Emerging market debt underperforms Treasuries; Transneft issues new debt

By Reshmi Basu and Paul Deckelman

New York, Feb. 23 - Emerging market debt closed out the abbreviated week Friday on a quiet note, underperforming U.S. Treasuries.

In the primary market, Russian oil pipeline company OJSC AK Transneft sold a $1.3 billion offering of seven-year loan participation notes (A2/BBB+) at par to yield a spread of mid-swaps plus 55 basis points.

Credit Suisse and Goldman Sachs were joint bookrunners for the Rule 144A and Regulation S notes offering, which was issued via TransCapitalInvest Ltd.

In other pipeline developments, Indonesian rubber and palm oil producer, PT Bakrie Sumatra Plantations Tbk. set price talk on its $49 million tap of its 10¾% senior secured notes due Nov. 1, 2011 (B2/B) at 100½ to 101.

Pricing is expected to take place on Tuesday.

Jefferies International Ltd. and PT Danatama Makmur are joint bookrunners for the Regulation S offering of notes. The deal will be issued by the Jakarta-based company's wholly owned subsidiary BSP Finance BV.

The original $110 million issue priced at 98.00 in October 2006, resulting in an 11.278% yield to maturity.

Also on the pipeline front, Venezuela is expected on Monday to reveal the details of its half of a $1.5 billion joint issue "Bonds of the South" offering it is doing with Argentina. Venezuela and Argentina will each sell $750 million of the notes. Finance Minister Rodrigo Cabezas said that the "yield will be high" on the new issue - the latest move in Venezuela's ongoing campaign to financially support other Latin regimes considered friendly to its socialist leader, Hugo Chavez.

Asia sees quiet opening

In the secondary, the Asian session Friday ended on a firm note, capping off a quiet week of trading. But Philippines bonds failed to rally, despite news that the country would repay $805 million of central bank debt.

Turning to Indonesia, the long end of its curve saw better bids.

In the New York session, the quiet tone from Asia spilled over as the market continued to suffer from the hangover effect from the recent string of holidays in Asia, Latin America and the United States.

For the session, emerging market debt was tepid Friday, as the asset class was unable to keep up with U.S. Treasuries.

Overall, emerging markets saw spreads widen by 4 basis points while the market was higher on a dollar basis.

Higher oil prices, triggered by escalating tension between Iran and the United States, added some support to oil credits, remarked an analyst.

In trading, the Venezuelan bond due 2027 added 0.30 to 126.20 bid, 126.40 offered. The Russian bond due 2030 gained 0.38 to 113.25 bid, 113.50 offered.

In country-specific news, Mexico saw wider spreads on the back of a more hawkish central bank. The bank left the benchmark rate unchanged at 7%, but warned that it would hike rates if core inflation does not ease.

During the session, the Mexico bond due 2022 was spotted down 0.40 to 121.80 bid, 122 offered.

Among benchmark names, the Brazilian bond due 2040 added 0.30 to 133.25 bid, 134 offered. And the Colombia bond due 2033 gained 0.65 to 143.90 bid, 144.90 offered.

Asia quiet in NY trade

Moving to Asian names, a trader said that his market was "pretty quiet today [Friday]. Not a whole lot was going on at all."

He said that "the only thing that stood out was the fact that the Asia sovereign markets felt a little heavy," with U.S. Treasury issues firming Friday as losses in subprime mortgage bonds fueled a "flight to quality" push into the highest-quality debt securities.

With the U.S. benchmark firmer, "[Asian] cash prices were probably a few basis points wider, definitely training the move seen in Treasuries."

But while "the market feels a little heavier," he said, "flows were pretty light."

He also saw little or no movement in corporate issues.

MagnaChip a tad higher

A high yield trader did see MagnaChip Semiconductor Ltd up "a little," with the Korean computer-chip manufacturer's 8% notes due 2014 at 74 bid, 75 offered.

The company's bonds continue to hang tough, despite allegations earlier in the week from Pixelplus Co., Ltd. that MagnaChip - in the midst of a patent infringement dispute with Pixelplus - had supposedly gotten in touch with the latter company's clients and had trashed it, thus allegedly defaming Pixelplus and trying to interfere with its client relationships.

MagnaChip has derided Pixelplus' charges of defamation and tortious business interference as "baseless."

In earlier trading in Asia, conglomerate Hutchison Whampoa Ltd.'s bonds sere seen firmer after unit Hutchison Telecom announced plans to pay shareholders a special $4.1 billion dividend, using some of the estimated $11 billion proceeds from the sale of its Indian wireless unit to Vodafone Group plc. Since Hutchison Whampoa is the biggest single shareholder, owning half of Telecom, it stands to get the biggest payout from the unit, and is expected to use the windfall to pay down debt.

The Hutchison Whampoa bonds due 2014 were seen having tightened one or two basis points to levels about 82 bps bid, 79 bps offered versus comparable U.S. Treasuries.

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