Emerging markets flat to stronger; Argentina leads losers; Evraz prices $1.6 billion of bonds

By Aaron Hochman-Zimmerman

New York, April 17 - Emerging markets showed small signs of keeping the momentum that drove the last few sessions.

Russia's Evraz Group SA turned heads in the market with its $1.6 billion two-tranche deal.

In trading, spreads tightened slightly as the market seemed to lose some faith in Argentina's ability to pacify the situation with its farming community.

The Argentine discount bonds due 2033 took the most damage of the high-beta credits as it posted a loss of 1.25 points.

Disappointing earnings took some wind out of the sails of the general market, but unlike equities, "I don't think they're making that much of an impact on the [credit] market," Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, said about earnings.

Stocks were mixed, but volatility still found its way lower by 0.16 to close at 20.37, according to the VIX index. The index is a frequently used gauge of market volatility.

As a sector, emerging markets tightened by 2 basis points to a spread of 263 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will require to hold money in emerging markets debt.

LatAm creeps higher

Latin America held on through low volumes despite a mixed performance in equities as political risk crept up for the high-beta usual suspects.

Ecuador "rolled back," IDEAglobal's Alvarez said after president Rafael Correa said he "doesn't see any buybacks in '08."

The market had expected some form of buyback program for at least a portion of the sovereigns due 2012, 2015 or 2030.

The 8% Ecuadorian bonds due 2030 gave back 0.75 point to 100.1 bid, 100.3 offered.

In Brazil, president Luiz Inacio Lula da Silva defended the use and production of biofuels despite allegations that they add to food costs.

Commodity price increases are due to greater access and usage by developing countries, he told the United Nation's Food and Agriculture Organization (FAO) in Brasilia, according to a BBC report.

Brazil is a major biofuel exporter.

However Hugo Chavez, president of oil exporter Venezuela, suggested that the use of agriculture products for fuel may lead to widespread food shortages.

The 7 1/8% Brazilian sovereigns due 2037 added 0.35 point to 112.35 bid, 112.95 offered.

Also in Venezuela, the naming on Wednesday of Roberto Hernandez as the new labor minister does not bode well for Luxembourg's Ternium, which expects to have its Venezuelan Sidor steel plant nationalized, Alvarez said.

Still, "there hasn't been a nationalization this week, which is odd," he said

The 9¼% Venezuelan sovereigns due 2027 fell by 0.85 point to 95.75 bid, 96.25 offered.

Little progress in Argentina

In Argentina, the government and representatives of the farmers traded barbs Wednesday over a threat to lower beef prices, the Buenos Aires Herald reported.

The farmers accused domestic trade secretary Guillermo Moreno of threatening to lower prices shortly before detailed negotiations over the higher export taxes that led to the strike.

Moreno denied that he suggested lowering prices, the report said.

There has been a lot of pressure to lower beef prices, IDEAglobal's Alvarez said.

The farmers are not pleased with the progress, and the strike may resume on May 2, he said.

"The market seems to view it quite nervously," he said.

The 8.28% Argentine discount bonds due 2033 found a new low for the year by dropping 1.15 points to 81.35 bid, 82.2 offered.

Evraz prices $1.6 billion

In the primary, investors have been waiting on a major deal even though pipeline production has been noticeably higher in the past two weeks.

Investors were answered on the fifth day of the pricing streak by Evraz Group SA (Ba2/BB-/BB), which priced $1.6 billion in five-year and 10-year bonds.

The $1.05 billion five-year bonds priced at par with a coupon of 8 7/8%.

The $550 million 10-year bonds priced at par with a coupon of 9½%.

Both tranches matched their talk.

Deutsche Bank, UBS, ABN Amro and Calyon acted as bookrunners for the deal.

Evraz is a Moscow-based vertically integrated steel and mining business with operations primarily in Russia.

Also from Russia, OJSC Vimpelcom (Ba2/BB+) announced it will offer a benchmark-sized, dollar-denominated bond.

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

A roadshow will be held in Los Angeles, New York, Boston and London between April 21 and April 24. The notes are expected to close in the second quarter.

