Emerging markets finish mixed; low volumes persist; Indonesia energy firm plans local issue, sukuk

By Aaron Hochman-Zimmerman

New York, Dec. 3 - Emerging markets held mostly neutral as holiday-like volumes continued through the post-Thanksgiving week.

Investors were greeted with sour economic news from the Federal Reserve, which noted a deeper recession than it had previously, and from the Bureau of Labor Statistics, which tallied a drop in productivity.

The market tone improved with equity buying later in the session, but throughout the day emerging markets remained slow and produced little news of their own.

Still, Indonesia's state energy firm PT Perusahaan Listrik Negara announced that it would offer a 1.5 trillion rupiah issue in January. The issue will likely include a 500 billion rupiah sukuk.

Meanwhile, the country's benchmark issue due in 2018 held still at 69 bid.

With late-day buying in equities, volatility dropped by 2.26 to 60.72, according to the VIX index. The index is a common yardstick of market volatility.

As Treasury yields continued to fall, emerging markets wound tighter by 20 basis points to a spread of 743 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.

PLN plans January issue

In Indonesia, the state energy firm PT Perusahaan Listrik Negara told the Jakarta Post that a 1.5 trillion rupiah domestic issue is scheduled for January.

A 500 billion rupiah tranche of the issue will come as a five- to seven-year sukuk.

Proceeds will be used to finance a new 10,000 megawatt power plant scheduled to open in 2010.

"Overseas investors, from Qatar and Europe, also have shown their interest to invest in our company," said president director Fahmi Mochtar in the report.

The Indonesian bonds due 2018 were unchanged at 69 bid.

Asia flat, quiet

Elsewhere in Asia, "there was not a whole lot going on," a trader said.

In the morning, news of the wide spreads in Europe "caught everyone's attention," but "after that the excitement was over and nothing else happened," he said.

There was light action for cash prices as the Philippines' sovereign bonds due 2030 slipped 0.5 point to 102.5 bid.

Elsewhere in Pakistan, politicians were quick to condemn last week's attacks in Mumbai, India, but Wednesday were cautioning against making inaccurate accusations against Islamabad.

Investigators on the case believe that many of the terrorists spent the time immediately preceding the attack in Pakistan.

Mexico misses buyback, LatAm flat

Latin America's markets were generally quiet again on Wednesday with "the usual credits" such as Mexico and Brazil staying "fairly well bid, within the context of the market," said a strategist.

The 11% Brazilian bonds due 2040 were quoted at 117.75 bid, 118 offered.

Meanwhile, "Anything off the run continues to be better sold," he said. Generally "spreads continue to widen."

In Venezuela, president Hugo Chavez announced plans for another referendum that would allow him to serve an indefinite number of terms.

The vote would likely take place in February, he said.

Chavez has recently indicated that he hopes to remain in office for another 10 or 12 years.

Also, one of Chavez's key rivals, Manuel Rosales, the outgoing governor of the state of Zulia, will face corruption charges on Dec. 11, according to reports.

During Rosales' re-election campaign, Chavez threatened him with jail time related to charges that he misused government funds.

The 9¼% sovereigns due 2027 added 1.5 points to 64.5 bid, 65 offered.

Elsewhere, Argentina's 8.28% discount bonds due 2033 added on just 0.25 point to 29.5 bid, 30.5 offered.

Emerging Europe ripped wider

Emerging Europe suffered a difficult day in spread terms as "the CDS massively underperformed," a trader said.

In cash terms, issues were mixed to unchanged.

In Russia, as oil traded below $47 per barrel, the national oil firm OAO Gazprom announced the beginning of what it calls a "megaproject."

The new Bovanenkovo-Ukhta gas trunkline system will carry gas from the Bovanenkovskoye field, which is the largest on the Yamal Peninsula, according to Gazprom.

"It is the largest energy project in the contemporary history of Russia, unparalleled in terms of sophistication," said Viktor Zubkov, Russian first deputy prime minister.

"The meaning of Yamal's lucrative reserves to our country is hard to overestimate. Russia's socio-economic development and the growing welfare of its citizens are infeasible without the relevant energy support," Zubkov continued in a Gazprom press release.

The program's scope could only be compared to the development of the Siberian oil fields in the 1970s, the release said.

The Russian sovereign bonds due 2030 were seen at 81.75 bid, 82.25 offered.

Meanwhile in Turkey, more government officials insisted that the country will dodge a full recession.

Ankara is still expecting 3% to 4% growth in 2008 and 4% in 2009, said industry minister Zafer Caglayan, according to the Hurriyet Daily News.

"I do not attach value to what the credit rating agencies say. The crisis showed they are not subject to supervision," Caglayan told the media, according to the report.

Turkey and the International Monetary Fund are still in talks to replace the current $10 billion standby agreement.

NATO neutral

Also in emerging Europe, Ukraine and Georgia were told by the current NATO members that membership is in their future but not in the near term.

While in Brussels, the NATO foreign ministers released a statement which said: "We reaffirm all elements of the decisions regarding Ukraine and Georgia taken ... in Bucharest."

At the NATO summit this April, the NATO members determined that the former Soviet republics had not met the criteria for membership in the military alliance.

"Both countries have made progress, yet both have significant work left to do," the statement continued.

Russia has also repeatedly objected to any NATO expansion but particularly on its own borders.

NATO intends to continue working to improve relations with Russia but does not intend to give the impression that Moscow has the power to make decisions regarding membership.

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