Emerging market debt quiet ahead of CPI numbers; Citic Resources issues new bonds

By Reshmi Basu and Paul Deckelman

New York, May 14 - Emerging market debt clocked in a lackluster session Monday as investors awaited Tuesday's release of the pivotal U.S. consumer price index data.

In the primary market, Citic Resources Holdings Ltd. sold a $1 billion offering of seven-year senior unsecured notes (Ba2/BB) at 99.726 to yield 6.80%.

Bear Stearns and Morgan Stanley were lead managers for the Rule 144A and Regulation S deal, which were issued via Citic Resources Finance (2007) Ltd.

Hong Kong-listed Citic Resources is a base metals producer.

Proceeds from the sale will be used to finance the purchase of 50% of Kazakhstan oil & gas assets from its parent Citic Group and for working capital purposes.

The issuer has recently signed agreements to buy oil assets in Kazakhstan and northeastern China in attempts to become an oil producer as well.

Meanwhile Kansas City Southern de Mexico, SA de CV priced a $165 million issue of seven-year senior notes (B2/B-) at par to yield 7 3/8% in a quick-to-market transaction.

The yield was printed at the tight end of the 7 3/8% to 7½% price talk.

Banc of America Securities was the left bookrunner for the Rule 144A with registration rights/Regulation S issue. Morgan Stanley was the joint bookrunner.

Proceeds will be used to redeem the company's 12½% senior notes due 2012.

The issuer is a wholly owned subsidiary of railroad transportation company Kansas City Southern.

Also issuing new debt Monday, Mumbai-based ICICI Bank Ltd. sold a £350 million offering of three-year bonds (Baa2/BBB-) at 99.585 to yield Gilts plus 83 basis points.

BNP Paribas, Citigroup, Deutsche Bank and HSBC were lead managers for deal, which came off the issuer's $5 billion euro medium-term note program.

South Africa sets talk

In other primary news, the Republic of South Africa set price guidance for a minimum $750 million offering of 15-year global bonds (Baa1/BBB+/BBB+) at Treasuries plus 120 basis points.

The new deal is part of a tender offer in which the country plans to retire shorter-dated dollar-denominated debt.

Holders of the bonds due 2009, 2012, 2014 and 2017 can exchange the bonds for the new dollar-denominated bond due May 30, 2022 and the country may sell additional bonds for cash.

Taken together the exchanged bonds and the debt sold for cash will result in an issue size for the new bonds of at least $750 million.

Barclays Capital and Citigroup have been mandated as joint deal managers of the transaction.

Pricing is scheduled for Wednesday while the settlement date is expected to be May 30.

Out of the Ukraine, real estate developer XXI Century Investments set price guidance for a dollar-denominated offering of three-year secured bonds at the 10% area.

ING is the bookrunner for the Regulation S deal.

The roadshow is scheduled to end on Wednesday.

Also from the Ukraine, Vseukrainsky Aksionerny Bank plans to start a roadshow for its inaugural offering of dollar-denominated eurobonds (B2/B-).

The roadshow will start in Hong Kong on Tuesday, continue in Singapore on Wednesday, in London on Thursday, in Switzerland on Friday and in Frankfurt and Vienna on the following Monday.

Credit Suisse and Deutsche Bank are lead managers for the Regulation S deal.

Finally adding to the pipeline, Colombian commercial bank Bancolombia SA said it plans to sell a $400 million offering of 10-year subordinated unsecured notes (Baa3//BB).

JP Morgan and UBS Investment Bank are lead managers for the offering, which have been registered with the Securities and Exchange Commission.

Proceeds from the sale will be used to fund operations, to strengthen the bank's capital structure and regulatory compliance and for other general corporate purposes.

Steady but slow EM trade

When the new Kansas City Southern de Mexico 7 3/8% bonds due 2014 were freed for secondary dealings, they raced up to the 100.75 bid, 101.25 offered area, above their par issue price.

A trader in Latin American debt said that from where he sat, "the markets were pretty quiet all day. It was pretty uneventful."

He said that levels "kind of drifted off a little bit - but there was nothing exciting." He said noting "really jumped off the page at him" in terms of a particular bond or issuer standing out.

He added that generally, "there's been a very good bid to high-grade corporate names."

PDVSA slides

One name which was going the opposite way on Monday was Petroleos de Venezuela SA, weakened by the prospect that bondholders of a PDVSA joint venture project the government is taking over could declare a default and accelerate that debt, which PDVSA has said that it would assume.

PDVSA's 5¼% bonds due 2017 were being quoted down nearly ¾ point on the session in the mid-81 bid area, while the bonds' yield ballooned out a dozen basis points to just a shade under 8%. Spreads between the state-run oil company's bonds and U.S. Treasuries were also about a dozen bps wider at 324 bps.

At issue is $494 million of bonds issued by Cerro Negro, one of four joint oil ventures in Venezuela's Orinoco River Basin between the government and foreign oil companies. The government took over the operations of the four multi-billion-dollar heavy crude projects as part of President Hugo Chavez's ongoing effort to transform his country into a socialist state, by ousting private companies. Significantly, the takeover occurred on May 1, the traditional socialist holiday.

That takeover might be interpreted as a change of control by the bondholders, who could then demand that the debt be immediately redeemed.

PDVSA over the weekend sought to reassure investors that there had been no default, and said that it would continue to meet its obligations to the bondholders under the indenture's terms. By some estimates there might be as much as $4 billion of debt from the four projects floating around floating around - and some analysts have suggested that with its international reserves recently in the mid-$20 billion range, a two-year low, Caracas may have trouble servicing all of that debt. That caused spreads on CDS contracts protecting investors against events of default to widen out and the price of such contracts to rise for both PDVSA's bonds and the government's own sovereign issues.

It also caused a retreat in the price of the government paper; the benchmark 9¼% bonds due 2027 were seen down nearly a full point to the mid-118 area.

On the shorter end of the curve, PDVSA's 5¾% bonds due 2016 lost about two-thirds of a point to end quoted at 91.90 bid.

Venezuelan issues have also recently been hurt by the lingering fallout from Chavez's threat last month to pull his country out of the International Monetary Fund, a move which could trigger a default on many issues of the country's debt, as well as fluctuations in the price of oil, Venezuela's key export commodity.

Asia trade steady

In Asian dealings earlier, CDS contracts linked to Philippine and Indonesian sovereigns - considered the most widely held instruments - were seen little changed from Friday's levels at 107-109 bps and 106-109, respectively.

Philippine government issues were seen little changed from Friday's levels - the 2031 bonds around 114 and the 2032s around 98 - as the nation went to the polls Monday for national elections. Little or no change was expected in the country's political landscape.

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