Emerging markets trade mixed; Argentina still sinking; FerroChina prices $55 million; local deals price

By Aaron Hochman-Zimmerman

New York, March 31 - Emerging markets posted another slow day of light volumes and slight price action.

In trading, Argentina continued to burrow to new lows in 2008 as the farmers' strike was back on after failed talks during the weekend.

The primary attempted to keep its wheels spinning by pricing a $55 million deal from China's FerroChina Ltd. along with other local-currency deals.

The prevalence of paper priced in local currencies is evidence of desperation on the part of issuers to raise capital anywhere it can be found away from the dollar, a trader said.

Volatility jumped early but trailed off throughout the session to end lower by 0.10 at 25.61, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets widened by 4 basis points to a spread of 304 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging markets debt.

Light trading in LatAm

Latin American trading saw "a little bit of widening," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

Still, prices remained largely unchanged and volumes stayed light, he said.

"You could call [Colombia] the big out-performer today," he said.

As expected, Colombia's central bank left its reference interest rate at 9¾% on Friday, a market source said.

Still, the tone of the accompanying memo was described as less "hawkish" than expected considering the strong fourth-quarter GDP data, the source said.

Another market source believes rate cutes will begin in the fourth quarter of 2008.

The Colombian sovereigns due 2024 added 1 point to 116.3 bid, 117.5 offered.

Credits in Venezuela and Brazil saw little price action.

The Venezuelan 9¼% bonds due 2027 added just 0.1 point to 95 bid, 95.3 offered.

The Brazilian 7 1/8% bonds due 2037 were spotted unchanged at 107.8 bid,d 108.3 offered.

Argentina's government, farmers reap unrest

The big news in the region was still the farmers' strikes in Argentina, which resumed on Monday after a temporary suspension of the strikes over the weekend, Alvarez said.

The suspension was called in order to meet conditions for talks with the government, but that talks broke down with no progress reported, a market source said. In response, the farmers have set their own preconditions for talks.

The new export taxes on farm products must be lifted for 90 days for the farmers to meet with government negotiators, the Buenos Aires Herald reported.

President Cristina Kirchner cancelled her trip to London planned for Wednesday. She was to take part in a progressive governance summit, the report said.

"It's still very much confrontational," Alvarez said.

The 8.28% Argentine discount bonds due 2033 dumped 2 points to 82 bid, 82.8 offered.

"We haven't been this low the entire year," he said about the bond prices.

Asia favors cash

"It just continues to be incredibly quiet low-volume trading," a trader said.

"We're getting sporadic cash inquiry," he said, adding: "More than CDS and indices."

In the Philippines, the external debt registered by the central bank reached $55 billion at the end of 2007, according to a central bank press release.

The figure is up by $1.6 billion since the end of 2006 and $511 million from the end of the third quarter.

The Philippine's sovereign bonds due 2030 slipped just 0.125 point to 130.5 bid, 131 offered.

Meanwhile, Indonesia's government bonds due 2017 were lower by 0.875 point at 104.25 bid, 105.25 offered.

Elsewhere in Pakistan, 24 new cabinet members were sworn in by president Pervez Musharraf on Monday.

The majority of the cabinet is made up of members of the opposition Pakistan People's Party (PPP) and the Pakistan Muslim League-Nawaz (PML-N).

Members of the PML-N were seen wearing black armbands in protest of the president's authority.

The Pakistani bonds due 2016 were quoted at 85 bid, 88 offered.

Three price in primary

Issuers tried to keep momentum in the primary by pricing one dollar-denominated deal and two in local currencies.

Serial issuer Kookmin Bank also offered a new samurai.

FerroChina Ltd. priced a $55 million in three-year bond with warrants. The bonds will carry a coupon of 13.5%.

The first $40 million of the bonds may be redeemed early at the company's option at a price above 102 until March 31, 2009 and at 101 afterwards. The remaining $15 million may be redeemed at par on April 30, 2008 and at 102 afterwards.

A warrant will be issued for every $2 of the $40 million tranche, but no more than 27.5 million warrants will be issued. Each warrant may be redeemed for one share of the company.

Proceeds from the issuance will be used to refinance part of the principle of its $60 million 7% guaranteed notes due March 29, 2008.

FerroChina is a Changshu, China-based steel producer.

Malaysia's AmBank Bhd. (/BB/BB) priced a 45 million ringgit tranche and a 75 million ringgit tranche.

