Emerging market debt widens as oil credits slide; Guaranty Trust taps market

By Reshmi Basu, Paul Deckelman and Paul A. Harris

New York, Jan. 22 - Emerging market debt churned out a lackluster session Monday while Ecuador and Venezuela were knocked down by declining oil prices.

In the primary market, Guaranty Trust Bank plc (/BB-/B+) sold $350 million in five-year fixed-rate notes at 99.501 to yield 8 5/8%.

The deal priced in line with guidance, which was set in the area of 8 5/8%.

Standard Bank plc managed the Regulation S deal, which was issued via GTB Finance BV. Afrinvest (West Africa) Ltd. was a joint lead manager.

Guaranty Trust is a commercial bank headquartered in Lagos, Nigeria.

This is the first issue from Nigeria in the international markets following the country's settlement of its Paris Club debt in 2006.

In other pipeline developments, Argentina's Banco Macro SA set price talk for a $150 million offering of 10-year senior notes (B2//B+) at 8 5/8%.

Proceeds from the sale will be use to make loans in accordance with Argentine Central Bank guidelines.

Pricing is expected during this week.

Credit Suisse is running the deal

Elsewhere, Independencia International Ltd (Cayman) Inc. set initial price guidance for a $150 million offering of 10-year senior unsecured notes (B3/B) in the area of 10%.

Proceeds will be used to repay existing debt and for general corporate purposes.

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

The issue will be guaranteed by meat exporter Independencia Alimentos Ltda., which is based in Jordanesia, Brazil.

Oil producers slumping

In Tuesday's secondary action, oil producers posted losses while the rest of the market witnessed an uninspired session as U.S. equities faltered.

Last week, oil exporters seemed somewhat resilient to declining oil prices, but prices are now flirting with threatening levels as benchmark crude oil prices trade in the $52 range, bringing much lower levels for several key Latin American producers, according to Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

"You have to look at the discount for the Venezuelan basket, which is at about $6 - give or take in this case," he noted.

"Ecuador trades at about $10.50 discount to WTI (benchmark West Texas Intermediate contract), so as oil prices are starting to sink from $55/$52 to $50 range, you are looking at prices that are rapidly starting to look like $45 to $40 for Venezuela," added Alvarez.

LatAm range-bound

A trader in Latin American issues said that things in that market were "relatively quiet," with most issues "close to unchanged," with the exception of Ecuador's bonds.

He also saw Venezuela's debt "a little wider," but other than that, he said, "most credits are within one or two basis points [of where they had been] or are unchanged."

He noted that the asset class "slightly underperformed Treasuries."

Overall, spreads for the JP Morgan EMBI Global index widened by three basis points versus U.S. Treasuries.

Brazil's component of the EMBI Global index closed flat, as investors appeared unimpressed with details of the country's fiscal package, noted a market source.

During the session, the bellwether Brazilian bond due 2040 shed 0.05 to 132.60 bid, 132.65 offered

Ecuador down

Ecuador posted losses on a double whammy, the combination of lower oil prices and uncertainty regarding the country's debt restructuring plans.

During the session, the Ecuadorian bond due 2030 gave up 2 points to 75 bid, 77 offered.

The credit is still reeling from Friday's downgrade by Standard & Poor's, noted an analyst, who added that the hard-line rhetoric is chipping away at the credit's valuations.

Meanwhile on Friday, finance minister Ricardo Patino said there would be a commission formed within the ministers of the Mercosur, said Alvarez.

The commission, which will be set up on Feb. 15 in Caracas, will look into negotiating both commercial and multi-lateral debt.

While the news had little impact on the market, it is an interesting development, according to Alvarez.

The Feb. 15 date is also the same deadline in which the Andean nation has a coupon payment due.

"The market at this point is highly skeptical of the payment," noted Alvarez.

Venezuela slips on Chavez comments

Local headlines also put the kibosh on Venezuelan assets as president Hugo Chavez generated more concern on the heels of his recently announced plans to nationalize important industries.

The trader quoted above saw the Venezuela 2027 bonds trading around 123.25, down a point from Friday's levels.

Over the weekend, Chavez said he would dip into the reserves held by Venezuela's central bank and use the funds to pay for social programs in the event that his government had a shortfall.

It was the latest in a series of market-rattling pronouncements from Chavez, who has vowed to turn Venezuela into a socialist state.

Observers said any moves to interfere with the central bank's autonomy would undermine confidence in the country's currency and debt.

Asia sees light volumes

Moving to Asia, a trader also described activity levels as "incredibly quiet.

"Spreads have held in quite a tight range, and there's not been a great deal of news either way [positive or negative]. It has been very uneventful."

The underlying tone in the market, he said, was "reasonable" going out at the end of the session, with bond spreads and credit default swap prices "pushing down to the tight end of recent ranges, but on very, very light volumes."

Besides an inactive sovereigns market, he added that there was little going on among corporate issues.

"I think that's one of the reasons behind the decline [in activity in the overall market]. There just hasn't been a great deal of corporate issuance. I think the sense is that there's plenty of money out there on the sidelines, waiting to go into deals. Whenever deals do come, they're meeting with very good demand - but there just hasn't been a great deal of issuance."

He said "the expectations are that Indonesia and maybe some of the smaller sovereigns - Pakistan, Vietnam, etc. - are going to be issuing in the upcoming months, but nothing really immediate. There's some talk Indonesia might be happening within the next couple of weeks, but aside from that, there really isn't a great deal on the horizon."

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