Emerging markets creep tighter; trading takes cue from primary; Vimpelcom talks $2 billion

By Aaron Hochman-Zimmerman

New York, April 23 - Emerging markets kept its optimism thanks in part to rumors of benchmark issuance from Russia's OJSC Vimpelcom.

Vimpelcom talked its $1 billion five-year tranche at 8 3/8% and its $1 billion 10-year tranche at 9 1/8%. The deal is expected Thursday morning.

The issue follows fellow Russian corporate Evraz Group SA, which priced $1.5 billion last Thursday.

"There's plenty of money around, and it's getting put to work," a trader said. "Whether that proves to be folly in the weeks and months to come still remains to be seen."

In trading, the high betas continued to drag on the stable credits, largely due to political risk.

Venezuela led the way down on Wednesday by dropping 1.2 points from is bonds due 2027.

Aside from classic political risk, emerging markets have been more affected by action in U.S. Treasuries rather than equities gauged by the S&P 500, a strategist said.

Similarly, CDS spreads are less coupled to sovereigns or Treasuries than they are to other derivatives such as the iTraxx Crossover index, he said.

Meanwhile, JPMorgan's EMBI Global index provides "a poor proxy" for the market's risk sentiment, he said.

Still, as a sector, emerging markets managed to tighten by 3 basis points to a spread of 269 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging markets debt.

A wild ride for equities on Wednesday ended with volatility lower by 0.61 at 20.26, according to the VIX index. The index is a frequently used measure of market volatility.

Emerging Europe stays constructive

Trading in emerging Europe has been "gentle" but "steady" over the past few sessions, a trader said.

"There's not a huge amount going on in the secondary markets; the gauge is taken from the new issue side," he said.

In Russia, an agreement for greater cooperation was signed between the state oil firm OAO Gazprom and Iran, Russia's Press-TV reported, according to the Itar-Tass News Agency.

Gazprom also held a meeting with Bui Dinh Dinh, the ambassador from Vietnam.

Bui and Gazprom's chairman Alexei Miller "discussed the prospects for further development of the Russian-Vietnamese cooperation in the oil and gas sector and highly appreciated the results of interaction between Gazprom and Petrovietnam," a Gazprom press statement said.

The Russian sovereign bonds due 2030 added 0.125 point to 114.875 bid, 115 offered.

Elsewhere in the commonwealth of independent states, the presidents of Kazakhstan and Uzbekistan have agreed to establish a free trade zone between the two, according to Itar-Tass.

Trade between the countries hit $1.4 billion in 2007, compared to $700 million in 2006, but falls short of its full potential, Kazakh president Nursultan Nazarbayev said in the report.

"We will instruct the two prime ministers to study the issue in detail in order to answer within a quarter what impediments we have and what can be done to remove them," Nazarbayev said.

In Turkey, prominent members of Europe's business sector expect "this process to rightfully proceed," BusinessEurope president Ernest-Antoine Seillere said about Turkey's entrance into the European Union, according to the Turkish Daily News.

Turkey came under consideration for membership in 2005, but standards of democracy and economic reporting have held up its entrance.

The Turkish government bonds due 2030 lost 0.8 point to 153.625 bid, 153.875 offered.

Georgia asks U.N. to step in

Elsewhere, Georgia's government will call for the condemnation of Russia at an emergency meeting of the U.N. Security Council.

Relations between the two over the breakaway Georgian provinces of Abkhazia and South Ossetia have reached a low point after a Georgian air force drone was allegedly fired upon by a Russian MiG-29 over Abkhazia.

Russia claims rebels downed the unmanned plane.

The Georgian government bonds due 2013 were quoted at 100.75 bid, 101.5 offered.

Vimpelcom to price $2 billion

The primary market hummed with talk of new issues, including a possible new benchmark from Indonesia as well as Thursday's business, OJSC Vimpelcom, (Ba2/BB+). which released talk for its $2 billion two-tranche bonds.

The $1 billion five-year tranche was talked at 8 3/8%.

The $1 billion 10-year tranche was talked at 9 1/8%.

ABN Amro, Barclays, BNP Paribas, Calyon, Citigroup, HSBC, ING and UBS will act as bookrunners for the deal.