Both were priced at par.

The 45 million ringgit tranche has a coupon of 5.2%, a 10-year maturity and is non-callable for five years.

The 75 million ringgit tranche has a coupon of 5.4%, a 12-year maturity and is non-callable for seven years.

Both issues step up by 0.5% after six and eight years, respectively, and continue to step up by 0.5% every year until maturity.

Ambank has already issued 860 million ringgit under its medium-term note program. Another 1.14 billion ringgit is expected.

Proceeds will be used for general working capital.

AmBank is a Kuala Lumpur, Malaysia-based retail and commercial bank.

"There's been quite a lot of issuance in ringgit," a trader noted.

Elsewhere, Indonesia's PT Indosat Tbk. (AA+, local) priced a 570 billion rupiah sukuk and a 1.8 trillion rupiah conventional bond.

The 1.08 trillion bond issue is broken into a five-year 10¼% series A offer worth 760 billion rupiah and a seven year 10.8% series B offer worth 320 billion rupiah.

The five-year 570 billion rupiah sukuk was priced with an ijarah fee of 58.4 billion rupiah.

The total offer was upsized from 1.5 trillion rupiah.

PT Danareksa Sekuritas and PT Mandiri Sekuritas were asked to act as bookrunners for the deal.

Indostat is a Jakarta-based telecommunications provider.

The new offer came from Kookmin Bank (Aa3/A/A+), which announced plans to offer a two-year two-tranche senior unsecured samurai bond. The tenor was reduced to two years from three years.

Kookmin is a Seoul-based commercial and retail lender.

Emerging Europe slowly opens week

Emerging Europe saw mild widening on another slow day of light liquidity.

In Ukraine, president Viktor Yushchenko acknowledged $2 billion worth of debt to Russia for natural gas shipments.

"It is the question of our reputation," he told the Itar-Tass News Agency. "We do not need a gas war with Russia," he added.

Prime minister Yulia Timoshenko argued the figure.

"I was surprised when I heard that sum and immediately read accounting reports. Certainly, we do not and cannot have such a debt. The debt is much smaller, about $900 million. The problem is that we still do not have gas contracts. All we have is an agreement between Russia and Ukraine to keep off intermediaries and stabilize prices. The government has the funds on its hands. It is waiting for contracts to be signed," she said in the report.

Under the proposed contract Ukraine will pay $179.50 per 1,000 cubic meters of gas.

Meanwhile, after he left the announcers' booth at the Washington Nationals' opening night on Sunday, president George Bush flew to the Ukraine to meet with the Kiev government regarding its membership in NATO.

Bush has said that NATO has no intentions of creating any permanent military facilities in Ukraine. The presence of Western military forces has been a sore point for Russia and many Ukrainian citizens.

Thousands gathered to protest NATO membership in Kiev.

Ukrainian membership will be discussed at the NATO summit in Bucharest, which begins on Wednesday.

Elsewhere in Russia, the GDP rose by 7.8% in January and February compared to the same period in 2007, the ministry of economic development and trade said, according to Itar-Tass.

The ministry projects a 6.3% GDP growth rate in 2009, 6.6% in 2010 and 6.3% in 2011, the report said.

Also in emerging Europe, Hungary's central bank announced a widely anticipated base-rate hike of 50 bps to 8%.

E.U. watches Turkish government trial

As Turkey's constitutional court voted unanimously to hear the case filed by chief prosecutor Abdurrahman Yalcinkaya on March 14 to have the party declared anti-secular and unconstitutional, the European Union's enlargement commissioner, Olli Rehn, suggested that Turkey's constitutional court consider the consequences of the case against the ruling AK party.

The charges would have president Abdullah Gul, prime minister Tayyip Erdogan and 69 other party members be barred from public office for five years.

"In a normal European democracy, these kind of political issues should be discussed in parliament and decided at the ballot box, not in the courtroom," Rehn told the media.

Erdogan will fall back on his popularity during the legal battle, a market source said.

Economic growth of 7% has put him in good standing with the country's middle class and has overshadowed the party's Islamic leanings, the source said.

Also, GDP for the first nine months of 2007 was revised to 5% from 3.8% under the new method of calculation used by the statistics reporting agency Turkstat, according to a central bank press release.

The change did not greatly affect any trends, the release said; average quarterly GDP had been 2.2% from the third quarter of 2003 to the third quarter of 2006, but is now closer to 0.8%.

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