Emerging market debt quiet as Turkey posts relief rally; TransCreditBank issues talk

By Reshmi Basu and Paul Deckelman

New York, May 1 - Emerging market debt traded with a firm but quiet tone as Turkey regained momentum after the constitutional court annulled last Friday's parliamentary vote to elect a new president.

In the primary market, JSC TransCreditBank set initial price guidance for a dollar-denominated offering of three-year bonds (Ba3/BB-) at 7¼% to 7½%.

ABN Amro and Standard Bank are lead managers for the Regulation S transaction.

The Moscow-based issuer is the bank for Russian Railways.

In other news, two more corporates plan to hit the road with upcoming bond deals.

Out of Korea, LG Electronics Inc. plans to start a roadshow for a dollar-denominated offering of five-year bonds (Baa3/BBB-/BBB-) this week.

The roadshow will start in Singapore on Friday, move to Hong Kong on the following Monday, and wrap up in London on Tuesday.

Deutsche Bank, HSBC, JP Morgan, Korea Development Bank and Morgan Stanley are lead managers for the Regulation S deal.

Coming out of Brazil, Sadia Overseas Ltd. plans to start a roadshow for a dollar-denominated offering of intermediate-dated notes (Ba2/BB expected) next week.

The roadshow will begin in Hong Kong on May 7, continue in Singapore on May 8, in Zurich on May 9, in London on May 10, in Frankfurt on May 11, in New York on May 14, in Boston on May 15 and in Los Angeles on May 16. A roadshow may be added on May 17.

Brazilian food processing company Sadia SA will guarantee the issue.

Proceeds from the sale will be used to refinance existing debt and to finance capital expenditures.

ABN Amro is the bookrunner for the Rule 144A and Regulation S deal.

Turkey rebounds on court ruling

Returning to secondary trading, Turkey recovered Tuesday following Monday's sell-off.

The country's sovereign debt gyrated in Tuesday's dealings, first pushed lower by the worsening constitutional crisis surrounding the election of the country's next president, but then coming back later in the session after a court annulled the result of the election, avoiding for at least the moment the prospect of a clash between the Islamist-dominated majority party in Parliament and powerful secularist forces in Turkish society, including the military leadership.

Although Standard & Poor's sought to calm the waters with a morning declaration that the political tensions in the Mediterranean nation are unlikely to harm its credit ratings - BB for local currency and BB- for foreign currency, both with a stable outlook reflecting what S&P called "the improvements in economic management witnessed over the past six years" - its debt, stock markets and currency initially fell, extending the losses seen Monday.

Investors awaited the ruling of the national supreme court on whether the results of the preliminary round of parliamentary balloting for the president's post would be allowed to stand. That first round left foreign minister Abdullah Gul of the ruling Justice and Development party, or AKP, just 10 votes shy of claiming the presidency. Given Gul's status as a former member of a now-banned Islamic party, his possible elevation to the presidency drew opposition from the country's secularists and a warning from the military leadership that it would defend the country's secular form of government.

However, later in the day, the court ruled the first round of voting invalid due to the lack of a proper quorum of at least two-thirds of the parliamentarians.

AKP prime minister Tayyip Erdogan said that his government would seek new parliamentary elections either in late June or early July, and analysts said that the just-averted crisis could reoccur should AKP get a strong mandate from the electorate - but for the moment the showdown was averted.

That caused the markets to breathe a collective sigh of relief, and the early losses in bonds were erased. The five-year CDS contract on Turkish government debt, which had traded at 140-145 basis points last week, before the confrontations between the secularists and the parliamentary Islamists came to a head, had widened out to as much as 170 bps Tuesday morning before the court ruling, but then came back in to around the 165 bps neighborhood after the ruling.

The country's benchmark sovereign bond due 2030, which had initially fallen ½ point on Tuesday, on top of its Monday losses, bounced back to end nearly ½ point higher on the day at 155.3125.

The average spread on Turkey's bonds over U.S. Treasuries, as measured by the widely followed EMBI+ index, narrowed to 205 bps from levels out beyond 210 bps earlier in the session.

Overall, the EMBI+ was seen having come in by 2 bps on the day to 162 bps.

However, one source noted that while the market saw some relief, there is a bigger issue that may underscore the country's ability to enter the European Union.

"The army showed that it can influence political outcomes, and that may potentially threaten Turkey's E.U. accession plans," noted the source.

Asia sees quiet trading

A trader in Asian bonds said that in his market, "to be honest with you, there was not a whole hell of a lot going on," with markets in many countries closed for the traditional May Day labor holiday.

The market, he said, was "pretty much focused on new issues," as opposed to trading in the existing one.

Referring to the Turkish situation, he said that "it gave the [emerging] markets a nice scare in the last couple of days," but added that "it certainly hasn't led to contagion in the Asian market, or, from what I can tell, LatAm, but it definitely gave the market a nice little pause."

Despite the concerns about Turkey, he continued, "we didn't see outright selling - but it certainly did slow down this upside momentum that we'd seen in these last couple of weeks," which saw sovereign and corporate bonds in both Asia and Latin America in many cases trading at or near all-time high price levels and all-time tight spreads versus Treasuries.

"It looks like Turkey [spreads] tightened in nicely towards the end of the day here today, and that kind of buoyed the rest of the market."

He added, however that "volumes are incredibly light, and spreads are basically unchanged."

Benchmark Asian CDS spreads - for the five-year contracts linked to the Philippine and Indonesian government bonds - "seemed like they wanted to go tighter today - but no one was willing to make the plunge, so to speak." He saw the Philippine CDS spread steady at about 108-112, and the Indonesian also little changed at 106-109.

MagnaChip up

One name which was seen better was Korean computer chip maker MagnaChip International Ltd. Its 8% notes due 2014 were seen by a market source having moved up to 66.75, up 2½ points on the session, although another source saw the bonds drop back to end at around 65, up only ½ point after having gotten as high as 67 earlier in the session.

There was no fresh news seen out about the company, which last week reported that its sales fell and its loss widened from a year-earlier in the fiscal first quarter ended April 1.

Turning to Latin America, Brazil saw some profit-taking Tuesday as spreads widened by 5 bps.

In other developments, Venezuela posted losses on negative headlines as the government took official control of the Orinocco heavy crude oil projects.

During the session, spreads for the country's five-year CDS widened 5 bps.

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