A roadshow was held in Los Angeles, New York, Boston and London beginning on Monday and Thursday.

Proceeds will be used to refinance the company's bridge facility relating to the acquisition of Golden Telecom Inc.

Vimpelcom is a Moscow-based wireless telecommunications services company.

Elsewhere, the Export-Import Bank of Korea (Kexim) (Aa3/A/A+) announced plans to reopen its 8.61% Mexican peso bonds due 2017.

The original 1 billion peso notes were priced on Oct. 4, 2007 and mature on Oct. 11, 2017.

Merrill Lynch will act as the bookrunner for the registered deal.

Proceeds from the sale will be used for general corporate purposes.

Kexim is a Seoul-based state-owned bank.

LatAm weighted by high beta

Latin American trading was positive on the back of the primary market's success, a strategist said.

The issues are selling cheaper than they are trading, he said, but "that's the only way to sell paper."

The discounted prices may show "not everything is great," he said, although, "good, solid BB+ credits are trading very well out there."

In Venezuela, after its recent $3 billion domestic market issue and its nationalizations of steel and cement manufacturers, "supply and politics continue to deteriorate the credit," the strategist said.

The Venezuelan 9¼% government bonds due 2027 sank 1.2 points to 92.6 bid, 93 offered.

Also in Latin America, Brazil's 7 1/8% bonds due 2037 were unchanged at 112.8 bid, 113.2 offered. The 11% bonds due 2040 were quoted at 135.15 bid, 135.2 offered.

Government favors corporations, farmers say

In Argentina, representatives of the farmers hurt by high export taxes on agriculture products have accused the government of favoring multinational corporations in the country's wheat trade, according to the Buenos Aires Herald.

Farmers even suggested that the government set the fires that have shrouded cities in smoke, in order to blame the farmers, the report said.

The farmers said that the attitude of the government will not likely change before May 2 and strikes will resume, but will not lead to food shortages.

The 8.28% Argentine discount bonds due 2033 were unchanged at 79 bid, 79.5 offered.

"There is a lot of political noise and problems and there is going to be widening," the strategist said.

Asia fights price of rice

In Asia, trading saw some tightening, but the light volumes came under the specter of rice prices, which hit new highs. Export limits were set in India and Vietnam as some were expecting similar regulations from the world's largest exporter, Thailand, the BBC reported.

However, Thai prime minister Samak Sundaravej said the country will continue to be known as the "world's kitchen," if the government decides to use abandoned government land to increase agricultural output, the report said.

Meanwhile in the Philippines, the Asian Development Bank has offered loans to countries that are suffering due to the rising cost of food.

ADB approved $10.1 billion in loans in 2007, up 37% from 2006 in response to demands for development assistance, according to ADB's 2007 annual report.

In Indonesia, in order to combat the affects of the rising rice prices, the government raised the price in order to aid farmers, the Jakarta Post reported.

"The purchasing price increase is designed to protect prices for farmers, who need a lot of support to develop their businesses," said deputy for agriculture and maritime sector of the coordinating minister for the economy, Bayu Krishnamurthi, in the report.

The Indonesian bonds due 2017 slipped by 0.75 point to 102 bid, 102.5 offered.

ADB sees risk for Asian bonds

Volatility still plagues the emerging East Asian bond markets, according to a report released by the ADB.

"Credit tightening in emerging East Asian economies has not been severe in the wake of the U.S. subprime mortgage turmoil ... But corporate bond yields have edged up as investors seek risk premiums, while some borrowers have delayed bond issues, relying on short-term bank finance rather than longer-term debt issuance," the bank said in the April issue of its magazine, Asia Bond Monitor.

Initially the crisis was limited to the major currencies, but as the trouble spilled into local markets the volatility became more evident in domestic markets, the report said.

The region has survived better than the global average, but "the region's offshore bond issuance market has slowed markedly and securitization markets have largely dried up," the report said.

To improve local markets, governments need to strengthen related legal systems and corporate governance, encourage a diversity of investors and improve oversight and reporting, the report said.

A specific focus on India praised its bond market in general terms, but called its domestic corporate market "less developed, with private placements dominating."

India should do more to lessen disadvantages for international investors.

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