Ukraine raises $1 billion; Ecuador lower as election heats up; Guidance heard on CVRD, Gazprom

By Paul A. Harris

St. Louis, Nov. 15 - Sources were marking the emerging markets flat and unchanged on the mid-week session.

Unchanged, that is, save for the sovereign bonds of Ecuador which were lower as presidential candidate Rafael Correa, who may be looking for a break from holders of Ecuador's sovereign debt, pulled even with - or perhaps ahead of - his opponent heading into the election set for a week from Sunday.

Meanwhile in the primary market, the Ukraine priced a new $1 billion issue of 10-year paper tight to the price talk in a deal that was heard to have gone well.

Correa advancing

Late Wednesday morning, a trader who focuses on Latin American sovereign debt told Prospect News that emerging markets spreads were hanging in to within 0.10 to 0.20 basis points of Tuesday's closing levels, and added that Treasuries at that point were a little weaker.

The source marked Brazil's benchmark 11% bond due in 2040, perhaps the most liquid security in the entire asset class, unchanged at 132.40 bid, 132.50.

"Everything is a couple of basis points tighter," said the trader, heading into the New York lunch break.

Everything, that is, with the exception of Ecuador.

Correa at crunch time

Several weeks ago Ecuadorian presidential candidate and former finance minister Rafael Correa sent bondholders scurrying for bromos by suggesting on the campaign trail that Ecuador may be paying more interest on its debt than it ought to be, and further suggesting that he could drive a harder bargain with creditors.

Correa, who is said to have the requisite schmaltz to run in a presidential election, came out of Ecuador's first round trailing businessman Alvaro Noboa, an heir to a banana fortune who is presumably a more bondholder-friendly candidate.

However as the campaign heads toward the Nov. 26 second round showdown, pollsters in Ecuador have revealed that Correa has cut - or perhaps even reversed - Noboa's first round lead.

A soucre told Prospect News on Wednesday that one pollster is reporting Noboa's edge is now a scant three percentage points - 40% to 37% - down from an earlier lead that had the businessman in front by as much as 12%.

Another poll showed Correa on top by 41% to 37%.

The source went on to note that Correa, who is said to be an admirer of Venezuelan president Hugo Chavez, has lately been adopting a more moderate tone on the campaign trail.

Meanwhile Noboa has been slipping on a few banana peels, the source continued.

The business man has been seen with the former president of the Ecuadorean supreme court who had allowed exiled former president Abdala Bucaram to return to the country - a move that triggered political upheaval in Quito which culminated in the presidency of Lucio Gutiérrez, who was himself driven from office by the congress, resulting in the baton being passed to Alfredo Palacio.

Voting with their feet

In a market that sources were marking otherwise unchanged, the news out of Quito had holders of Ecuadorean debt voting with their feet on Wednesday.

One source marked Ecuador's 12% bonds maturing in November 2012 at 101.25 bid, 103.25 offered, a point lower.

Meanwhile the 10% step-up bonds maturing in August 2030 were at 99.50 bid, 100.50 offered, also down a point.

In the middle part of Wednesday afternoon, meanwhile, a buy-side source spotted Ecuador's 9 3/8% notes maturing in 2015 down 2 points to 107 bid.

Ukraine tight to talk

In Wednesday's primary market session the Ukraine priced a $1 billion issue of 10-year fixed-rate sovereign bonds (B1/BB-/BB-) at a 197 basis points spread to Treasuries, tight to the Treasuries plus 200 basis points area price talk.

The issue came at a par dollar price to yield 6.58%.

Credit Suisse, Deutsche Bank and UBS led the deal.

An informed source told Prospect News that the deal had gone very well, and added that it had played to a high quality book.

CVRD talks $2.5 billion

Price guidance was heard on a pair of quasi-sovereign offerings that are wending their ways toward late-week pricings.

Vale Overseas Ltd., a subsidiary of Brazilian mining company, Companhia Vale do Rio Doce (CVRD), set guidance for its $2.5 billion notes offering (expected ratings Baa3/BBB) which is being sold in tranches of 10- and 30-year notes.

The 10-year notes come with guidance of Treasuries plus 170 basis points. Meanwhile the 30-year notes come with guidance of Treasuries plus 225 basis points.

The tranche sizes remain to be determined.

Books are expected to close on Thursday.

Credit Suisse, UBS, Santander and ABN Amro are leading the debt refinancing deal.

Gazprom sets 10-year tenor

Elsewhere, Russian energy giant OJSC Gazprom set a tenor of 10 years on its proposed benchmark issue of notes (Baa1/BBB-/BBB-).

The company plans to issue tranches of dollar-denominated notes, on which the price guidance is mid-swaps plus 110 basis points, and euro-denominated notes, with price guidance of mid-swaps plus 118 basis points.

The roadshow continues on Thursday in London.

Books are expected to close on Friday.

Credit Suisse and UBS have the books.

Canara upper tier II debt

There was very little news out of the corporate space on Wednesday.

India's Canara Bank plans to price $200 million to $250 million of 15-year upper tier II notes (Baa2/BB) before the end of the week.

Price guidance is mid-swaps plus 130 to 135 basis points.

ABN Amro, Citigroup, HSBC and UBS are joint bookrunners.

Duration and liquidity

An emerging markets investor told Prospect News on Wednesday that headline news, such as that heard from Ecuador, can register an impact upon the market.

However, the investor added, "broader duration and liquidity are of greater concern to the market than local event risk."

In particular, the investor said, the market is presently attempting to draw conclusions about the strength or weakness of the U.S. economy.

"We've had a number of alarms having to do with possible greater than expected weakness in the U.S. economy," the source added, noting that producer price index data for October came in on Tuesday well below market expectations: negative 1.5% month-over-month compared to the market survey of negative 0.5%.

The investor also noted that September advance retail sales numbers were revised downward to negative 0.8% from negative 0.4%.

The source said that 10-year Treasuries bounced off the 4.54% to 4.55% level three times before the New York Federal Reserve Bank announced that its monthly Empire State manufacturing activity index rose in November to its highest level since June, when the 10-year was back at 4.60%.

Leveraged money

This investor said that there seems to be a consensus at present that the United States is basking in a "Goldilocks" economy. Volatility has been low across many of the broad market measures, the source added, counting "stocks and bonds, and even in the major liquid trading currencies."

In a low volatility world there is always the temptation to increase leverage, the investor said, mentioning the propensity of hedge funds to behave in this fashion.

"In a leveraged world people always look for volatility risk or liquidity risk," the investor counseled.

"The worries are that the U.S. economy is too weak, in which case credit spreads widen, which would spill over into EM.

"Or on the other hand the U.S. economy could be way too strong, in which case the Fed raises rates again.

"These big themes are important because of the presence of leveraged investors in the asset class."

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