Emerging markets press higher; high betas gain; Georgia, Odebrecht break through pipeline

By Aaron Hochman-Zimmerman

New York, April 7 - Emerging markets trading kept its upward trajectory as it was egged on by new issues from each sector.

In the primary, Georgia and Brazil's Construtora Norberto Odebrecht SA each priced deals worth a combined $700 million. Another $300 million is expected from Korea Southern Power Co. Friday or next week.

"The pipeline is opening," a trader said with a measured amount of enthusiasm.

In trading, the high-beta credits led the charge with Venezuela in front on the rising tide of increases in oil prices.

Prices across emerging markets, and particularly Latin America, were still generally positive even during an unimpressive session for U.S. equities, according to Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"In light of that we're still somewhat positive on the price side," he said about stocks.

Elsewhere, a market source said the bottom is near for emerging market corporates if it has not passed already.

The Federal Reserve's efforts to secure the U.S. market have been responsible to a large extent, the source said.

Meanwhile, despite a midday drop, volatility bounced back to end lower by only 0.03 at 22.42, according to the VIX index. The index is a frequently used gauge of market volatility.

As a sector, emerging markets tightened by 9 basis points to a spread of 284 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will require to hold assets in emerging markets debt.

LatAm still climbing

"The market looked to have had a breakout on Friday," IDEAglobal's Alvarez said.

"There's some follow through in Ecuador," he said as the World Trade Organization found with Ecuador that the European Union placed a tariff on bananas that unfairly favored producers in the Caribbean and Africa, according to the WTO web site.

The E.U. is expected to appeal the ruling, according to the BBC.

Many E.U. countries have been accused of establishing policies that favor their former colonies, the BBC said.

The Ecuadorian government bonds due 2030 added 1 point to 100.25 bid, 101.25 offered.

Some investors have "dumped Argentina and Venezuela, picking Ecuador over the other two," Alvarez said.

The Argentine 8.28% discount bonds sank 1.5 points to 85.5 bid, 86.5 offered.

The Venezuelan 9¼% sovereign bonds due 2027 gained 1 point to 95.75 bid, 96.25 offered, "which can easily be linked in easily to the big bounce in oil prices," Alvarez said.

Light sweet crude was seen trading at $108.80 per barrel.

Also in Latin America, Brazil's 7 1/8% bonds due 2037 were better by 0.3 point to 110.3 bid, 110.6 offered.

Asia keeps momentum

Asian trading continued to improve after the lift the market saw last week.

Prices were slightly improved and spreads tightened, particularly in the hedging instruments, a trader said.

"There was a broadening of demand in a variety of spots, but it's still pretty thin," he said.

The market may need "the validation of a few new issues," he said.

In the Philippines, president Gloria Arroyo attempted to bolster the country's supply of grain by scrapping an import quota on rice and corn, the Manila Times reported.

"The lifting of the import quota will allow private importers to import rice and corn without limit as long as they won't hoard grains," presidential management staff chief Cerge Remonde said in the report.

So far during 2008, the Philippines has purchased 1.2 million tons of grain, or 68% of the former quota, from Vietnam, Thailand and Pakistan.

The rising price of commodities has doubled the price the country typically pays for imported grain.

However, the Rice Watch and Action Network, an organization which represents farmers and nongovernmental organizations, expressed reservations about the benefits of allowing more foreign products into the country.

The Philippines' sovereigns due 2030 were quoted unchanged at 131.625 bid, 132.125 offered.

"Indonesia has weakened quite a lot," the trader said, citing the country's inflation problem.

The CDS spread differential between Indonesia and the Philippines has recently widened to 15 bps from 8 bps, he said.

Although, after the Indonesian cash curve saw a bout of selling last week, buyers have begun to return, the trader said.

Also in Indonesia, cellular provider PT Exelcomindo Pratama is optimistic about the potential for the cellular market, the Jakarta Post reported.

In 2007, the company registered 110 million new subscribers, compared to estimates of only 60 million.

"When the market still has potential to grow, then competition is good - the more aggressive the players, the faster the market will grow. But when it is not growing anymore and if there are too many players, competition becomes overly aggressive and harmful for the industry," Excelcomindo president director Hasnul Suhaimi told the Jakarta Post.

Also, in response to the power crisis on Java, vice president Jusuf Kalla asked the state-run power firm PT Perusahaan Listrik Negara (PLN) to hurry the construction of its new coal-based power plant.