Proceeds will be used to refinance the company's bridge facility relating to the acquisition of Golden Telecom Inc.

Vimpelcom is a Moscow-based wireless telecommunications services company.

Elsewhere, Aluminum Corp. of China Ltd.'s board has approved the issue of 3 billion yuan to 10 billion yuan bonds with a maturity of three to five years.

The coupon is likely to be near 5.2% for a three-year issue and near 5.5% for a five-year issue but will not exceed the best lending rate of the People's Bank of China.

Proceeds from the sale will be used for general working capital.

The issuer is a Hong Kong-based aluminum producer.

Asia weakens on rice concerns

Trading in Asia was subject to the rising prices of rice, inflation and unrest.

In the Philippines, the flow of dollars into the country in March fell to $432 million, down from $1 billion in February, the central bank said, according to the Manila Times.

The first quarter still showed a $1.6 billion inflow of dollars to the Philippine economy, the report said, compared to $1.4 billion of inflows during the first quarter of 2007.

The global credit crisis has weakened the world's demand for peso-denominated credit as well as manufactured goods, the bank said.

The dollar surplus is estimated at only $3.4 billion in 2008, compared to a surplus of $8.5 in 2007.

In Indonesia, shariah-compliant mutual funds are predicted to far outstrip the 20% growth of national mutual funds, the Jakarta Post reported.

The new market grew by 31.6% in the first quarter, compared to 2.12% growth in the conventional funds.

The Indonesian legislature recently approved a law that will allow for the issuance of public debt in shariah-compliant credits.

Also in Asia, Sri Lanka instituted price controls on rice Thursday, according to the BBC.

"The government has taken a hasty decision without consulting us," the president of the Old Moor Street Traders Association, K Palaniandi Sunderam, told the BBC.

"We can't sell at the price that the government is imposing because we have bought the rice already at a higher price," he said.

Emerging Europe flat to firm

Trading in emerging Europe was steady to firmer as market watchers saw benchmark deals from Russia shake the primary.

Meanwhile in Russia, the government will forgive $4.6 billion of debt from Libya, said deputy prime minister and finance minister Alexei Kudrin, according to the Itar-Tass News Agency.

In exchange for the debt, Russian corporations will be given "multi-billion dollar contracts," the report said.

One of the contracts will be awarded to railroad developers JSC Russian Railways (RZD). The company will be paid €2.2 million to construct a 500 kilometer railroad from Sirt to Bengazi.

Also in Georgia, president Mikhail Saakashvili again asked Russia not to interfere in the breakaway regions of Abkhazia and South Ossetia, calling recent aid from Russia "de facto annexation."

Saakashvili has asked the United Nations to hold a special session to offer non-Russian aid to the people of Abkhazia and South Ossetia.

Both NATO and the European Union have condemned Russia's advances into Georgia.

Turkey halts property sales, leaves rates

In Turkey, the central bank announced it would leave its overnight borrowing rate at 15.25% and its lending rate at 19.25%.

"Deepening problems in international credit markets continue to restrain the domestic demand, while external demand remains strong. Overall, aggregate demand conditions will continue to support disinflation," the bank said in a statement.

"However, rising food and energy prices and ongoing uncertainties in the global economy have worsened inflation expectations and increased the upside risk on inflation," the statement continued.

Also in Turkey, laws allowing property sales to foreigners expired Thursday.

The stoppage of sales will put the real estate, construction and tourism industries in jeopardy, the Turkish Daily News reported.

After a court ruling at the end of last year, the government had three months to make changes to the existing law.

Legislators were unable to reach an agreement in time but are still working to lift the ban on sales.

"It is now almost impossible for those foreigners with 10% to 15% of their debts remaining to get their deeds," Ahmet Sengel, chairman of the construction firm Sengel InSaat, told the Turkish Daily News.

"They will ask us to return their money now that we cannot give them their deeds. We cannot sell the remaining houses to local customers since the real estate sector has been going through a stagnation period for some time."

"We have almost killed our real estate sector," he said.

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