Emerging market debt sees uneventful session; Turkey taps euro market

By Reshmi Basu, Paul Deckelman, and Paul A. Harris

New York, Jan. 24 - Emerging market debt posted an uninspired session on Wednesday, despite a rally in U.S. equities and higher commodity prices.

At the close of the session, the spread on the JP Morgan EMBI Global index was wider by one basis point versus U.S. Treasuries.

Meanwhile the primary market saw more fresh supply following Tuesday's new issue windfall, which pressured technicals during that session.

On Wednesday, the Republic of Turkey sold €1.25 billion of 12.25-year global bonds (Ba3/BB-/BB-) at 99.106 to yield mid-swaps plus 168 basis points in a drive-by.

The deal came at the tight end of price guidance, which was set in the area of 170 basis points more than mid-swaps.

A market source noted that the deal was easily absorbed by the market.

Credit Suisse, Lehman Brothers and UBS were lead managers for the transaction.

Also pricing, Brazil's Independencia International Ltd (Cayman incorporated) sold an upsized offering of $225 million in 10-year senior unsecured notes (B3/B) at 99.221 to yield 10%.

The deal, increased from $150 million, came in line with price guidance of 10% area.

ABN Amro was running the Rule 144A and Regulation S transaction.

Meat exporter Independencia Alimentos Ltda, which is based in Jordanesia, Brazil, will guarantee the issue.

Kookmin sells $400 million notes

Moving to Asia, Korea's Kookmin Bank priced a $400 million issue of guaranteed five-year floating-rate medium-term notes (A3/A-) at par to yield three-month Libor plus 23 basis points on Wednesday.

The notes priced at the tight end of the Libor plus 26 basis points area price talk.

Barclays Capital, Banc of America Securities and BNP Paribas were joint bookrunners for the Regulation S/Registered issuer.

Corporate pipeline developments

In other corporate pipeline news, Russia's Nomos Bank set price guidance for a dollar-denominated offering of senior secured notes (Ba3//B+) at 8 1/8% to 8 3/8%.

The new issue is a good rollover move for those investors who own Nomos 9 1/8% notes due 2007, which comes due on Feb. 13, according to a market source.

JP Morgan and UBS are managing the Regulation S sale, which will be issued via Nomos Capital plc (Ireland).

And Mexican glass-manufacturer Vitro SAB de CV again increased the size of its two-part offering of senior unsecured notes (B2/B), this time to $1 billion from $750 million Wednesday.

Vitro also revised price talk for its $250 million minimum tranche of five-year bullet notes to 8 7/8% from 9%.

Meanwhile the company lowered talk for its $250 million minimum tranche of 10-year notes to 9 3/8% from 9 ½%. The 10-year notes come with five years of call protection.

This is the second time the deal has been increased. On Tuesday, the issuer upped the offering to $750 million from $500 million.

Morgan Stanley, Credit Suisse, and Lehman Brothers are managing the Rule 144A (with registration rights) and Regulation S transaction.

The deal is expected to price on Thursday.

Latin American spreads firm

Moving to the secondary market, a trader in Latin American issues said that "generally, EM credit markets are tighter across the board."

But another source noted that on a dollar basis, most credits were down. The exception was Venezuela, which posted gains on firmer oil prices.

In trading, the bellwether Brazilian bond due 2040 gave up 0.10 to 132.40 bid, 132.45 offered. The Colombian bond due 2033 lost 0.75 to 142.50 bid, 143 offered. The Venezuelan bond due 2027 gained 0.45 to 124.30 bid, 124.40 offered.

The trader observed that the asset class, at least in Latin America, was "outperforming the Treasuries market, and are following equities a little bit here," as stocks continued to push higher Wednesday.

He said that "again, we find ourselves at all-time tight [levels] on spreads to Treasuries."

The market seemed to be in a buying mood, "especially the morning started out like that," but said that overall, "a lot of people are sitting there, not sure where they want to go, with these levels."

Furthermore he observed that many investors are thinking that with paper at already high levels, they "don't want to be the one to buy it higher."

Brazil 2037 bonds lower

In other news, Tuesday's new issue from Brazil was seen lower in the secondary from the previous close. Brazil sold an additional $500 million of its 7 1/8% global bonds due 2037 (Ba2/BB/BB).

The issue priced at 106.338 to yield 6.635%, or a spread of 173 basis points more than Treasuries.

In trading Thursday, the 2037 bond was spotted at 106.60 bid, 106.75 offered, down 0.35.

Ecuador steady

Turning to specific Latin American issues, he said there were "no major events that went on today," in terms of new-issuance or large price movement.

He said that Ecuador's volatile bonds were "stable from yesterday [Tuesday]," with the benchmark 10% notes due 2030 still hovering around the same 67 bid area to which they fell Tuesday.

Since the election of leftist Rafael Correa's as Ecuador's president in November, the country's bonds have retreated some 30 points, as the new president, who took office Jan. 15, has repeatedly attacked the country's $11 billion foreign debt burden as "illegal", "corrupt," "unfair" and illegitimate," and has said that Ecuador will seek advice from Argentina - which defaulted on nearly $100 billion of debt in 2001-2002 and forced its creditors to accept longer maturities and sharply reduced principal amounts of new debt in exchange for the old, defaulted issues.

Correa and his economics minister, Ricardo Patino, last week roiled the international debt markets, with the 2030 bonds falling about 10 points in one session, by suggesting that the country's creditors could be forced to accept a haircut upwards of 60% in the event of a debt restructuring.

Asia trades in narrow ranges

In the Asian market, a trader said that "not a great deal was going on," as most credits held within relatively narrow ranges.

He did hear the new issue from Korea's Kookmin Bank - which priced $400 million of five-year notes at par to yield 23 basis points over the three-month Libor rate - quoted "a couple of basis points tighter," although he saw no real aftermarket trading in the bonds.

Another new deal, for India's UTI Bank, which came earlier in the week, was "a little firmer" at a spread level of 48-46.

In general, he said, "India bank spreads continue to perform quite well, especially the tier 2 and tier 1s.

He also saw "a reasonable amount of buying" in Japanese bank capital, "which has traded a couple of basis points tighter today [Wednesday], with pretty good volume going through that."

In sovereign debt issues, he said "bids were getting hit" in Philippine and Indonesian CDS [credit default swap] paper, while cash bond spreads "have held very, very well through this sell-off in Treasuries."

But he said that overall, "we're still in quite a narrow range - certainly the tone is better, but spreads aren't breaking out."

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