Emerging markets stumble; Cemex to sell $500 million bonds; Digicel to sell $435 million notes

By Aaron Hochman-Zimmerman

New York, March 3 - Emerging markets traded decidedly lower as Wall Street made for a bumpy ride on Monday.

Headlines beginning with AIG sent investors running to Treasuries and away from all kinds of risk.

Potentially good news came from the Latin American primary as more was discovered about a bond offering from Mexico's Cemex SAB de CV and as Jamaica's Digicel Ltd. announced its own deal.

In trading, Argentina looked stronger for a brief moment upon the news of swapping 40% of its debt for longer-term paper, but by the close the discount bonds due 2033 had slipped 1.1 points.

As equities burrowed lower, volatility climbed higher by 6.30 to close at 52.65, according to the VIX index. The index is a frequently used yardstick of market volatility.

Investors also ran to Treasuries throwing emerging markets wider by 32 basis points to a spread of 681 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

Cemex, LatAm leads primary

Mexico's Cemex will offer $500 million bonds with three- or five-year maturities, sources told Prospect News on Monday.

No price talk has been released.

A roadshow began in London on Feb. 27 and will end on Wednesday for the offering of senior notes (//BB).

The roadshow moved to New York on Monday and is expected to wrap up on Wednesday, with pricing afterwards, depending on market conditions.

Citigroup is leading the Rule 144A and Regulation S with registration rights offering.

The notes will come with a make-whole call to be set at a premium to U.S. Treasuries and will come with a three-year equity clawback.

Proceeds will be used to refinance debt.

The prospective issuer is a cement company based in Garza Garcia, Mexico.

Also, Jamaica's Digicel began a roadshow on Monday for its $435 million offering of senior unsecured notes due 2014 (confirmed B1//existing B-).

The roadshow is expected to conclude on Wednesday, with the notes expected to price immediately thereafter.

Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and Credit Suisse are joint bookrunners for the offering.

The notes come with three years of call protection. The first call premium will be par plus the full coupon.

Proceeds will be used to fund the acquisition of DCA equity and for general corporate purposes.

Digicel is a Kingston, Jamaica-based provider of wireless telecommunications services.

LatAm trades downward

In trading Latin America suffered along with equities and lost value, but the sector avoided the severity of the pounding on the equity side.

In Brazil, "beef traded lower" with everything else, as the wake of Friday's Chapter 15 bankruptcy filing by Brazil's Independencia SA shook the sector, a strategist said.

The company has "a crippling debt burden" of $1.2 billion, the Sao Paulo-based firm said in the filing.

In Argentina, the government swapped nearly 40% of the debt it offered for longer-term paper in order to shore up near-term financial needs, a buysider said.

A swap of 40% "is believed to be OK," a buysider said.

In other agricultural news, Argentina president Cristina Kirchner came close to, but did not announce a grain trade state monopoly, according to the Buenos Aires Herald.

The striking farmers fear a government takeover in response to their demands of lower export taxes.

The 8.28% Argentine discount bonds due 2033 gave up 1.1 points to 28.25 bid, 29.25 offered.

Meanwhile in Venezuela, president Hugo Chavez deployed the army to nationalize all of the nation's rice producing facilities.

Chavez justified the takeovers by accusing the grain producers of not complying with government formulated price structures.

Chavez did offer to compensate the companies' investors, but on his own terms.

"I will expropriate them, I have no problem with that, and I'll pay them with bonds. Don't count on me paying with hard cash," he said, according to the BBC.

Emerging Europe holds aid, loses money

Emerging Europe slid lower as it seemed that the developed countries were not ready to sign over $240 billion to the struggling eastern economies as Hungary prime minister Ferenc Gyurcsany had hoped.

"We should not allow a new 'Iron Curtain' to ... divide Europe into two parts," Gyurcsany said according to Der Spiegel.

Still, each country faces its own problems and the situation remains very complicated, said the East German born chancellor Angela Merkel.

"I see a very different situation here," she said at a weekend economic summit.

"You cannot compare Slovenia or Slovakia with Hungary," she said.

In Turkey, the government noted again that it can carry on without the help of the International Monetary Fund, a buysider said.

The government also announced that it will make severe cuts to the price of natural gas if oil continues to trade at low levels by May, the Hurriyet Daily News reported.

The price cuts are also contingent on the lira holding most of its current value against the dollar.

Ankara already cut prices by 17% in January due to the low cost of oil.

Light sweet crude was seen trading as low as $40 per barrel.

The Turkish sovereign bonds due 2030 were hit for 2.25 points to 123.75 bid, 124.75 offered.

Also in emerging Europe, the recession in Russia will last for a similar period of time as the United States and European Union will experience, said finance minister Alexei Kudrin at an investment forum on Monday, according the Itar-Tass News Agency.

Asia forced down

The market effects spared no sector on Monday as spreads were stretched and prices fell in Asia.

In the Philippines, the government will continue to run deficits through 2012, according to the inter-agency Development and Budget Coordinating Committee, the Manila Times reported.

The deficits will shrink going forward from 2.2% of GDP in 2009 to 1.5% in 2010, to 1% in 2011 and 0.5% in 2012.

Tax revenues are expected to grow throughout the period, which will help alleviate the deficit, the report said.

In Indonesia, president Susilo Bambang Yudhoyono asked the Islamic banking sector to help the country's financial system in its time of crisis.

Susilo spoke at an Islamic financial forum in Jakarta where he asked the banks to help Indonesia become food and energy secure as well as reach out to banks in the West.

"Islamic banking should take a front seat because it has not been affected by the crisis," he said at the conference, the Jakarta Post reported.

Islamic law views the payment or collection of interest as gambling and stipulates that equity must back all loans. The tighter regulations helped Islamic finance avoid many of the pitfalls affecting the secular financial firms.

"We hope in future Indonesia will serve as a Sharia economic hub. We invite investors to develop this sector," Susilo said.

The Indonesian government bonds due 2018 were quoted at 72.5 bid, 74.5 offered.

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