Emerging market debt hit hard by interest rate worries; Korea East-West Power prices

By Reshmi Basu and Paul A. Harris

New York, April 14 - Emerging markets debt slid in trading Wednesday as investors grappled with concerns that an interest rate hike will come sooner than later.

"Treasury curves are on the rise," said a trader. "Investors are in a state of flux. There's no place to go," he added. "Nothing in the pipeline is catching my eye."

The JP Morgan EMBI Index fell 0.56% by late afternoon trading. Its spread to Treasuries widened by six basis points.

Meanwhile, power utility company Korea East-West Power Corp. was one of two Korean issuers coming to market the day before parliamentary elections are to be held in Korea.

However, the $250 million seven-year notes that came to market at a spread of 112 basis points over Treasuries was too rich for some potential buyers.

"Much, much too tight," said the trader. "Just not attractive enough."

The 4 7/8% securities were priced at 99.927 to yield 5.059%.

Credit Suisse First Boston, Barclays Capital and Samsung Securities ran the books on the Rule 144A/Regulation S deal for the Seoul-based power utility.

Kexim brings add-on

Also from Korea, state-run Export Import Bank of Korea added $150 million to its 4 1/8% non-callable notes due 2009 and $200 million to its non-callable notes due 2014.

UBS Investment Bank was bookrunner for the Rule 144A/Regulation S issue.

On Thursday, voters are set to elect a new parliament in a contested race that could result in a big shift to the left. Many view the election as a referendum on the impeachment of President Roh Moo-hyun.

In other news, Russia's natural gas giant OAO Gazprom is expected to bring a big $1.2 billion note deal to market.

Last September, Gazprom priced an upsized €1 billion of loan participation notes due 2010 at par to yield 7.8%.

"This is a difficult time to come to market," said a fund manager. "I think people are looking for higher yields in the U.S."

"I don't know how they can actually price anything under the current market conditions. I think it's going to be tough to justify any price."

And finally, adding to the pipeline, Polish telecommunications operator Telekomunikacja Polska is expected to bring €300 million seven-year note deal to market.

Rising commodity prices help Latin America

Before the recent Treasury moves, the rise of commodity prices was a boon to Latin American countries such as Brazil, Chile, Venezuela, and Ecuador.

"Until recently, the whole growth of commodity prices from agricultural to mining and metals has helped Argentina and Chile," said a fund manager. And high oil prices have pushed up Ecuador and Venezuela.

"The support that the bonds in Venezuela and Ecuador have had reflects high oil prices more than anything else.

"Venezuela's external debt level is not of any concern because reserves have actually doubled, so they are almost at the same level as external debt.

"But in Ecuador, the strong oil prices have maintained positive sentiment for investors on that credit," added the fund manager.

"Argentina benefited from soybean prices and other agricultural products which are important contributors to GDP. I think people are buying Argentine bonds partly because of that.

"Chile is different because it already is a strong country," he added.

While Brazil's market performance has had been curtailed by political noise, its fundamentals have been bolstered by commodity surpluses, said the fund manager.

And as expected, Brazil's Central Bank Monetary Policy Committee cut the Selic benchmark rate by 25 basis points to 16% Wednesday. That was the second such reduction this year.

The COPOM committee said it took its decision unanimously after evaluating the trajectory of inflation.

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