Emerging market debt tightens amid light summer flows; Alto Parana to hit the road

By Reshmi Basu and Paul Deckelman

New York, May 25 - Emerging market debt climbed higher Friday amid light trading volumes, as the appetite for riskier assets returned after Thursday's sharp sell-off.

In other news, inflows into the asset class continued to remain solid. Dedicated emerging market funds saw $322.63 million enter the category for the week ending May 23, 2007, reported EPFR Global.

This marked the fifth consecutive week of positive flows. Year-to-date, $3.127 billion has entered emerging markets funds.

In the primary, Alto Parana SA plans to start a roadshow for a $270 million offering of 10-year senior unsecured guaranteed notes (Baa2/BBB+/BBB+).

The roadshow will kick off in Buenos Aires on May 30, move to Los Angeles on June 1, Boston on June 4 and wrap up in the New York area from June 5 to June 6.

Pricing is expected to take place on June 7.

Proceeds from the sale will be used for debt refinancing and for capital expenditures.

JP Morgan is the bookrunner for the Rule 144A and Regulation S deal.

Alta Parana, based in Buenos Aires, is the largest forestry company in Argentina.

Chilean forestry enterprise Celulosa Arauco y Constitucion SA will guarantee the issue.

Pakistan's new issue wilts in aftermarket

In secondary trading, Pakistan's new 6 7/8% bonds due 2017 were seen having fallen in local-market trading Friday, but then recovered some of that lost ground during an abbreviated pre-holiday session in New York.

Those bonds - which had priced at par on Thursday, with the $750 million issue reported by new-deal participants to have been 3½ times over-subscribed - were seen having retreated about a point from that issue price in Asian dealings, as investors apparently reduced their exposure to riskier sovereign credits, perhaps acknowledging recent political turmoil and street violence in Pakistan which left more than five dozen people dead.

But after finishing out the Asian day quoted at 99 bid, 99.25 offered, the new bonds "were better bid for" in New York, a trader there observed, seeing them going out at 99.375 bid, 99.5 offered.

However, the trader cautioned that due to the pre-Memorial Day holiday weekend early close - many desks were already deserted by around noon ET, two hours before the "official" market close recommended by The Bond Market Association - "the market was dead. Flows were very much on the lighter side because of the holiday."

Philippines ease with U.S. Treasuries

Elsewhere on the Asian scene, the benchmark Philippines 2032 bonds were quoted easier in local-market trading at 97.75, while its 2031 bonds likewise eased to 113.75, hurt by investor reaction to recently rising U.S. Treasury yields, which make the riskier emerging debt asset class less attractive, as well as concern about the safety of Far Eastern financial markets in the wake of the still widely respected former U.S. Federal Reserve chairman Alan Greenspan's warning during the week of a Chinese stock market "bubble."

The five-year Philippine CDS contract widened to 100 bps, some 3 bps over its previous level and all-time low at 97 bps.

India up on inflation news

India's bonds were seen firmer on favorable news on the inflation front - the second straight week in which those bonds had risen. That broke a three-session slide in the country's local-currency paper. Its rupee-denominated 8.07% notes due 2017 were quoted up 0.02 in late local-market trading, to 99.45, while the bonds' yield tightened to about the 8.15% level, a pickup of 1 bp from Thursday's finish, and slightly inside the week-earlier level of 8.154%.

The bonds bounced from earlier lows they'd hit as some investors moved out of existing paper to make room for new debt the government was auctioning Friday as part of its funding program (the treasury sold 50 billion rupees - $1.2 billion - of new 7.38% notes due 2015 and 8.35% notes due 2022).

After that supply concern-fueled downside blip, which dropped the 8.07s as low as 99.40, investor optimism on interest rates, sparked by the favorable inflation numbers, kicked in and lifted the outstanding bonds to their closing levels.

That appreciation followed the government announcement that in the week ended May 12, the rate of wholesale price inflation declined to 5.27% - its lowest in eight months - versus 5.44% the week before. New Delhi is aiming at bringing the inflation rate down to 5% by year's end.

While the country's central bank, the Reserve Bank of India, has been battling inflation over the past 2½ years by raising interest rates, and is likely to do so yet again in the near term - the cash reserve rate, which is the percentage of their deposits which banks must keep at the central bank, is seen likely to rise to 7% from 6.5% currently, while the repurchase rate on overnight loans could increase to 8% from 7.75% - analysts believe the benign inflation data could be a sign the rate-hike campaign will be nearing its end soon.

Brazil gains on local market buoyancy

In Latin American dealings, Brazil's benchmark 11% bonds due 2040 were quoted having widened ¼ point to 134.375 bid, continuing to be supported by the surging Brazilian real and the country's burgeoning stock market.

After having widened over the past several sessions into the low 150ish bps range from prior all-time tight levels at 148 bps, the widely followed JP Morgan EMBI+ index measuring the average spreads of emerging debt over comparable U.S. Treasury issues, was seen having tightened by 1 bp Friday to 152 bps over.

Earlier during the overnight Asian session Friday, investors turned defensive as regional equity markets were softer, according to a market source.

Paper from Indonesia and the Philippines were lower while the latter saw local accounts buy into the long end of its curve.

© 2015 Prospect News.
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