Emerging markets trade flat to weak; Argentina finds new lows; Nine Dragons prices $300 million

By Aaron Hochman-Zimmerman

New York, April 22 - Emerging markets slipped slightly on Tuesday as equities tumbled and light volumes kept trading desks quiet.

The sparkle came from China's Nine Dragons Paper Ltd., which priced $300 million of five-year bonds.

The dreary tone was provided by Argentina, which found new lows for the year as its benchmark discount bonds due 2033 dropped to 79 bid.

On a poor day of earnings, volatility was up by 0.37 to 20.87, according to the VIX index. The index is a commonly used yardstick of market volatility.

Treasuries advanced slightly as emerging markets widened by 2 basis points to a spread of 272 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will require to keep money in emerging markets debt.

Emerging Europe flat, quiet

Emerging Europe turned in a quiet and flat performance as equity-inspired momentum was nowhere to be found.

In Russia, the International Monetary Fund will leave its offices open, said IMF representative Neven Mates, according to the Itar-Tass News Agency.

Some IMF delegations are being withdrawn, but cutbacks will not affect Russia, Mates said.

The Russian government bonds due 2030 were quoted at 114.75 bid, 114.85 offered.

Elsewhere, Georgia's air force released reconnaissance camera footage that seems to show a Russian MiG-29 fighter firing on a Georgian drone over Georgia's breakaway province of Abkhazia.

Russia claims that Abkhazian separatists downed the drone.

Georgia has accused Russia of trying to annex Abkhazia and South Ossetia through veiled offers of aid to the predominantly ethnic Russian provinces.

Also in South Africa, the country is not likely to hit recession GDP levels of household consumption expenditure at negative 1% and fixed investment at 6%, said Rian le Roux, chief economist at Old Mutual Investment Group SA, according to the Times of South Africa.

Le Roux does expect food and electricity shortages to drag consumption expenditure to 2% or 3%, compared to 7% in 2007.

Allianz buys Turkish firms

In Turkey, Europe's largest insurer, Germany's Allianz, agreed to buy 47% of Koc Allianz Sigorta and 49% Koc Allianz Hayat & Emeklilik, according to an Allianz press release.

"The agreement strengthens our long-term commitment to the Turkish market, where we see a high potential for future growth," said Enrico Cucchiani, board member of Allianz SE, in the release.

The Turkish economy is the 15th largest in the world with continuously high growth rates in real GDP during the last five years. The country's population is above 70 million, has a relatively young demographic profile and still low insurance coverage, Allianz said.

The Turkish government bonds due 2030 were seen at 153.45 bid, 153.95 offered.

Asia inches wider

Asia was propped up by the primary, but trading was still softer on a slow day, which saw some slight widening.

In the Philippines, the government was only able to sell PHP 2.98 billion at Tuesday's Treasury auction.

The government hoped to sell PHP 7 billion three-and-a-half-year 7¼% notes, according to the Bureau of Treasury.

"They are probably waiting for [the central bank's] policy meeting result and they are trying to get a clearer picture of the inflation expectation," finance undersecretary and acting national treasurer Roberto Tan told the Manila Times after the auction.

The central bank will discuss its 5% and 7% overnight borrowing and lending rates on Thursday.

The Philippine sovereign bonds due 2030 fell 0.625 point to 132.25 bid.

In Indonesia, a $2 billion government project to connect Sumatra and Java with an undersea power cable will likely be given approval, according to the Jakarta Post.

The cable would serve to transport power from coal-rich South Sumatra to Java.

The state-run energy firm PT Perusahaan Listrik Negara said the cable and the anticipated construction of new power plants will help ease power problems including frequent blackouts on Java and Bali, the report said.

The Indonesian bonds due 2017 were lower by 1 point to 102.75 bid.

"Indonesia underperformed relative to the Philippines," a trader said.

In India, no further debt forgiveness programs are planned for farmers similar to the program which cancelled $15 billion in debt last February.

Many leaders from opposition parties and some from the governing coalition have asked the agriculture minister to offer a second debt release program, the BBC reported.

Farmer advocates attribute 10,000 suicides per year to debt, the report said.

Nine Dragons prices $300 million

In the primary, Nine Dragons Paper made the big splash with a $300 million attempt to restart the pricing trend.

The Guangdong, China-based paper producer priced its $300 million five-year guaranteed senior bullet notes at 99.493 with a spread of Treasuries plus 505.2 bps and a coupon of 7 7/8%.

Merrill Lynch was the bookrunner for the deal.

The coupon will step up by 100 bps if the rating falls below BBB- and by 200 bps if it falls below BB.

There is a change-of-control put at 101.

Proceeds will be used for capital expenditures for the purchase and construction of paper machines and supporting facilities as well as to refinance a portion of its existing bank loans.

Also from China, Swire Pacific Ltd. (A3/A-/A) reopened its 6¼% notes due 2018 for a $100 million issue.

The total issue now stands at $500 million. The original $400 million was priced on April 14.

HSBC and JPMorgan acted as bookrunners for the deal.

The notes come from the company's $2.5 billion medium-term note program.

Swire is a Hong Kong-based holding company located in the Cayman Islands.

Elsewhere, Guatemala's Banco Industrial SA announced the offering of $85 million fixed-to-floating rate 60-year tier 1 notes, according to a market source.

The coupon will be fixed between 9% and 10% for the first 10 years. If the bonds are not called, the coupon steps up to a spread of Libor plus 500 bps for the next 10 years.

For the remaining 40 years the coupon steps up another 150 bps.

Credit Suisse will act as the bookrunner for the deal.

Banco Industiral is a Guatemala City-based retail and commercial bank.

The bank is only interested in raising $85 million, said a source close to the deal.

Primary rumor mill keeps turning

Meanwhile, there are still rumors that a sovereign from Indonesia is expected, a market source said, although there is no other color right now for the deal.

Brazil's Banco Cruzeiro will likely price its two-year dollar bonds on Friday, a market source said, but no amount has been determined.

Russia's OJSC Vimpelcom set maturities of five and 10 years for its benchmark-sized, dollar-denominated bonds, a market source said.

The notes are expected to price by the end of the week.

A roadshow will be held in Los Angeles, New York, Boston and London between April 21 and April 24.

High betas hurt LatAm

The stable Latin American credits held up in trading, but the high betas put a drag on the sector led by Argentina, which continues to be mired in farmers' strike related weakness.

In Venezuela, the price of the locally issued $3 billion of debt was set at 115.

The investors may buy equal amounts of the bonds due 2023 and 2028 as a package and then the bonds will be available on the secondary market, a market source said.

The issue will close on Thursday at 12 p.m. in Caracas. Results of the issue will follow next Monday.

The 9¼% Venezuelan bonds due 2027 fell 0.25 point to 93.8 bid.

Elsewhere, Brazil's 7 1/8% government bonds due 2037 were better by 0.1 point to 112.8 bid.

Argentina smolders

In Argentina, two farmers were arrested and charged with arson for setting brush fires on the outskirts of Buenos Aires.

The severe smoke from the fires temporarily shut down operations at Buenos Aires' regional airport.

The farmers accused the government of using them as political scapegoats.

Many expect strikes over high export taxes on farm goods to resume of May 2.

The 8.28% Argentine discount bonds due 2033 sank another 1.5 points to 79 bid.

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