Emerging market debt widens on Peru uncertainty; Pakistan starts marketing for 10-year dollar bond

By Reshmi Basu

New York, March 20 - Emerging market debt lunged lower Monday in response to uncertainty stemming from Peru's presidential election.

In the primary market, the Islamic Republic of Pakistan started a roadshow for dollar-denominated 10-year fixed rate bond offering (B2/B+) on Monday.

Citigroup, Deutsche Bank and JP Morgan are the bookrunners for the benchmark-sized offering.

In other primary news Monday, Brazilian low-cost GOL Linhas Aereas Inteligentes, via Gol Finance, plans to sell a $250 million offering of perpetual senior unsecured bonds next week.

The fixed-rate bonds will be callable after five years at par.

A roadshow is scheduled to start in Hong Kong on Wednesday, March 22, then off to Singapore on Thursday, March 23 and finally wrapping up on Monday, March 27.

Morgan Stanley and JP Morgan were the bookrunners for the Rule 144A/Regulation S transaction.

Out of South Africa, Imperial Holdings Ltd. will start a roadshow next week in Europe for its €300 million offering of eurobonds (Baa1).

The securities will issued by the Johannesburg-based diversified holdings group's financing subsidiary, Imperial Mobility Finance BV.

ABN Amro and Barclays Capital will be the bookrunners for the offering, which represents Imperial Holdings' debut in the eurobond market.

Moving to Russia, OAO Sberbank has mandated Barclays Capital and JP Morgan to manage the savings bank's $500 million minimum offering of eurobonds.

The timing of the deal remains to be determined.

EM skids on Peru uncertainty

Emerging market debt slid Monday on news that Peruvian nationalist presidential candidate Ollanta Humala nabbed first place in Sunday's opinion polls.

Humala fetched 32% of support, up 2% from the previous week while Lourdes Flores slipped to 28% from 31%, according to a poll conducted by Apoyo Opinion y Mercado.

The market is increasingly becoming concerned that Peru will elect Humala and thus move towards the left, noted sources.

"It was mostly a quiet day today [Monday]," observed a trader.

"You had some decent spread widening. We had more sellers than buyers overall on the day due to political concerns. Peru was hit the most," he added.

Increased risk aversion caused spreads for Peru to blow out. During the session, the country's sovereign bond due 2008 lost 0.50 to 104.50 bid, 105.50 offered while its spread widened by 29 basis points. The bond due 2012 lost two points to 110.50 bid, 111.50 offered while its spread kicked out by 40 basis points.

The trader also remarked that the country's longest dated bond, the bond due 2033, was down more than two points

"They were trading around 113ish/114 on Friday, they are closing 110 to 111. Along the curve in Peru, everything was lower," he noted.

The presidential election is scheduled for April 9.

Mixed market

Overall, the market was mixed, according to a market source, adding that the asset class tracked U.S. Treasury markets.

"Mexico is up big," noted the source.

"Commodities are down, which would typically cause EM to soften. Oil is off about $3 across the board. Gold is flat.

"Brazil is slightly weaker, which is probably dragging everything down with it," noted the source.

Brazilian bonds came under pressure on mounting political uncertainty. The market source noted that there is question as to whether president Luiz Inacio Lula da Silva will win the upcoming presidential election.

Furthermore there are more rumors that finance minister Antonio Palocci will resign amid allegations that when he was mayor of Ribeirao Preto he frequented a house in Brasilia where former advisers would split cash from kickbacks.

During the session, the Brazilian bond due 2040 eased 0.40 to 131.05 bid, 131.15 offered.

"Overall people are just skittish over Treasuries," said the trader, adding that there was some profit taking as prices were close to all time highs.

"We saw some real-money selling. We saw some short covering in Peru."

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