EM slightly better despite headlines; high-betas still trading; Romania, Sistema announce deals

By Aaron Hochman-Zimmerman

New York, Dec. 19 - Emerging markets held flat to stronger as trading slowed ahead of the holidays.

Trading was thin in most places, but the Latin American high-betas, Argentina and Venezuela, provided a little bit of volatility. Venezuela's bonds due 2027 lost the most blood for the day, closing about 1.5 lower. Argentina's discount bonds due 2033 came back in the afternoon to end almost unchanged.

Most of the benchmark issues were able to advance slightly, even in the face of adverse headlines from Morgan Stanley, which announced a write-down of almost $10 billion and the sale of a $5 billion stake to China Investment Corp.

Banking headlines also came from the United Kingdom where prime minister Gordon Brown said he has not ruled out nationalizing lender Northern Rock, the BBC reported.

The subprime afflicted bank has already received approximately £57 billion in public funds.

Despite the gloomy headlines, volatility dipped 0.96 to 21.68, according to the VIX index. The index is a commonly used measure of market volatility.

Emerging markets was almost unmoved on a spread basis. JP Morgan's EMBI+ index widened 1 basis point to a spread of 243 bps. The EMBI+ determines the amount of yield investors require to keep money in emerging markets debt.

That Christmas feeling hits emerging Europe

"Today is the first day it really feels like Christmas," a trader said, even though volumes had trailed off since the beginning of the week.

Investors are buying protection for issuers like OAO Gazprom and "the usual suspects," he said.

The protection they are buying in many cases has been for shorter term periods of weeks and months, he said, "just to get them through to the new year."

In Russia, liquidity concerns which bubbled up in the third quarter of 2007 should not present a significant problem in 2008, a market source said.

An expected $40 billion injection from the central bank will assure that, the source said.

Russian corporations and banks have approximately $70 billion in foreign debt coming due in 2008.

Therefore, the banks should expect fewer corporate customers and will need foreign money to refinance their own debt, the source said.

The government has also established a Council for the Development of the Timber Complex to manage policy regarding the timber industry.

Prime minister Viktor Zubkov will head the council, reported the Itar-Tass News Agency.

President Vladimir Putin is expected to become prime minister in March.

The Russian sovereign bonds due 2030 slipped just 0.1 to 113.625 bid, 113.75 offered.

In the Ukraine, recently re-elected prime minister Yulia Tymoshenko has brought some degree of calm back to the local market, according to a buysider who called her presence "positive."

She announced that the government will temporarily guarantee Naftogaz's debt to stabilize the company as it deals with a conflict over its 2006 accounting, the market source said.

Company bookkeepers are demanding to see a budget for 2008.

Naftogaz's 8.125% notes due 2009 have been making big gains over the past few sessions, the trader said.

On Wednesday they were quoted at 94.75 bid, improved from closer to 90 bid last week.

Turkey said it will carry on with its attacks across the Iraqi border against rebels from the Kurdistan Workers Party (PKK) despite veiled threats from Kurdish leaders in Iraq.

The Turkish sovereigns due 2030 gained 0.15 to trade at 157.375 bid, 157.5 offered.

Pre-holiday rumors floating in primary

The primary was unexpectedly carrying rumors of potential new deals, although nothing seems imminent, a syndicate official said.

Even after the new year, issuers and investors will have to test the waters.

"I wouldn't expect anything that first week," he said.

"If it's stable, then they'll they pull the trigger," he said, adding: "That's what I would do."

Russia's Sistema JSFC has mandated VTB Bank and Rosbank to manage a 6 billion ruble issue.

Details regarding the timing of the deal have not been released.

Proceeds will be used to refinance existing debt facilities and for future investments.

Sistema is a Moscow-based conglomerate with holdings in telecommunications and technology.

Romania has asked Credit Suisse, UBS and Eurobank EFG to manage a €500 million 10-year eurobond.

The issue is planned for the first half of 2008.

In Asia, China's Huaneng Power International, Inc. was approved to offer a 10 billion yuan bond by the China Securities Regulatory Commission.

The first tranche will be offered at the amount of 5 billion yuan with an option to increase the issue to 6 billion yuan.

Wednesday, Standard & Poor's raised Huaneng's long-term corporate credit rating to BBB+ from BBB.

Huaneng Power is a Beijing-based independent coal power producer.

High-betas move in sleepy LatAm

Across most of Latin American trading big trading volumes will have to wait until next year, but there was some activity in Argentina, a syndicate desk official said.

The 8.28% discount bonds due 2033 were busy, although "I'm not going to call it massive liquidity," the official said.

The bonds bounced over the course of the session, but were seen only lower by only 0.1 at the end of the day, trading at 95.25 bid.

In Venezuela, the 9.25% bonds due 2027 led the retreat with a loss of 1.5 to trade at approximately 99 bid.

Brazil's bonds showed modest gains for the day. The 11% bonds due 2040 added 0.15 to finish at 133.25 bid, while the sovereigns due 2037 gained 0.55 to close at 113.2.

Asia sinks on low volumes

"It seemed practically dead," a buysider said of Asian activity.

Like the other sectors, the Asian market was subject to the pre-holiday slowdown, but the prices of the benchmark bonds did not hold up as well.

In the Philippines, foreign direct investment is expected to increase in 2008 by $4.8 billion, according to the central bank.

That amount would total an inflow of $3.6 billion compared to the $1.2 billion divestment in 2007, the Manila Times reported.

The Filipino government bonds due 2030 were unchanged at 134.375 bid.

Indonesia's sovereign bonds due 2017 slipped 0.25 to 103 bid.

In Pakistan, an alliance of parties opposed to president Pervez Musharraf called the All Party Democratic Movement (APDM) has asked the public not to vote in the upcoming presidential elections on Jan. 8.

The APDM called for the restoration of the sacked supreme court, the removal of restrictions on the media and an impartial electoral committee.

The Pakistani bonds due 2017 dropped 0.75 to 91 bid.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.