Spreads tighter; LG-Caltex, United Overseas talk; Venezuela dips, bounces on Carter endorsement

By Reshmi Basu and Paul A. Harris

New York, Aug. 16 - Spreads for emerging markets tightened Monday as Venezuelan paper regained composure on international backing of the nation's recall referendum - although the South American nation's debt still finished a little weaker on the session.

Overall, the JP Morgan EMBI+ tightened six basis points to 449 basis points, for a total gain of approximately 10 basis points over the past week.

In primary news, two Asian issuers released price talk on upcoming deals.

From Korea, LG-Caltex Oil Corp. set price guidance for its $300 million 10-year bonds (Baa2/BBB) in the area of Treasuries plus 143 basis points.

The deal is expected to price mid-week.

LG Caltex had attempted to do a similar deal last month but pulled it on July 22 after a labor dispute shut down its refinery.

Deutsche Bank, Bank of America and Citigroup are running the Rule 144A/Regulation S deal.

And out of Singapore, United Overseas Bank set price guidance for its benchmark-sized two-tranche deal.

Guidance is 117 basis points area on the U.S. dollar tranche and mid swaps plus 70 basis points on the Singapore dollar tranche.

Both tranches are expected to have 2019 maturities, to be non-callable for 10 years and have a coupon step up in year 10.

Pricing is expected Tuesday or Wednesday.

JP Morgan is the global coordinator for the deal. JP Morgan and Merrill Lynch are running the U.S. dollar tranche. JP Morgan, Citigroup and United Overseas Bank are running the Singapore dollar tranche.

Carter endorses Chavez win

On Sunday, voters lined up in record numbers to determine the longevity of President Hugo Chavez's presidency. The lines were so long that the voting deadline was pushed back to 12 p.m. from 5 p.m.

The motion to recall Chavez was rejected by 58% of voters, based on 94% of the ballots counted, according to the National Electoral Council.

The opposition on Monday called foul play - describing the results as "a gigantic fraud."

Venezuelan paper fell initially in response on fears that the vote would be contested.

"It opened up sort of weak this morning on the back of the rumor that the vote was being contested," said an informed source,

"But when the observers came out and said that they generally agreed with the outcome Venezuela closed flatter than it had been, and Brazil turned around and was up a little."

But subsequently former U.S. president Jimmy Carter, as part of the international watchdog community, endorsed the vote, which helped the paper recover.

Indeed, it was interesting trading day for Venezuelan paper, according to Enrique Alvarez, Latin American debt strategist for think tank IDEAglobal.

"Early on, when things were still not totally defined, prices were off about 1½ points on their most liquid globals.

"Then as international observers backed the results, the country's debt recovered, but was still at a loss.

"Basically, you've seen losses in Venezuelan paper, but only for half a point - which is not that significant," said Alvarez.

Prices are essentially discarding any future conflicts about the referendum, he added.

"The market was at first a little uncertain about what the opposition's reaction would be after all the allegations of fraud," said an emerging market analyst.

"But when the Carter Center and OAS [Organization of American States] came out and said there were no indications of fraud, Venez '27s got back much of what they had lost early in the session.

"Now there does not seem to be much chance of a violent opposition reaction to the referendum results, so the market shouldn't have much to worry about in the short term.

"In the long term, Venezuela is stuck with Chavez for at least another two years, which can't be good for bonds.

"But oil prices above $40 per barrel makes the political story more or less irrelevant so long as there's no violent confrontation or general strike," he added.

Brazil down then up

In the early morning, Brazilian securities fell on weakness in the U.S. Treasury market.

"The Treasuries, in turn, have come back a little bit, but are still negative on the day, and Brazil has basically erased its losses," said IDEAglobal's Alvarez.

By the end of Monday's session, the Brazil C bond was up 0.874 on the day to 96.062 bid while the bond due 2040 added 0.40 to 102.65 bid.

Brazil's component of the EMBI index tightened eight basis points to 555 basis points.

On Aug. 17 to 18, the Brazilian Central Bank monetary policy committee (Copom) will decide whether to keep the Selic base rate unchanged.

"There is unanimous opinion that they will do nothing at all on interest rates," said Alvarez.

Looking ahead, the Supreme Court rules on two controversial issues this week regarding the constitutionality of introducing taxes on civil service pensions. The court will also decide on the IPI tax on industrialized products.

Codelco's $600 million financing

Chile's Corporación Nacional del Cobre de Chile (Codelco) is expected to come to market with $600 million debt financing.

"My understanding is that they're not going to mandate it for a little while," said an informed source.

"I think that Codelco is trying to redo a bunch of bank loans first.

"All of these Chilean corporates have been coming up with breathtakingly tight spreads on their loans recently.

"Even names like Codelco, who did deals last year - at what looked like breathtaking spreads then - are sitting there playing one-upsmanship with one another.

"They are all reopening deals that were done a year ago," added the source.

One source said a mandate is expected at the end of September.

The Santiago-based company is a leading copper producer.

And adding to rumor pipeline is the Philippines. There is speculation the country may do another tap.

On July 27 the country priced a €350 million add on to its 9 1/8% notes due 2010.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.