Banco Macro issue stumbles; Lukoil prices $1 billion; issues expected from CIS

By Aaron Hochman-Zimmerman and Paul Deckelman

New York May 31 - Two issuers from the corporate sector combined to price three tranches on Thursday.

Meanwhile Ukraine mandated four investment banks for a benchmark-sized dollar-denominated deal set to hit the road next week.

And a series of issuers from the Commonwealth of Independent States are lining up to bring new deals.

Lukoil prices $1 billion

Russia's Lukoil OAO priced Thursday's biggest deal - $1 billion in two $500 million tranches (expected Baa2/BBB-/BBB-).

The company priced 10-year paper at a spread of Treasuries plus 145 basis points, at the rich end of the 145 to 155 bps price talk which had been lowered from initial talk of the 155 bps area.

In addition, Lukoil priced 15-year notes at Treasuries plus 175 bps, inside of the 180 to 185 bps talk, which had also been lowered, in this case from earlier talk of a spread in the 185 bps area.

Credit Suisse and Deutsche Bank jointly ran the books. Deutsche took the left position for the 10-year piece; Credit Suisse was on the left for the 15-year notes.

Banco Macro slides on break

Banco Macro SA, meanwhile, priced $100 million of peso-linked five-year unsecured senior notes (Ba1//B+) at par to yield 10¾%.

An investor said that the Citigroup-led deal broke at 99¾ bid despite being six times oversubscribed. Given the small allocations, many participants were looking to unload what they receive, the investor continued, adding that the downward move in price suggested that broker support for the new notes may have been less than sufficient.

Ukraine mandates

The government of Ukraine (B1/BB-/BB-) mandated Citigroup, Credit Suisse, Deutsche Bank and UBS to act as joint lead managers for a benchmark-sized dollar-denominated offering of eurobonds, with a roadshow set to begin on Monday in the United States and Europe.

Ukraine last came to the international bond market in November 2006 with a $1 billion issue of 6.58% notes due 2016 which priced at a 197 basis point spread to Treasuries.

Calendar growing

Kazkommertsbank is in the market with an offering of 10-year lower tier II subordinated loan participation notes via ING and UBS.

Elsewhere Comtech, a Moscow-based mining and metal company, is on the road with a Regulation S deal, the size and denomination of which remain to be determined. Trust Investment Bank will run the books.

Secondary tighter again

In the secondary market, spreads between emerging market debt and U.S. Treasuries continued to narrow on Thursday, driven by a combination of good fundamentals for many of the emerging economies and a continued retreat in the U.S. issues, which sent their average yields rising, narrowing those spreads.

The 10-year U.S. note's yield increased 2 basis points to 4.89%, after rising as high as 4.91% at one point in the session.

Overall EM credit risk spreads versus the Treasuries, as measured by JP Morgan & Co.'s widely followed EMBI+ index, tightened by a deuce to 153 bps, not far from its recently set all-time tight level around 148-149 bps.

Watching Asia after stock drop

Many eyes were on the Asian issues, which had been volatile on Wednesday after stocks nosedived in China.

A New York-based trader in Asian debt said that the session was "pretty quiet today," terming it "a continuation of the recovery we saw towards the latter part of [Wednesday]," when emerging bonds - which had initially retreated on Wednesday in response to an equity slide triggered by China's imposition of a sharply higher share-trading tax - bounced off their earlier lows to end pretty much unchanged on the session.

He pronounced the overall market tone "pretty good," adding that "where we are seeing flows, it's generally better buying of high-yield corporates and sovereigns."

He saw the widely followed spreads on credit default swaps linked to Indonesian and Philippine government debt "1 to 2 [basis points] tighter on the day," bringing them to 98 basis points and 99 bps, respectively, around their all-time tight levels.

That carried over the firmness seen earlier in local-market trading in the Far East, when the Philippine five-year CDS had narrowed to 99-101 bps, the levels it held in New York, and the country's benchmark 2032 bonds were seen having firmed to around 97.625 bid and its 2031 notes were likewise better at just above 113, both up nearly a half point on the session.

"The overall market tone is good," the trader said. "I think the only possible concern is if we see further weakness in Treasuries, whether that forces a reappraisal of current yield levels on some of this

sub-investment grade paper."

Shanghai Zendai regains par

But he added that "at this stage, it doesn't look like anyone is really thinking that way."

Among the corporate issues, he saw the new Shanghai Zendai Property Ltd. 10% senior notes due 2010, which priced on Wednesday at par and then moved down somewhat in initial aftermarket trading, moved back up to par in Thursday's dealings "having looked a little vulnerable [Wednesday] - so it does continue the same theme of those corporates recovering after the China-related equity weakness."

Noting that the financial markets shook off the latest bad news out of the Orient in a matter of hours, rather than being dogged by it for quite a number of days, as happened in late February and early March when Chinese stocks suffered a meltdown and the "Asian contagion" was felt all over the world for a long time afterward, the trader observed that "it's always the way that when similar things happen the second time around, the impact on the rest of the market is typically less. People are more used to it."

Elsewhere during the Asian session, the five-year CDS swaps on Thailand's debt were seen wider by about a basis point to about 37-40 bps on potential political unrest in that country after its courts banned a former prime minister and many of his supporters from taking part in politics for five years.

And investors in India awaited a central bank decision that was possibly expected to come during the local trading day Friday on whether it would siphon spare cash from that country's banking system as an inflation-control measure - a move which could leave investors with less money to buy bonds.

In Thursday's local dealings, though, bonds were pretty much unchanged, with the yield on India's rupee-denominated 8.07% notes due 2017 seen steady at 8.10%, and its price pretty much hanging in there at 99.80.

Brazil down, Venezuela up

In Latin American trading, the Brazilian 11% bonds due 2040 were seen down ¼ point to just below the 133.95 level.

Venezuelan debt was meantime seen a little firmer, as street protests against President Hugo Chavez's controversial decision to shut down a venerable and much-watched TV network identified with his political opponents, appeared to subside.

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