Kexim shops 10-year deal; spread tightening continues in wake of Fed

By Paul Deckelman

New York, Feb. 2 - The Export-Import Bank of Korea plans to tap the debt markets with a benchmark-sized offering of 10-year euro-denominated notes, it indicated Friday, putting a big new upcoming transaction on what is currently a relatively thin forward calendar.

Emerging markets debt was seen generally trading firmer, with spreads continuing to tighten as the markets respond favorably to the mid-week decision by the Federal Reserve to leave the key borrowing rate in the United States unchanged at 5.25%, and language in that announcement indicating that inflation is not seen as an imminent problem.

Kexim, as the Seoul-based state-owned bank is known, revealed its intentions in a filing Friday with the Securities and Exchange Commission

While the bank did not specify the amount of notes to be sold, it is expected to bring a deal of about $1 billion equivalent under its existing $4 billion shelf registration program.

It gave out mandates as joint lead managers and bookrunners for the deal to Citigroup, Ireland-based DePfa Bank, plc - considered a large player in the Korean debt market - Deutsche Bank, Merrill Lynch & Co. and UBS Investment Bank.

A syndicate source said the deal would be pitched to investors in Europe via a short roadshow slated to run from Thursday (Feb. 8) through next Monday (Feb. 12) on the Continent, including presentations in Amsterdam and Helsinki on Thursday, in Luxembourg and Copenhagen on Friday (Feb. 9) and in Paris and Frankfurt next Monday.

It said it plans to use the net proceeds from the sale of the notes for general operations, including repayment of maturing debt and other obligations.

Kazakh bank plan benchmark deal

Another prospective new issue that was seen by syndicate sources Friday is coming from Almaty, Kazakhstan-based ATF Bank, which named Citigroup and ING Group to bring its planned benchmark offering of dollar-denominated seven-year notes to market.

The deal will be sold to prospective investors via a roadshow, which is scheduled to begin Wednesday in the United States and Asia, and wrap up next Monday, Feb. 12 in Europe.

The itinerary includes stops in Singapore and Los Angeles on Wednesday, in Hong Kong and Boston on Thursday, in Frankfurt and Vienna on the one hand and New York on the other on Friday, with final presentations on Jan. 12 in London.

The bank - one of the five top financial institutions in the former Soviet republic - did not indicate the intended use of the proceeds.

Gazprombank price talk emerges

Also out of the former Soviet Union, official price talk surfaced Friday on the upcoming issue of three-year ruble-denominated bonds from JSB Gazprombank, Russia's joint-stock bank of the gas industry.

Emerging market sources said the bonds are expected to yield between 7¼% and 7½%, and will likely price at the tight end of that range. Books on the deal are slated to close early Monday, with pricing seen soon after.

The issue is being brought to market by joint bookrunners Barclays Capital and ABN Amro.

Its size has not been finalized, but it is expected to total between 5 billion and 10 billion rubles.

There was no word out on anticipated use of proceeds

Impsat deal price talk heard

And price guidance in the 10% area - this of the unofficial variety - was heard to have emerged for GC Impsat Holdings I plc's upcoming $200 million issue of 10-year senior notes.

Those bonds are being brought to market by bookrunner manager Credit Suisse and joint lead manager Deutsche Bank. Timing on the deal remains to be announced.

The bonds will be non-callable for the first five years, apart from a make-whole call at 50 basis points over Treasuries.

The issuer, GC Impsat Holdings I plc, is a wholly owned subsidiary of Global Crossing Ltd., the Hamilton, Bermuda-based international fiber-optic telecommunications company that underwent a Chapter 11 restructuring early in the decade, emerging in December 2003.

It plans to use the proceeds of the new deal to finance a portion of the approximately $367 million of total funding, including debt repayment, required for the purchase of Impsat Fiber Networks, Inc., a Buenos Aires-based telecommunications company.

Asia firmer on U.S. data reaction

In the secondary arena, a New York-based trader in Asian debt characterized the overall market as "very, very firm." He said there had been "good volumes" trading in Philippine and Indonesian sovereign issues, both in cash bonds and in credit default swap contracts linked to the debt.

In particular, he said he saw "good customer buying, good account buying" in Philippine paper, with spreads between 3 and 5 basis points tighter - and that tightening in turn had a positive impact on the rest of the market.

The ripple effect extended to such areas as Indian bank paper, Hong Kong corporate issues and Korean sovereign issues, "so overall, it's been pretty positive."

Spreads on high-grade paper, he said, were 1 to 3 bps tighter.

