still looks pretty strong," a syndicate official said late Friday morning.

The technicals in EM remain favorable, the source added, commenting that investors are continuing to receive strategic inflows.

"Sovereigns continue to buy back their debt, and they are not issuing," the official said, adding that only Turkey, the Philippines, Peru and Colombia have come of late, and the deals have tended to be pretty small.

"We continue to see more corporate supply," the source added.

Deals from Greentown China, Pakistan Mobile

For example, on Friday it was learned that mainland China property developer Greentown China Holdings Ltd. has mandated JP Morgan and UBS to lead a dollar-denominated high-yield bond deal that is expected to roadshow during the Oct. 30 week.

Elsewhere Pakistan Mobile Communications Ltd. was heard to be marketing a $250 million offering of senior unsecured notes that are expected to be structured with a five-year maturity.

ABN Amro and Deutsche Bank have the books for that Rule 144A/Regulation S offering, which is also expected to price before Friday's close.

This syndicate official professed to know of a couple of deals that had been pulled of late "because they were pitched at levels so far from what was realistic that issuers eventually chose to go elsewhere."

Otherwise, the source said, the primary market appears to be conspicuously strong.

As evidence of the technical forces at play the official recounted the recent deal from Empresa Brasileira de Aeronáutica SA (Embraer): a $400 million issue of 6 3/8% notes (Baa3/BBB-) that priced at 99.289 to yield 6.466%, via JP Morgan and Citigroup.

The official said that the book for the issue, which launched at $300 million and could not have grown beyond $400 million, contained 200 accounts representing $3.5 billion of orders.

"When people see a name they like they're jumping in all the way," the official asserted.

Cap Cana upsizes

Apparently it was ditto for a Friday deal from Dominican Republic-based resort developer, Cap Cana SA, which priced an upsized $250 million issue of seven-year senior secured amortizing notes (B3/B) at par to yield 9 5/8%.

The yield on the Bear Stearns-led deal came 12.5 basis points inside of the 9¾% to 10% price talk.

The syndicate official, who was not involved in the Cap Cana transaction, said that the order book for that deal was heard to have been bulging to the tune of $2 billion-plus.

In a similar vein, KazakhGold Group Ltd. announced Friday that its $200 million offering of seven-year notes that priced Thursday was 3.75 times oversubscribed with an order book of $748 million. The company upsized its deal from $150 million.

The seven-year fixed-rate notes were priced at par to yield 9 3/8% via lead manager ING.

Political backdrop supportive

The sell-sider also said that at present the political forces at play in the emerging markets seem unable to weaken investors' appetites for EM debt.

Ahead of the Sunday run-off election, Brazil was holding firm on Friday, the source said.

Brazilian President Luiz Inacio Lula da Silva, of the Workers' Party, carries a substantial lead in the polling, according to local press reports.

Lula faces centrist candidate Geraldo Alckmin, from the Brazilian Social Democracy Party, who is a former governor of Sao Paulo state.

"For a few days it seemed like [Alckmin] would beat Lula, although everyone seems to think that Lula will now prevail on Sunday," the sell-sider said.

"Still, people feel as though Lula is a known quantity, and that they can deal with him," the syndicate official added.

"The last four years under Lula didn't turn out so bad."

Mexican politics, meanwhile, may be slowing a quasi-sovereign deal rumored to have been in the works from Petróleos Mexicanos (Pemex), Mexico's state-owned petroleum company.

The syndicate official recounted that president elect Felipe Calderón Hinojosa, of the right-of-center National Action Party, is set to be inaugurated on Dec. 1.

In September Hinojosa was declared president elect by the Federal Electoral Tribunal, trailing early July general elections that were fraught with controversy. In the post-election melee Hinjosa's opponent, Andrés Manuel López Obrador, demanded a recount, presenting evidence of voting irregularities.

"Some people look for Pemex to do something, but it does not seem likely because they are sitting on a fair amount of cash, and Mexico is going through a transition period," the sell-sider said, adding that with a new president coming into office Pemex will likely have a new CFO, as key positions in the company are political appointments.

Asia firm on Friday

At the Friday close, a trader who focuses on Asian fixed income saw emerging markets firm across the board, and heading into the weekend with a good tone.

"We saw good afternoon buying in the Philippines and to a lesser extent in Indonesia," the trader said.

The source spotted Indonesia's five-year credit default swaps at 133 bps bid, 129 bps offered at the close, 11 basis points tighter on the week. The Philippines five-year CDS closed Friday 134 bps bid, 130 bps offered, also 11 basis points tighter on the week.

This source saw evidence supporting the market's strength in a pair of recent quasi-sovereign high-yield deals from power utilities in Indonesia and the Philippines.

On Oct. 11 Indonesia's state-owned electric utility, PT Perusahaan Listrik Negara (PLN), priced $1 billion issue of notes (B1/BB-/Perfindo A) in what market sources called Indonesia's biggest-ever high-yield transaction.

The company priced $450 million of 7¼% five-year notes at 99.382 to yield 7.4%, tighter than the 7½% to 7¾% price talk, and $550 million of 7¾% 10-year notes at 98.976 to yield 7.9%, tighter than the 8% to 8¼% price talk.

Late Friday the trader reflected that the tranches were done at approximately 100 basis points spreads to the sovereign curve.

More recently the Philippines' National Power Corp. (Napocor) priced $500 million of 6 7/8% senior notes due 2016 at par.

The Napocor deal was quite successful, the trader said, adding that Napocor came at a 45 basis points spread to the Philippines sovereign curve, which is partially explained by the fact that the bonds are guaranteed by the Philippines.

Heading into the weekend both PLN tranches, which had priced at discounts, were trading firmly with 101-handles.

The new par-pricing Napocor paper, meanwhile, was at 100.50 bid at Friday's close.

However, the trader added, with both the Indonesian and Philippines sovereigns trading well on Friday, the new issues from the utilities were marginally lagging the sovereigns.

"Nevertheless they have performed well, providing an additional boost to the respective sovereign curves," the source asserted.

"Partly that can be attributed to the fact that there has not been a great deal of sovereign issuance recently.

"And accounts are viewing this paper a means of taking a slightly higher-returning means of getting into sovereign risk."

Vneshtorgbank prices tight to talk

Elsewhere on Friday, from Russia's quasi-sovereign sector, VTB Capital SA, a financing arm of Russia's Vneshtorgbank, priced a $1.75 billion issue of 21-month senior floating-rate loan participation notes (A2/BBB+) at par to yield three-month Libor plus 60 basis points, at the tight end of the Libor plus 60 to 63 basis points price talk.

JP Morgan, Barclays Capital and Deutsche Bank were joint bookrunners.

EM prices hold steady

The emerging markets syndicate official who spoke mid-to-late Friday morning marked the EMBI Global Index at a 188 basis points spread to Treasuries, two basis points wider with respect to Thursday's close.

"When the big rally took place in Treasuries EM rallied too, but not as much," the official said, adding that the same could be said for high-yield bonds.

The official added that as Treasuries sold off over the past few weeks, going back out to 4.80%, EM tightened because EM did not sell off as much as Treasuries.

However with Treasuries rallying over the past few days EM is a little wider on a spread basis, but basically unchanged on a price basis, the source added.

Putting the 188 EMBI Global spread in context the source said that it was much closer to 2006's tightest level, 174 bps seen on May 4, than to the wide of 232 bps seen on June 27.

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