Issuance slow; secondary volumes light; Celulosa, Suzano, CSN Islands, Road King on tap

By Christine Van Dusen

Atlanta, Sept. 13 - Though emerging market investors weren't particularly risk-averse on Monday, they remained mostly on the sidelines, digesting not just last week's run of new issuance but also positive economic data out of China and negative news from Brazilian beef producer Independencia.

"It seems like the market's at a loss for direction," a source said.

The Latin American corporate sector, for one, traded "sideways" on "extremely light flows" for most of Monday's session, a New York-based trader said.

Most of the focus was on Independencia and the fact that the company abruptly stopped paying its cattle suppliers and furloughed its workers, leaving market-watchers to wonder whether the company would default, get a cash infusion or confirm a delay in payment.

"It looks as though they will make their Sept. 30 coupon payment on the 2015s, but obviously their fiscal situation remains quite bleak as the numbers don't come close to adding up," the trader said.

Sovereigns so-so

On the Latin American sovereign side, Argentina was tighter by 21 basis points, a market source said. "That's a high-beta country and usually sets the tone," he said. "But with the exception of Argentina, the market's lacking conviction."

Losses were seen for Serbia and South Africa, he said, and "Turkey is down a quarter of a point. Ukraine is similar."

The JPMorgan Emerging Market Bond Index Plus spread was 281 bps on Monday, up from 279 bps on Friday. And the JPMorgan Emerging Market Bond Index Global spread was 306 bps, up from 303 bps on Friday.

Overall, the market on Monday was a bit softer, an emerging markets strategist said.

"That's kind of interesting. Maybe it has to do with the rebound in Treasuries we're seeing," he said. "Maybe there's a sense that after China's positive industrial output number that most of the good news on the near-term horizon is out and, as a consequence, behind us. So investors are looking ahead to the retail sales, and that might not necessarily point to a positive picture."

In looking again at last week's Beige Book report from the Federal Reserve, he said, "it showed softness in the U.S. economy all the way through the end of August, so a lot of the upcoming August data is not going to surprise overly strongly on the upside. So maybe there's a little bit of profit-taking going on. Or, at least, investors are waiting and seeing.

"Most of EM is just moving sideways."

Investors had a lot of cash on the sidelines at the start of the month, he said, "and already we've seen $14 billion of issuance. So maybe there's a little bit of concern about supply pressure if issuance continues to be as it has been."

Primary quiet

On Monday, though, issuance slowed to a standstill, and just a few issuers took steps toward market.

"It's been pretty quiet," a California-based buyside source said. "But it's a relatively OK tone. Some new issues have been announced."

She pointed to the planned dollar-denominated benchmark-sized issue of notes due 2020 from Chile-based wood pulp and forestry company Celulosa Arauco y Constitucion SA, which could price as soon as this week.

JPMorgan and Santander are the bookrunners for the deal.

Proceeds will be used for general corporate purposes and to repay upcoming debt maturities, according to a Fitch Ratings report.

Also coming soon is Brazilian pulp and paper company Suzano Papel e Celulose SA with a dollar-denominated benchmark-sized issue of 10-year bonds via JPMorgan and Santander.

Monday also saw Cayman Islands-based CSN Islands XII Corp. planning an issue of $1 billion senior perpetual notes guaranteed by Brazilian steel producer Companhia Siderurgica Nacional, a market source said.

Proceeds will be used to prepay $750 million in outstanding guaranteed perpetual notes issued in 2005 by CSN Islands X Corp. and for liability management, according to a Moody's Investors Service report.

And China-based toll road and property company Road King Infrastructure Ltd. is planning a $300 million issue of five-year bonds that could price as soon as this week, a market source said.

DBS and JPMorgan are the bookrunners for the deal.

Recent issues fare well

So issuers are planning deals, but "it's not with a lot of gusto," the California-based source said. "But at least it's stabilized."

Recent issues have fared well in the secondary, she said. Standouts include Brazil's Telemar Norte Leste SA, which priced $1 billion 5½% notes due Oct. 23, 2020 at 99.991 to yield Treasuries plus 283.9 bps.

The Republic of the Philippines' recent issue of PHP 44.11 billion 4.95% notes due 2021 - which priced at 99.607 to yield 5% - raised $1 billion from more than 280 investors, according to an announcement from the sovereign.

"That did well," the California source said.

About 37% of the investors were from Asia, 32% from the United States and 31% from Europe. Funds accounted for 81%, banks 10%, central banks 3%, insurance 2% and retail 4%.

The bonds, which came in at the rich end of talk, are denominated in pesos, but the principal and interest are paid in dollars.

"We still have about $11 billion in interest income and amortizations this month," the strategist said. "So the fact that there has been $14 billion in issuance eradicates a lot of the cash that has been built up in prior months. But we still have $11 billion of issuance to go before the market gets pressured at all, technically speaking."

The appetite for new issuance wasn't impacted much by the fact that U.S. rates "have backed up almost 40 bps in the last three weeks," the strategist said. "It could mean that issuers want to wait for it to back down again so they can issue at lower yields. But many just issue whenever they possibly can."

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