He added that swap spreads have tightened "another couple of basis points today, which is again helping the market firm up." He said that there had been "a pretty good tightening" in swaps from the wider spreads seen around mid-week, before the market rallied in response to the Fed's leaving key U.S. interest rates unchanged and stating that it believes inflation is being contained. The emerging markets were seen taking their cue from the advance in U.S. equity and Treasury prices following that favorable assessment from the central bank's policy-setting Federal Open Market Committee.

Since then, he said, "the data that's been coming out," including Friday's report of a smaller-than-expected 110,000-jobs gain in January non-farm payrolls, "has been sufficiently benign, at least in terms of inflationary pressures, to maintain people's confidence. These markets have a reasonable tailwind - at least for now."

Overall, he said, "it does look like accounts are looking to buy in the market wherever possible."

Waiting for Indonesia deal

The trader, while noting Kexim's announcement of its big upcoming deal, said the market would be more fixated upon Indonesia's looming offering of as much as $2 billion in global bonds, expected to price following a short roadshow that began Friday with presentations in Singapore and Hong Kong, and which will conclude on Tuesday in London and New York. In between, on Monday, there will be presentations to prospective investors in Dubai and in Boston on Monday.

Clearly, he said, of the two mega-deals on the Asian-market calendar, the Indonesian offering is the "more significant one...that's going to be more of a factor for the market, because a benchmark-sized Korean deal, given how strong the fundamentals are, and how tight [such paper already trades], I think will be reasonably well received" - in other words, nothing too much out of the ordinary.

On the other hand, "a big-sized Indonesian deal I think, could be what the market actually needs. It does feel like there's a definite need for paper out there, and this will go some way towards satisfying some of that demand."

Noting the fact that Indonesia is now expected to sell some $2 billion of paper, double the $1 billion originally seen in the market, "certainly in this environment, I don't think that will be a problem," he concluded.

Latin America quietly tighter

A trader in Latin American market said not much was actually going on there Friday; the major development was "volatility in the [Brazilian] real" - but added that even the currency unit's movements did not have much impact on that country's bonds.

While Brazil's widely traded benchmark issue, the global bond due 2040, was seen up ¼ point at 132.1254 bid at the end of the trading day, the gain was generally attributed to the continued rally in Latin debt on the heels of Wednesday's Fed announcement, and the positive - meaning non-inflationary - U.S. data which has followed.

"I think in general, you had an accommodation towards the upside," declared Enrique Alvarez, a Latin American debt strategist at IDEAGlobal, a New York think tank.

"The category still seems very willing to absorb risk, and I think you've seen a little bit of that this afternoon and during the morning. The market in general is digesting in very positive fashion the influences coming off the U.S. markets." He said that the U.S. economic data of late, in general, "has been a positive influence for emerging markets and Latin America at this point in time."

With spreads having tightened and prices risen in response to the good news recently coming down from the north, though, he said that the Latin market "is coming into an area of technical resistance, much the same way it did towards the end of last year, when it ran towards historical price highs and spread tights.

"I think we're more or less due for a repeat of that situation - that's why you see more quiet surroundings, instead of a lot of hubbub taking place."

Ecuador interest intentions eyed

There was some noise in the Latin American market earlier in the week as Ecuador's benchmark 10% notes shot up over two sessions in response to seemingly conciliatory statements from that country's economy minister, Ricardo Patino. His saying that he preferred a "friendly" restructuring of the country's debt, in cooperation with its creditors rather than in confrontation calmed some nerves jangled by earlier warnings from Patino and from president Rafael Correa that they were envisioning a debt restructuring where Quito would pay perhaps 40% of its obligations, at most.

Alvarez said that Patino's most recent statements - which also, on the other hand, included yet another warning that although the country has included debt service in its budget, it may choose to use the money for social welfare spending instead - "have pretty much been introduced in the current pricing."

He predicted that "a lot of people, obviously, are going to play this credit on the short side - thus every time that he comes out with something that's contradictory," as was the case this past week, "or that needs some sort of interpretation and leaves the door open for open for something more investor-friendly to occur in Ecuador, you do have these short-covering runs, and I think, more than anything, what we've seen this [past] week."

The strategist said that "people are going to start looking with more attention" to whether Ecuador will, in fact, pay the $135 million in interest due on the 10% notes on Feb. 15. "That's the key focus now - it's not that far away."

He opined that at this point, "it's up for grabs as far as having a real call on whether they are going to distribute the money [to the bondholders] or not."

Should the government actually make the interest payment, "I would suspect the market will bring a little more upside." But while the money has been budgeted, "it's anyone's guess what they intend on doing at this point in time."

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