Emerging market debt softer on little liquidity; Evraz price talk

By Reshmi Basu and Paul A. Harris

New York, July 26 - Lack of liquidity pulled down emerging market debt in slow trading as credits across the board were softer during Monday's session.

Analysts had predicted that many would engage in profit-taking this week as investors came off a good June.

However, it was difficult to pinpoint the causes behind Monday's sell-off.

Some said liquidity in the markets. Others said profit-taking.

"It's hard to say. It's pretty quiet, so I think more of what's happening is you have a down day with not a lot of liquidity," said a syndicate source.

"It tends to go down more on those kinds of days."

One buy-side source said that across the board, credits were down - evidence that it was "a liquidity problem in the market."

In primary action, Evrazholding, a financing subsidiary of the Russian steel company Evraz, downsized its offering of five-year fixed-rate guaranteed bonds to $150 million from $200 million.

Price talk is for a yield in the 10 7/8% area on the notes, which are expected to price on Tuesday.

Credit Suisse First Boston and ING are bookrunners for the Regulation S offering.

Adding to the pipeline, Banco do Brasil SA plans to issue $350 million of 10-year subordinated notes (Baa1).

Credit Suisse First Boston and BB Securities are joint bookrunners for the Rule 144A/Regulation S bond offering.

And almost adding to the pipeline was the Bank of Moscow. The bank is delaying an only just announced $200 million to $300 million eurobond.

Merrill Lynch and ABN Amro were joint bookrunners.

"Bank of Moscow announced a deal, and delayed it all in the same day," said the syndicate source.

"I don't know if it was market conditions or a documentation issue.'

Merrill Lynch and ABN Amro were joint bookrunners.

Brazil's sell-off called knee jerk reaction

Brazil continued its Friday slump into Monday. The Brazil bond due 2040 was bid at 951/4, down 1.35, while the C bond was down 0.938 to 92½ bid.

Late Friday, Brazilian paper fell in reaction to an investigation into alleged tax evasion by Central Bank president Henrique Meirelles and monetary policy director Luiz Candiota.

Brazil's local news magazine Isto E reported on its website that both Meirelles and Candiota were both under investigation for allegedly not declaring a number of offshore accounts.

"I think the sell-off on the Meirelles news was mostly knee-jerk," said an emerging market analyst.

"We had known about this for a while, but Isto E repackaged it as if it was a fresh revelation.

"The only news in the article was the suggestion that there might be a formal investigation underway into Meirelles' tax returns to see whether there was any evasion involved.

"I think most of the weakness in Brazil lately is just profit-taking on concerns about Russia and the external environment in general.

"The Meirelles news didn't help, but I don't think it's going to be a serious issue for the market unless some new incriminating details are released," he said.

The syndicate source agreed that people didn't seem to be too focused on the scandal.

"Then you had some better news on the tax side," said the syndicate source.

"People don't seem to be giving much credence to it."

Good news did come out of Brazil Monday morning, pushing the tax evasion scandal to the background.

Brazil scored a robust trade surplus of $954 million for the week ended July 25, bringing the country's year-to-date trade surplus to $17.68 billion.

Russia down

More bad news surfaced for the embattled Yukos. According to a Russian news agency, the Moscow court has issued an arrest warrant for a major shareholder of the oil firm on charges of involvement in murder and attempted murder.

Leonid Nevzlin, a Yukos's co-owner, who is living in self-exile in Israel, is charged with complicity in murder and attempted murder.

The company said last week it could be facing bankruptcy, as a result of a Russian court order to pay $3.4 billion in taxes and a freeze on its assets.

"It's making it worse and worse," said the syndicate source.

The Yukos scandal is having a bearing on Russia, but the company's woes have been priced in, according to the buy-side source.

"I wouldn't say that it has had a broader implication other than the that fact that S&P did come out and say that Yukos was a concern to them.

"And they didn't see themselves upgrading Russia to investment-grade in the short-term.

"And Russia is trading like that for awhile.

"Russia has been lagging Brazil in the market for the last month," said the source.

The Russia bond due 2030 was bid at 91.687, down 0.188, in trading Monday.

The buyside source added that Russia's softness is a result of "the large supply in the market" brought on by last Friday's Gazprom deal and the giant €3 billion and $2.4355 billion repackaging of Paris Club debt brought to market by Aries Vermogensverwaltungs GmbH.

"Yukos is winding down," he said.

On Monday, Russia's softness was felt by its first investment-grade corporate, the new debt backed by receivables from Gazprom.

Gazprom priced an upsized $1.25 billion of notes due 2020 (-/BBB-/BBB-) at par to yield 7.25%.

After being freed to trade, the issue moved above par, closing at 100 1/8, 100 3/8 offered Friday.

Since then, the new credit has tumbled. The issue moved to 98.25 at London close Monday.

Finally, a market source said Asian issuance should pick up after August and sees the biggest risk to Asian debt as Federal Reserve policy and volatility in U.S. Treasuries.

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