EM hurt by headlines, equities; Venezuela, Argentina lead high beta drop; Ritzio prices $165 million

By Aaron Hochman-Zimmerman

New York, Nov. 15 - Emerging markets were hit by more negative headlines along with rising commodities and falling equities.

The housing crisis persists as evidenced by Barclays Capital, which is only the latest major bank to report substantial writedowns from the subprime crisis. The bank announced approximately $1.6 billion in losses for October.

"That was the news that got everyone spooked in the morning," a trader said.

"The Dow is down another 150 points today, that doesn't help," said Jefferies & Co.'s head of emerging markets, Erich Bauer-Rowe.

"It was a very difficult days for high-beta products," he said.

Venezuela and Argentina led the retreat losing 3 points and 2.5 points respectively from their benchmark sovereign bonds.

EM "doesn't have a life of its own," a syndicate official said, adding that the sector is tightly linked with commodities and equities.

Another syndicate official noted that emerging market credits seem to follow equities only when they drop, but do no more than stabilize during an equity rally.

In the primary, Cyprus' Ritzio Entertainment Group priced a $165 million two-year deal at par to yield 12½%.

Volatility held stable until another afternoon spike struck leaving the VIX index 2.12 higher to close at 28.06. The VIX index is the accepted yardstick of market volatility.

As a sector, emerging markets widened out 14 basis points to 223 bps, according to JP Morgan's EMBI+ index. The EMBI+ measures the amount of yield investors require to keep assets in emerging markets debt.

LatAm dragged under by high-betas

Trading in Latin America suffered from selling in Venezuela and Argentina on Thursday.

Venezuela took the most damage of the high betas as it saw its 9.25% government bonds due 2027 lose 3 points. The credit was quoted at a bid of 101.65 and was almost 30 bps wider.

Despite the day's sell-off, Argentina's government bonds hold the greatest potential value amongst the high-beta issues, according to a market source.

The discount bonds are trading higher than their lows during the summer, but are still approximately 20 points below their pre-summer levels, the source said.

The source also believes that president-elect Kristina Fernandez de Kirchner will give her proposed minister of economy, Martin Lousteau, the authority to make meaningful changes to Argentina's economic policy.

The 8.28% discount bonds due 2033 lost 2.5 to trade near a bid of 94.5 and widened almost 20 bps.

Brazil's sovereigns due 2037 lost all of Wednesday's gains and dropped 0.75 to trade at 112.75 bid, 113.25 offered.

Rough morning sees slight recovery in Asia

Asian trading was "pretty rocky," according to one trader who noted that the news from Barclays added anxiety to the market early in the session.

"There was a race to sell in the morning," he said, but then "some support after the sell-off."

In the Philippines, a preliminary agreement has been reached between the government and the most influential Islamic separatist group, the Moro Islamic Liberation Front (MILF), according to a BBC report.

MILF has traditionally fought for lands in the southern region of the Philippines in the area of Mindanao.

The government stated that the two sides agreed to a "demarcation," which is believed to increase the size of the current autonomous zone in Mindanao.

The Philippines' sovereign bonds due 2030 added 0.625 to trade around 131.875 bid, 132.25 offered.

On very light trading, Indonesia's government bonds due 2017 added approximately 0.25 to trade near 130.5 bid, 104 offered.

In Pakistan, president Pervez Musharraf named the current senate chief, Mohammedmian Soomro, to act as the head of a caretaker government which will hold power until after the January elections.

Soomro, who is a member of the ruling Pakistan Muslim League-Q party, will be sworn in on Friday.

Pakistan's sovereign bonds due 2017 were not actively traded, but because of the positive political developments, likely added 1 to 2 points, the trader said.

In corporates, South Korea's Magnachip Semiconductor's 8% notes due 2014 added 3.5 to trade at 76 bid, 78 offered.

The company's 6 7/8% notes due 2011 were seen up 5 points at 89 bid, 91 offered while the floating-rate notes due 2011 traded up 4.5 at 92 bid, 94 offered.

The gains came as Magnachip announced plans to use proceeds from a $575 million initial public offering of common stock to repurchase about $200 million total of its three outstanding bond issues.

Despite the gains, though the debt closed down the day's high.

A trader said the senior floating-rate note due 2011 climbed 4 points on the news to 93 bid, 94 offered, but drifted back down to 91 bid, 92 offered. The 8% notes due 2014 also came off their highs around 82 to end at 80 bid, 81 offered.

