Emerging market debt sees relief rally on Bernanke's comments; ATF issues new debt

By Reshmi Basu, Paul Deckelman and Paul A. Harris

New York, Feb. 14 - Emerging market debt was on a rampage Wednesday as investors embraced comments made by Federal Reserve chief Ben Bernanke, who said the U.S. economy was heading for a soft landing.

Meanwhile in the primary market, ATF Capital BV sold a $450 million offering of seven-year senior notes (Ba1/B+/BB-) at 99.369 to yield 9 3/8%.

The deal priced at the tight end of guidance, which was set for a yield of 9 3/8% to 9½%.

Citigroup and ING were the lead managers for the Rule 144A and Regulation S deal.

JSC ATF Bank, based in Almaty, Kazakhstan, will guarantee the issue.

EM up on Bernanke

Prior to Bernanke's congressional testimony, Asian credits were firm amid a lackluster Asian trading session, according to a market source.

Philippine bonds were spotted higher by 1/8 to ¼ point, spurred by both Street and local buying. Elsewhere, Indonesia saw selling on the short end of the curve while the long end was well bid.

The firm but quiet tone extended to the opening of the New York session as investors waited for the Fed chief to speak on the health of the U.S. economy, remarked a market source.

And Bernanke did not let investors down. In his testimony, he said that U.S. growth was still intact while inflation was expected to gradually moderate. That bullish outlook provided enough of a catalyst for the Dow Jones Industrial Average to post its highest close at 12,741.86, up 87.01 points.

U.S. Treasuries also rallied in response as the yield on the 10-year note fell to 4.74% from Tuesday's close of 4.81%. Wednesday's level was the lowest intraday level in four sessions.

Against that supportive backdrop, emerging market debt had only one place to go and that was way up, according to market sources.

By the close of the session, the JP Morgan EMBI Global index had surged 0.55 while spreads were widened by 3 basis points as emerging markets was unable to keep pace with the aggressive rally in U.S. Treasuries.

Ecuador, Argentina, Uruguay up

Ecuador was the session's winner on news that the government would pay the $135 million coupon payment on its bonds due 2030, while Argentina and Uruguay secured second and third place, respectively.

Among benchmark Latin American names, the Argentinean discount bonds due 2033 gained 1.50 to 115.05 bid, 115.50 offered. In trading, the Brazilian benchmark bond due 2040 added 0.55 to 133.30 bid, 133.40 offered. The Ecuadorian bond due 2030 was on a tear Wednesday, gaining 4.50 to 86 bid, 86.70 offered.

Elsewhere Colombia continued to see more momentum on earlier reports that the country would buy back $500 million in domestic and external debt this year. In trading, the Colombian bond due 2033 jumped 0.75 to 143.40 bid, 144.25 offered.

Mexico, Pemex higher

Mexico also posted gains, particularly on its long end, noted a source. During the session, the Mexico bond due 2026 moved up 1.13 to 160.625 bid, 161.375 offered,

On the corporate front, Mexico's Pemex rallied as oil prices stayed above $58 per barrel. Its 8 5/8% corporate bond due 2022 was up 0.75 to 123 bid, 124 offered while its bond due 2035 gained 1 point to 101.50 bid, 102.25 offered.

Meanwhile the new issue from Chile's Sociedad de Inversiones Calichera (Pampa Calichera) was spotted 1 point higher in the secondary. On Tuesday, the specialty chemicals and fertilizers producer sold a $250 million offering of 15-year senior secured notes (/BB-/) at par to yield 7¾%.

Asia posts gains

A trader in Asian issues said that "the market had a fairly strong tone to it for the most of the day, post-Bernanke testimony," which he said "certainly gave the market quite a bit of confidence that the Fed was going to be on hold for the foreseeable future, which was a buoy to the Treasury market, which carried over to all rate-sensitive Asian emerging market bonds."

He said that cash spreads actually finished the day a couple of basis points wider, as the Treasury rally outperformed the buying in emerging market bonds.

Even so, "we did see clients put money to work here, and the market closed out on a very firm tone."

He saw the longer dated Philippine and Indonesian bonds, the key benchmarks in Asian sovereign debt, both up about ½ point on the day, with the Philippine 2032 bonds finishing at 97.625 bid, 97.875 offered, while the Indonesia 2037s ended at 98.75 bid, 99 offered.

Asia Aluminum underperforms

Among corporate issues, he did see Asia Aluminum's bonds underperforming after Moody's Investors Service put its credit ratings under scrutiny for a possible downgrade.

"Guys used the Treasury uptrade to take profits [in the Asia Aluminum paper] or put on shorts," as it closed at 99 bid, 99.5 offered.

U.S. high yield traders saw MagnaChip SemiConductor's 8% notes due 2014 gyrating between 69 and 75 in brisk trading on Wednesday, before going home at 71 bid, off the peak levels but still up 2 points on the session. That pretty much made up for the ground lost on Tuesday, when the bonds retreated a point or so in heavy trading after Standard & Poor's downgraded the Korean computer chip manufacturer's senior unsecured ratings a notch to B and lowered its senior subordinated notes one level to CCC+.

The emerging market trader further noted that Indian bank ICICI is shopping its five-year floating-rate notes, with talk on the deal at 65 basis points over Libor, and "we saw the rest of the ICICI curve widen out a couple of basis points when they announced that news, but [Wednesday] was not a very active day in Indian names in New York, that I could see."

Overall, though, he said the market "definitely had a firmer tone, as U.S. equity markets were firm, as was the Bovespa index in Brazil.

Vigor unveils talk

In more pipeline developments, Fabrica De Prods Alimenticios Vigor SA set price guidance for its dollar-denominated offering of 10-year senior unsecured notes (B2) at 9¼% to 9½%.

The notes will be non-callable for five years. If the notes are not called, the coupon steps up by 100 basis points.

Dresdner Kleinwort is leading the Rule 144A and Regulation S offering.

Vigor is one of Brazil's largest nationally owned conglomerates in the dairy and vegetable oil products segments.

Digicel marketing

Elsewhere, Caribbean Digicel Group Ltd. began a roadshow on Wednesday for $1.4 billion of eight-year senior notes in two tranches.

The wireless telecommunications network operator is offering $1 billion of cash-pay notes and $400 million of PIK toggle notes.

The roadshow is scheduled to conclude on Feb. 22, with the notes expected to price that day or on Feb. 23.

Citigroup and JP Morgan are joint bookrunners for the Rule 144A for life notes. Credit Suisse and Lehman Brothers are co-managers, with other co-managers expected to emerge.

Both tranches of notes will come with three years of call protection.

Digicel Group, which will be headquartered in Bermuda, generated some familiar discussion on Wednesday: is it U.S.-market junk or is it emerging markets?

One senior high yield syndicate source suggested that given the current lack of new issue supply from U.S.-domiciled issuers Digicel is more high yield now than might otherwise be the case.

The source said that presently there are too few deals in the U.S. high yield primary market, and added that with prices on the rise investors no longer seem to be chasing the secondary market but are waiting to put cash to work in new issues.

Moving to Russia, Mirax Group is in the market with a $100 million offering of four-year credit-linked notes via MDM Bank.

The offering, which comes with initial price guidance of 9% to 9½%, is expected to price, pending market conditions, following roadshow presentations in Asia and Europe.

Mirax Group, a conglomerate based in Moscow and St. Petersburg, is involved in property development and management, construction, and pharmaceuticals.

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