Construction of the 652 megawatt plant should be completed in 2010.

Other energy projects include a 600 megawatt Pacitan plant in East Java, a 900 megawatt Naga plant in Banten, a 900 megawatt Pelabuhan Ratu plant in West Java and a 200 megawatt Lampung plant in Lampung, the Jakarta Post said.

The rupiah was seen trading at 9,190.40 to the dollar.

The Indonesian government bonds due 2017 were also unchanged at 103.5 bid, 104 offered.

Pipeline cracks open

The primary pipeline spent most of the winter frozen, but it thawed enough to allow $700 million to price over two deals on Monday.

The Republic of Georgia (B+/BB-) priced $500 million of five-year bonds at par with a coupon of 7½%.

The deal priced with a spread of Treasuries plus 474 bps and mid-swaps plus 398 bps.

The bonds came at the tight end of its talk, which was for a yield of between 7½% and 7¾%.

J.P. Morgan Securities Inc. and UBS were mandated to act as bookrunners for the deal.

In Latin America, Construtora Norberto Odebrecht (BB/BB+) priced $200 million of its reopened 7½% bonds due 2017. The bonds priced at 100.5 to yield 7.426%.

The total size of the issue is now $400 million.

Credit Suisse and Deutsche Bank acted as bookrunners for the deal.

The bonds are non-callable for five years, then at 104.875 in 2012, 103.25 in 2013, 101.675 in 2014 and then par. There is a make-whole call at Treasuries plus 50 bps for first five years.

Proceeds will be used to refinance debt as well as invest in oil and gas infrastructure and real estate.

Odebrecht is Bahia, Brazil-based engineering and construction company.

Also, in Asia, Korea Southern Power (A1/A-) announced it will offer a $300 million five-year senior unsecured bond.

ABN Amro, Citigroup and Deutsche Bank will act as bookrunners for the deal.

The roadshow will be held in Hong Kong on Tuesday, London on Wednesday and New York on Thursday.

Korea Southern Power is a Seoul-based energy firm.

"It will price Friday if the market is on fire; otherwise, it will be next week's business," a market source said.

"I can't imagine it'll be that difficult a deal, it's just a question of pricing," a trader said.

Emerging Europe holds positive tone

Emerging Europe traded on light volumes but with a continued bright tone as the primary pipeline washed out some of the rust with the pricing of Georgia's $500 million five-year sovereign.

In Russia, the central bank's gold and foreign exchange reserve gained $30.6 billion, or 6.4%, in the first quarter of 2008, according to the Itar-Tass News Agency. The total reserve is estimated at $507 billion.

In March the reserve grew by $16.3 billion, or 3.3%, the report said.

Also, over the weekend president Vladimir Putin met with president George Bush, but the two were unable to reach a solution over the proposed U.S. missile defense systems to be located in Eastern Europe.

Both sides signed to an agreement stipulating further talks, but progress is not likely until after Dmitry Medvedev becomes the Russian president in May.

Meanwhile in Ukraine, president Viktor Yushchenko suggested the country hold a referendum on NATO entry in two years, the Itar-Tass News Agency said.

The date was set to give the government enough time to earn a membership action plan and inform the public of about the alliance, the report said.

"'We are grateful to the Alliance and its member-states for their support of Euro-Atlantic aspirations of our state,' he said, pointing also to the fact that Bucharest summit became the first time, when it was clearly stated: Ukraine will join NATO," Yushchenko said according to his web site.

Also, after returning from the summit, Yushchenko removed two ambassadors.

Oleg Dyomin, ambassador to Moscow, reached retirement age and was asked to step down, while Igor Dolgov, ambassador to Germany, was transferred to another post.

"Germany needs a new wave of Ukrainian politics," said Alexander Chalyi, the deputy head of the secretariat of Ukrainian president, according to Itar-Tass.

AK party readies for fight

In Turkey, a compromise proposal has been created by the ruling AK party that includes provisions to protect president Abdullah Gul from the lawsuit brought against the party by chief public prosecutor Abdurrahman Yalcinkaya on March 14, according to the Turkish Daily News.

The package is designed to make the removal of a political party more difficult and to place the president above the fray of the political fight.

Gul will be allowed to stay in office if the party is convicted of anti-secular and unconstitutional behavior as his post is non-political according to most Turkish jurists, the report said.

Still, if convicted, the president's authority will be significantly weakened, analysts said.

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