Buyers abound for emerging market debt; Waha, others to sell notes soon; Hungary struggles

By Christine Van Dusen

Atlanta, July 20 - Disappointing corporate earnings and weaker housing data from the United States didn't manage to entirely snuff out enthusiasm for emerging market debt, which on Tuesday saw a buying spree and generally solid performance from recent new issues.

Yields on 30-year Treasuries fell again in response to dismal earnings from Johnson & Johnson and Goldman Sachs Group Inc., but not all was lost: June housing starts declined a less-than-expected 5% from May.

For emerging markets, that meant there was a lot of "one-way traffic," a source said. "There are obviously massive inflows into every single bond fund around the world. Bonds are the Nasdaq of 1999 - just buyers everywhere. The market is very, very firm."

Said a trader, "We were lower and wider on the open but as has been the case the last few weeks, it seems new money is still there to buy EM bonds on weakness."

Issuance dies down

The primary market, however, cooled to nearly freezing on Tuesday.

"The new issue calendar has slowed," the trader said.

A New York-based market source agreed. "It's very quiet," he said. "We had some new issuance yesterday but today we don't see any new issues. It's not because the market is not performing well. Maybe people are just not ready to do anything. I hear rumors of transactions coming to market but nothing is firm."

A deal that could come as soon as Wednesday is the planned $1.5 billion notes due 2020 from Abu Dhabi's Waha Aerospace via Deutsche Bank, JPMorgan, Societe Generale, Nomura and Waha Capital. The spread was whispered Tuesday at Treasuries plus 225 to 230 basis points.

Also possibly pricing this week is a benchmark-sized, dollar-denominated issue of notes from Mumbai, India-based lender State Bank of India, a source said. Bank of America Merrill Lynch, Citi, Deutsche Bank, HSBC, RBS and UBS are the bookrunners for the deal.

Another deal could come from China Resources Power Holdings Co. Ltd., a Hong Kong-based power plant management company, which will set out on a roadshow beginning July 21 in Hong Kong, Singapore and London.

The market may also soon see the dollar-denominated fixed-rate senior notes due 2020 from Indonesia-based telecommunications and information service provider Indosat.

"And Brazil keeps threatening to re-tap its '21s and '41s," a source said.

Monday's issues trade up

For the most part the market was digesting the deals that printed on Monday, he said. That included Banco Votorantim SA's $400 million add-on to its $750 million 7 3/8% notes due 2020 - which priced at 102.566 to yield 7%, or Treasuries plus 404.3 bps - and Bancolombia SA's $620 million 6 1/8% subordinated notes due 2020 that priced at 98.418 to yield 6.341%, or Treasuries plus 337.5 bps.

"They both priced well," the New York-based source said. "Both deals traded up today, slightly."

Also doing well on Tuesday was the $2 billion issue of 5½% bonds due 2021 from Mexico-based petroleum company Petroleos Mexicanos SAB de CV (Pemex), which priced last week at 99.011 to yield 5.65%, or Treasuries plus 250 bps.

"Pemex is through the roof," a market source said. "Mostly everything else is very well bid."

Some recent deals didn't fare quite so well, though.

"Generally they're doing OK but there are some new issues lagging," he said. "That's stunning to me, considering the liquidity out there."

He was referring to the $500 million 5% notes due 2016 from India's Icici Bank, which priced earlier this month at par to yield Treasuries plus 320 bps. "It's wider still," he said.

And the $600 million 4¾% notes due 2015 from South Korea's Woori Bank - which priced last week at 99.356 to yield 4.885%, or Treasuries plus 300 bps - traded "1 to 15 bps tighter," he said.

"Those two issues in particular stand out," he said.

Sovereigns in focus

Tuesday also saw continuing troubles for Hungary, which made news on Monday after talks shut down early with the International Monetary Fund and the European Union about a $25.8 billion bailout.

The sovereign "trades poorly still," a Connecticut-based source said.

Spreads for sovereigns in general were "tighter by a few basis points on the higher-rated credits and prices were higher by 0.50 to 0.75" for names like Argentina and Venezuela, the trader said.

The Venezuela 2027s were 69.5 bid, 70 offered, he said. And Brazil's 2040s were 136.15 bid, 136.25 offered.

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