Ecuador bonds rise on buyback possibility; GP, Minerva shopping deals

By Paul Deckelman, Reshmi Basu and Paul A. Harris

New York, Jan. 3 - The latest remarks by Ecuador's incoming economy minister about what the country plans to do about its debts caused some uncertainty in the emerging market sphere Wednesday - especially after Ricardo Patino appeared later on to backtrack a little from his earlier statements and clarify his views. But his having raised the possibility that the country might seek to buy back some debt gave investors an opportunity to cover some shorts, pushing the bonds higher.

Argentina's bonds were also seen firmer, with one observer calling the Latin American country "the darling" of the market, even as Buenos Aires announced a rich haul of tax receipts in December.

Asian bonds, meantime also were described as exhibiting a firm tone.

In the primary market, meantime, three corporate issuers - two of them Brazilian - announced plans to hit the road to market deals.

One of them, private equity firm, GP Investments, Ltd., will begin a roadshow next week for a $150 million offering of perpetual notes (B+).

The roadshow will run from Jan. 10 to Jan 15, making stops in Singapore, Hong Kong, London and Switzerland.

Pricing is expected during the week of Jan. 15.

Credit Suisse is the bookrunner for the Rule 144A/Regulation S offering.

Also out of Brazil, Minerva Overseas Ltd., a financing subsidiary of Brazilian beef exporter Industria e Comercio de Carnes Minerva Ltda., will begin a roadshow in Hong Kong on Jan. 10 for its $150 million offering of 10-year unsecured unsubordinated notes (/B/B+).

Subsequent roadshow stops are scheduled for Jan. 11 in Singapore, Jan. 12 in Switzerland, Jan. 15 in London, Jan. 16 in New York, Jan. 17 in Boston and Philadelphia and Jan. 18 on the U.S. West Coast.

Pricing is expected during the Jan. 15 week.

Credit Suisse is the bookrunner for the Rule 144A/Regulation S transaction.

Outside of Brazil, Kazakhstan-based commercial bank JSC Bank TuranAlem plans to start a roadshow for a dual tranche offering of dollar-denominated notes (Baa1/BB/BB+) later this week.

The deal will be divided into two tranches of two-year floating-rate notes and 30-year notes. The 30-year notes will carry a put option in 10 years.

The roadshow will run from Jan. 5 through Jan. 10, with stops in Los Angeles, Boston, New York and London.

Credit Suisse and JP Morgan are running the Rule 144A/Regulation S deal, which will be issued via TuranAlem Finance BV.

Ecuador buyback hopes

Back in the secondary arena, the news that soon-to-be economics minister Patino had said in a televised interview that Ecuador's incoming government is considering the option of buying back the country's global bonds due in 2012 via a Dutch auction process "actually built a floor under the bond prices today," said Enrique Alvarez, Latin American debt strategist for the IDEAglobal think tank.

Among other issues, he saw the Ecuador 2012 bonds at 80.5 bid, 81.5 offered, its 2015 notes at 80.75 bid, 81.05 offered and its 10% 2030 paper at 77.5 bid, 78.75 offered. The latter bond, he said, was "the one that recovered the most."

At first the markets were roiled when Patino, in answer to an interviewer's question whether the government might try to force investors to accept a buyback scheme by not paying interest on the bonds, said that this was "an alternative and we are studying several alternatives." He gave no other details at that time.

Alvarez said "the news was not really clear - it was actually very confusing." After his initial televised interview, Patino "came out a few minutes after that report and said that his initial statements had been misinterpreted, and clarified that a Dutch auction was one within 'a thousand' possibilities that were potentially out there."

Patino's conflicting statements aside, "the market found a reason to short cover" Alvarez said, with prices rising anywhere from 2 to 3 points, and spreads compressing "anywhere from 45 to 65 basis points."

Alvarez noted that in the weeks since his nomination as Quito's economics chief in the new government of president-elect Rafael Correa, which takes office on Jan. 15, Patino's rhetoric has been "default prone," as the official - echoing Correa's assertions that Ecuador has been unfairly treated by international lenders like the World Bank - said that the nation might seek to restructure its debt. That's raised fears that Ecuador might follow the example set some years back by Argentina - a debt restructuring that included a repudiation of some obligations.

That prospect has caused Ecuador's bonds to gyrate since those November elections, as investors fretted over the possibility of a default in the $11 billion of debt. The yield on the 2015 bonds, for instance, has nearly doubled since Correa's run off electoral victory, ending 2006 at a swollen 13.48%, versus 7.88% in mid-November, before the election.

That bond tumbled badly last month, suffering the biggest one-day drop in the security's history after Patino said the new government will meet with its bondholders sometime this month to discuss a plan that "may be more like what happened in Argentina."

Bondholders have been wary since then, but Alvarez said that Wednesday's comments - as confusing as they might be - caused "no damage" to the market.

"The expression in a very outright sense more than anything gave to bondholders some hope that what he may have had in mind was holding a Dutch auction to repurchase paper - which means that there wasn't an outright default intention on the table at this point in time."

Interest payment coming up

Among the obligations Ecuador must deal with in the near term is a $135 million interest payment due next month on its 2030 bonds.

"We have to see if there are resources to pay debt interests," the outspoken finance chief told reporters. "If we have it, we will pay it, and if not, we will call creditors."

Alvarez said that although Patino did not repudiate his previous tough talk about possibly defaulting that made the markets nervous - "meaning that all of his prior expressions remain quite valid " - his remarks Wednesday "gave [the market] an excuse, essentially, to short-cover, because the market, evidently, is very short."

Argentina higher

Elsewhere in the region, Argentine bonds were firm - and not, Alvarez said, because the government reported a 24.9% gain in December tax revenues from a year earlier.

"The tax figures were produced [Tuesday] night, so I think that factor, if anything, had already filtered through" into bond prices.

That having been said, however, "Argentina continues to be the darling of the category. Again we had prices on the upside [Wednesday], spreads again compressing, and all of the local [currency denominated] papers regaining stride and moving upward. So Argentina continues to be THE bull credit in Latin America."

The paper had "very strong performance today," with the par-value 2038 bonds at 56.40 bid, 56.90 offered, while its discount notes due 2033 were at 110.80 bid, 111.30 offered.

Asia firm but quiet

Turning to the Asian market, a trader said that "not a great deal" of activity was going on, but "the market tone was still firm, especially at the start of the session," with "an amount of new money coming into the various emerging markets. So that gave things a pretty good tone to start off the day, and there was a decent amount of spread-tightening, both on the cash and the CDS side."

He said that spreads on average narrowed "4 to 6 basis points" in the credit default swaps market, while some of the cash issues were also significantly tighter. He saw up to 5 bps of tightening in some Philippines issues, and tightening "in the double digits," in some of the Indonesia issues.

"There just hasn't been a lot of opportunities on behalf of the dealer community to replenish paper that they've lost over the last couple of weeks," he continued, "so the fact that you've got guys coming in and looking to buy again is causing the Street to scramble a bit - to get the Street back to flat [neither long nor short] or to replenish inventory."

He saw the Indonesia 2016 bonds at 110-110.875 bid, up 1½ points from where they had been in mid-December before the traditional holiday-induced market slowdown, and at the same time, 10-year Treasuries were 15 bps wider - meaning the Indonesian paper has tightened considerably.

He also saw tighter levels on CDS contracts - "although the moves haven't been as dramatic as some of the cash bonds."

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