Emerging market debt higher on equities; Maybank issues $300 million

By Reshmi Basu and Paul Deckelman

New York, April 18 - Emerging market debt advanced for the third straight session Wednesday, as U.S. stocks hit another record high.

In primary news, fresh supply from Asia continued to hit the market. Out of Malaysia, Malayan Banking Bhd. (Maybank) sold a $300 million offering of Islamic subordinated lower tier II notes (Baa1/BBB+/BBB+) at par to yield Libor plus 33 basis points.

The Sukuk bonds will be callable on April 25, 2012 at par. If the notes are not called, the coupon steps up by 100 basis points.

Aseambankers Malaysia Bhd, HSBC and UBS were lead managers for the issue, which were issued via MBB Sukuk Inc., a special purpose company established by Maybank to issue subordinated trust certificates.

In other developments, several corporates announced price guidance for upcoming deals. From Korea, National Agricultural Cooperative Federation set price talk for a $500 million offering of 10-year lower tier 2 notes at mid-swaps plus 42 basis points.

The deal will be non-callable for five years.

Citigroup, ABN Amro, BNP Paribas and HSBC are bookrunners for the Regulation S deal.

NACF is a Seoul, Korea-based umbrella organization for Korea's regional cooperatives.

Pricing is expected to take place Thursday.

From the Dominican Republic, EGE Haina Finance Co. (/B/B-) set price guidance for a $150 million offering of 10-year senior notes at 9 5/8% to 9¾%.

Barclays Capital and Deutsche Bank are the lead managers for the Rule 144A and Regulation S transaction.

EGE Haina Finance Co. is a wholly owned and guaranteed subsidiary of Empresa Generadora de Electricidad Haina, SA, a thermoelectric generator in the Dominican Republic.

Moving to Brazil, TAM Capital Inc., a wholly owned subsidiary of Brazilian air carrier TAM SA, set price talk for its $200 million offering of 10-year non-callable senior notes (/BB-/BB) at the 7¾% area on Wednesday

The investor roadshow is expected to conclude on Thursday.

Citigroup and UBS are joint bookrunners for the Rule 144A with registration rights and Regulation S offering. Calyon Securities is the joint lead manager.

Also from Brazil, Globo Comunicacao e Participacoes set price talk for its $200 million offering of 15-year senior notes (Ba1/BB) at 7 3/8% to 7½%.

Deutsche Bank Securities is the bookrunner for the Rule 144A/Regulation S offering.

The notes come with five years of call protection.

EM firmer on equities

Returning to trading, emerging market debt advanced Wednesday, as the Dow Jones Industrial Average index punched through the 12,800 mark in the session, securing a new record high.

A New York-based trader in Asian debt characterized the session, particularly the morning portion of it, as "pretty lackluster. Not a whole lot was going on. The market definitely had a weaker tone to it,"

although he noted that U.S. Treasury issues "continued to go higher for a second day on the bond-friendly [March consumer price index] number [Tuesday]."

That latter development, he said, certainly lent some support to cash prices in the sovereign Philippines and Indonesia curves, "but spreads [versus Treasuries] started to lean wider, until in the afternoon, we saw the clients coming in and starting to nibble on a few offers here and there."

He further commented that U.S. equities remained firm, "and I think the fact that the Dow broke through an all-time high today was just a positive from a psychological benchmark-crossing perspective, and I think that carried over into EM somewhat."

He characterized trading in Latin American debt as probably "much firmer" than Asian paper, although he said the latter "still feels a little bit sticky, especially in the sovereigns in the Philippines and Indonesia - but we wound up definitely on a firmer tone, with cash [bond] spreads probably unchanged, but clearly in the 5-year CDS a couple of basis points tighter."

He saw the spreads on the 5-year Philippine CDS at 106-108 bps, and the similar contract based on Indonesia's government debt at 105-107 bps, "both of them all-time tights."

Asian corporates see quiet trade

He said there was "nothing" going on in Asian corporate issues, which he characterized as "very quiet." He did see Tuesday's new 10-year issue for South Korean energy refiner GS Caltex "quoted basically where it came to market," in a 98 bps bid, 96 bps offered context, but said that after the pricing and the initial trading on Tuesday, "I didn't see a whole lot of activity in it."

Elsewhere in the Asian corporate sphere, South Korean computer-chip maker MagnaChip Semiconductor Ltd.'s 8% notes due 2014 - which earlier in the week had been driven down as low as the mid-50s from prior levels above 60 bid - were on the comeback trail on Wednesday. The bonds had firmed to around 58 in late trading on Tuesday and opened at that level again on Wednesday, but then gyrated higher within a 2 point range, being quoted late in the day back above 60.

Brazil pierces new high

In the Latin American EM market, Brazil's widely traded 11% benchmark bonds due 2040 were quoted at yet another new all-time high at 135.875, up from 135.55 on Tuesday, while its yield tightened to 5.553% from 5.60%.

At the shorter end of the curve, Brazil's 7 7/8% global bonds due 2015 moved up to 114.63 from Tuesday's 114.40, while the bonds' yield narrowed to 5.52% from 5.55% previously.

Apart from the dollar-denominated globals, yields on Brazil's local-currency bonds also fell as investors speculated - correctly, as it turned out - that the country's central bank would cut its key lending rate to a new all-time low. The yield on Brazil's benchmark real-denominated zero-coupon bonds due 2008 shrank by about 3 bps to 11.91%, with a spread of about 690 bps over the comparable U.S. Treasury issue.

The central bank governors, as expected, cut the key lending rate by 25 bps to 12.5%, a record low - and a minority of the seven-member policy-making council wanted to go even further, seeking a 50 bps rate cut.

Encouraged by continuing declines in inflation in Latin America's largest economy, the Brazilian policy-makers have been steadily cutting their interest rates in small monthly increments since September 2005, when the benchmark rate stood at 19.75%.

Argentina, Venezuela down

However, high beta credits Argentina and Venezuela continued to underperform the broader benchmark, according to a market source.

The long end of Argentina's cash curve continued to slide.

In trading, the Argentinean discount bond due 2033 gave up 0.25 to 109 bid, 109.75 offered. The par step-up bond due 2038 eased 0.05 to 47.75 bid, 48.95 offered.

Elsewhere, the Venezuelan bond due 2027 fell 0.10 to 122.40 bid, 122.85 offered.

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