"Sellers are taking advantage of such a strong price move," the trader said of the dip. "That is rare in this market."

Another trader said the 8% subordinated notes moved "all the way up" to around 80, after closing the previous session at 73 bid, 74 offered.

Elsewhere, a trader said the 8% notes were quoted as high as 83, but "nobody was playing up there." He said the bonds ended the day at 78 bid, 80 offered. The trader also saw the floater at 92 bid, 93 offered.

Another trader said the 8% notes firmed to 76 bid, 78 offered from 72.5 bid, 74.5 offered and its 6 7/8% notes due 2011 rose to 89 bid, 91 offered from 84 bid, 86 offered.

In a filing with the Securities and Exchange Commission, Seoul, South Korea-based MagnaChip said it was planning an up to $575 million IPO. The company also said that it plans to use proceeds from the IPO to repurchase about $200 million of its corporate debt.

But according to one trader, "they never gave a level of where they would buy the bonds back," attributing that to the bond's slip from its highs.

"At 84, 85, it feels like the company is not going to pay that," he said.

Ritzio prices, three talk in primary

The primary made more noise than many expected even as the market heads toward the shortened week before the Thanksgiving holiday in the United States.

Ritzio Entertainment Group priced $165 million two-year loan participation notes (B2) at par with a coupon of 12½% to yield 12½%.

Renaissance Capital was mandated as the bookrunner for the deal.

Proceeds will be used be used for general corporate purposes.

Ritzio is a Nicosia, Cyprus-based conglomerate of casinos, restaurants and clubs.

The City of Kiev issued talk in the 8% area for its planned five-year bond (B1/BB-).

Credit Suisse, Deutsche Bank, UBS and Citigroup are bookrunners for the deal.

"We don't see any interest on our side, the rating is too low," a syndicate official said about Kiev's bonds.

Still, "the Ukraine deal ended up pretty well," said another syndicate official noting that a similar team of bookrunners brought the $700 million 6¾% sovereign deal on Nov. 7.

However, "this week's been a little murkier," he conceded.

United Arab Emirates' Ras Al Khaimah Investment Authority announced talk of 150 basis points over Treasuries for its five-year benchmark sukuk.

Credit Suisse, HSBC, and NBD Investment Bank will have the books for the debut dollar-denominated senior deal.

Because of a holiday in the United Arab Emirates, pricing is expected early next week.

The offer will be guaranteed by the government of Ras Al Khaimah.

Rakia is an investment company based in the Ras Al Khaimah, United Arab Emirates.

Germany's KfW Bankengruppe released talk of 7¼% to 7½% for its 6 billion Nigerian naira senior bond (Aaa/AAA/AAA).

Standard Bank will act as the bookrunner for the bond which will mature in January of 2010.

KfW is a Frankfurt-based lender.

Emerging Europe flat on 'boring' day

Emerging Europe investors sat on their hands throughout a quiet day, according to a syndicate official.

"Boring, I would say," the official said about a primary which saw a number of issues pulled within the last week and looks to remain in that rocky condition through the end of the year.

The secondary has backed away from risk as well, he said.

"People at the moment are very shaky," he said, adding: "people are waiting for the weekend."

In Turkey, the central bank's recent 50 bps cut lowered the overnight borrowing rate to 16.25% and was intended to curb the appreciation of the lira, according to a market source.

The cut was the third reduction in a row for the bank, but the source believes that the bank feels inflation numbers are tamer.

The lira was spotted at 1.191 to the dollar.

The benchmark sovereign bonds due 2030 were quoted down 0.2 at 157.8 bid, 158 offered.

In Russia, a group known as For Putin claims it has gathered 30 million signatures on a petition asking for president Vladimir Putin to remain "national leader" past the expiration of his term in March, according to a BBC report.

Putin has expressed a desire to remain in politics after his term expires under the Russian constitution.

However, the group considers the constitution a law, "and laws can be changed," activist Vladimir Voronin told the BBC.

The Russian sovereign bonds due 2030 were up 0.125 to trade at 112.75 bid, 112.85 offered.

In Georgia, president Mikhail Saakashvili will end emergency rule on Friday after nine days.

As criticism grew from abroad, Saakashvili also announced early elections will be held on Jan. 5.

Still the most traded Georgian bonds, the Bank of Georgia issues due 2012 are "illiquid at the moment," according to a syndicate official.

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