Emerging market debt widens on Turkey worries; Banco Mercantil do Brasil sells new debt

By Reshmi Basu

New York, April 30 - Spreads for emerging market debt widened Monday as Turkey saw political risk roar back over the weekend on the country's escalating constitutional crisis.

In the primary market, Banco Mercantil do Brasil sold a $100 million offering of five-year amortizing notes (Ba2) at par to yield 7¾%.

The notes will amortize in the third, fourth and fifth years.

The deal priced in line with guidance for a yield of 7¾%.

Dresdner Kleinwort was the bookrunner for the Regulation S transaction, which was issued under the bank's global medium-term note program.

Banco Mercantil is a midsize bank that focuses on retail banking and lending to small and medium businesses located in the southeast region of Brazil.

In pipeline developments, Road King Infrastructure Ltd. plans to sell $300 million in a two-part offering of notes.

The deal will include $200 million of seven-year senior fixed-rate notes and $100 million of five-year floating-rate notes.

The fixed-rate piece will be non-callable for four years while the floaters will be non-callable for one year.

A roadshow is expected to take place from May 2 to May 4.

Proceeds from the sale will be used for land acquisitions and for property business.

JP Morgan is the bookrunner for the Regulation S deal. DBS Bank is a co-lead manager.

Road King is a Hong Kong-based company with businesses in the investment, development, operation and management of toll roads and other infrastructure projects in China.

Coming from Mexico, cement producer Cemex SA de SV plans to sell up to €750 million in perpetual bonds (//BBB).

The deal will be structured as fixed-to-floating rate bonds. The issue will be non-callable for 10 years.

Barclays Capital and JP Morgan are managing the sale, which will be issued via special purpose vehicle C10-EUR Capital (SPV) Ltd.

State-owned OJSC Russian Agricultural Bank (Rosselkhozbank) plans to sell a dollar-denominated offering of loan participation notes.

Barclays Capital, Citigroup and JP Morgan are joint lead managers for the Rule 144A and Regulation S transaction

EM slips on Turkey

Back to secondary trading, emerging market debt was weaker Monday as concerns over the U.S. economic growth picture remained a focus. Furthermore, the deepening constitutional crisis in Ankara also added to investors' concerns.

On Monday, Turkey saw pressure mount in its external and local markets as the country faces its worst political crisis since 2001.

The Islamic-rooted AK Party has backed foreign minister Abdullah Gul for president. Last week, parliament voted in favor of Gul, but the constitutional court has been asked to annul the vote.

And on Friday, the army warned the AK Party that it would intervene if necessary to protect the secular state.

As a result, Turkey was the session's worst performer as its spreads kicked out by 15 basis points.

However, a market source noted that the "spillover effect from Turkey has been somewhat contained but it has dampened sentiment."

Instead the source said "the U.S. economic story continues to drive the market."

On Monday, the U.S. government reported a 2.1% year-over-year rise in core PCE, which is within striking distance of the Federal Reserve's comfort zone.

The government also reported a lower-than-expected rise in personal spending and a lower-than-expected level of Chicago PMI.

Those signs of slower growth triggered a rally in U.S. Treasuries, but EM was unable to keep pace.

By the end of the session, the JP Morgan EMBI+ Global index was wider by six basis points at 167 basis points more than Treasuries.

Prior to New York trade, Asian credits posted a dull session as books closed out for month-end.

During the Asian overnight session, spreads for high yield sovereign names such as Indonesia and the Philippines initially sold off on the headlines from Turkey, but eventually recovered as bargain hunters looked to buy on the dip, according to an analyst.

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