Emerging markets slips; Venezuela buoys LatAm; Panama prices $235 retap

By Aaron Hochman-Zimmerman

New York, June 2 - Emerging markets weakened on Monday over light flows.

A difficult overnight session and flailing U.S. equities made for a bad day in Asian credit, but Latin America held on as Venezuela improved over rumors of a $1.5 billion bond buyback. Its benchmark sovereigns due 2027 added 1.35 points.

In the primary market, Panama priced a $235 million retap of its bonds due 2015. It also announced a tender offer for its short-term paper due in 2011 and 2012.

Credit was generally tracing Treasuries, a syndicate desk official said, but the difficult day in equities launched volatility up by 2.00 to 19.83, according to the VIX index. The index is a frequently used yardstick of market volatility.

With advancing Treasuries, emerging markets widened by 5 basis points to a spread of 249 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging markets debt versus Treasuries.

LatAm prices inch up

Latin American issues traded flat in spread terms but improved on the price side despite a weak day in equities.

Venezuela led the pack by adding 1.35 points to its benchmark 9¼% bonds due 2027, although rumors of its possible $1.5 billion bond buyback stagnated.

At least the bonds traded up on the rumors, a syndicate official indicated.

The Venezuelan bonds due 2027 were spotted at 94.35 bid.

Meanwhile in Argentina, consumer confidence hit its lowest level in five years, the syndicate official said, as farmers and the government were no closer to resolving the labor dispute.

The 8.28% Argentine discount bonds due 2033 still managed to add 0.2 point to 81.5 bid.

In Brazil, the highly traded 11% bonds due 2040 were better by 0.7 point at 136.7 bid.

Elsewhere, typically light Monday flows were seized further by a market holiday in Colombia for Sacred Heart Day.

Panama reshuffles debt

Also in Latin America, Panama (Ba1/BB+/BB+) reopened its 7¼% bonds due 2015 for $235 million. The bonds were priced at 109.564 to yield 5.533%, or Treasuries plus 158 bps.

Citigroup and Deutsche Bank acted as joint bookrunners for the registered deal.

The original $600 million issue priced in November of 2004 was retapped for $313 million in July of 2006. The new total issuance amounts to $1.148 billion.

The government is also accepting offers to exchange its 9 5/8% bonds due 2011 and the 9 3/8% bonds due 2012 for the 9 3/8% bonds due 2029. The tender will be completed on Tuesday.

Proceeds will be used for general budgetary purposes.

As Panama tries to push its debt into longer-term securities, it made a "generous" offer to the holders of the short-term paper, a market source said, adding that the book will likely be oversubscribed.

The tender offer to exchange paper due in 2011 and 2012, which has been long-rumored, will have been well-earned by investors who held on to the bonds in the face of unfavorable price action, the source said.

The source considered the offering of the 9 3/8% bonds due 2029 rather than the bonds due 2036 an interesting choice.

The bonds due 2029 were the cheapest on the curve, if any of Panama's credit can be called "cheap," the source said.

"The deal's already cooked," a syndicate official said in the afternoon ahead of the deal's completion.

The deal is closer to a private placement than a standard issue, he said.

The 7¼% Panamanian bonds due 2015 were quoted at 110.25 bid.

Meanwhile in Asia, Singapore's Oversea-Chinese Banking Corp. Ltd. (Aa3/A-/A+) priced S$1 billion nonconvertible non-cumulative class B preferred shares at S$100 per share with a fixed dividend rate at 5.1%.

The placement will come in two parts. In the issue, 9.5 million shares will be offered until July 15, while an offer via ATM machines for the remaining 0.5 million shares will be held from 16 July to 28 July.

OCBC is a Singapore-based commercial and retail bank.

'Weak day' in Asia

"We opened with a pretty poor tone," a trader said, adding that the markets followed equity down for most of the day but ended above the lows.

Vietnam continues to sell off and was "annihilated" in the overnight session, the trader said.

The Vietnamese five-year CDS was wider by nearly 130 bps.

"Sentiment is very poor," the trader said.

Investors were also forced to consider rumors of new supply in the Philippines and Indonesia, he said, although the Philippines was "more resilient."

"We continue to see poor inflation, bad numbers notably out of Indonesia as well as Thailand and Korea," he said.

In the Philippines, domestic liquidity was up by 9.6% year on year in March and up 3.3% from February, the central bank said in a statement.

"The expansion in domestic liquidity continued to be driven by the increase in net foreign assets (NFA), particularly those of the Bangko Sentral ng Pilipinas, as banks registered a reduction in their NFA," the bank said.

"Growth was tempered by the decline in net domestic assets, which contracted although at a slower pace of 1.4% in March compared to 3.3% in the previous month," the statement added.

The Philippine sovereign bonds due 2030 were flat at 129.5 bid.

In Indonesia, commodity prices continued to rise as investment similarly continued to grow in the energy sector, according to a survey by PricewaterhouseCoopers, reported the Jakarta Post.

However, the country is still threatened by a capital outflow, the survey indicated.

The survey of 89 oil and gas firms showed that even with near-record oil prices, 46% said they were not satisfied with the return on their investment, although most said they would not consider removing their businesses from Indonesia.

Light sweet crude was seen trading as low as near $125 per barrel and as high as near $130 per barrel.

Also in Indonesia, on the political front Habib Riziq told his Islamic Defenders' Front to "prepare for war" after his group is thought to have attacked a Muslim group demonstrating in favor of religious freedoms, the BBC reported.

The police were criticized for inadequately preventing the clashes, the BBC said.

The rupiah was seen trading at 9,300 to the dollar.

The Indonesian sovereign bonds due 2017 fell 0.25 point to 99.5 bid.

Politics haunt Pakistan, Thailand

Violence also continued in Pakistan where a car bomb went off outside the Danish embassy in Islamabad, killing at least six and injuring others.

Danish prime minister Anders Fogh Rasmussen denounced the attack but said it would not affect Danish policy in Pakistan.

No group claimed responsibility for the bombing.

The Pakistani government bonds due 2017 dropped 1 point to 77 bid.

Meanwhile in Thailand, even as the Bangkok Post reported a "breakthrough" in negotiations on rewriting the 2007 constitution, which is "likely to reduce the level of political tension measurably," a trader was not optimistic about the political situation.

"It seems very dicey ... There's a lot of confusion," he said.

The baht was seen trading at 32.56 to the dollar.

Emerging Europe softens

Prices in emerging Europe slipped on low Monday volumes as Russia prime minister Vladimir Putin said that a recently proposed law is intended to make foreign investment more transparent, according to the Itar-Tass News Agency.

"We welcome foreign investments. They are growing by the years, and we are happy about it," Putin said in the report.

Also, the national energy firm OAO Gazprom and independently run OAO Lukoil discovered "a major oil and gas condensate field" in the Caspian Sea, according to a Gazprom release.

"During the field survey a sweet crude oil flow to surface occurred. Currently the well surveying is underway. 3D seismic operations are planned to define the reservoir size and contours," the release said.

The Russian government bonds due 2030 dropped 1.2 points to 113.5 bid.

In Turkey, exports increased 34.3% to $12.2 billion in May, setting a new record, according to the Turkish Daily News.

The year-on-year export rate surpassed $120 billion for the first time, the report said.

"During the first five months of the year, our exports increased by 36.36% and reached $55 billion, while our year-on-year exports increased by 28.42% to reach $120.6 billion," said Oguz Satici, chairman of the Turkish Exporters Assembly.

The automotive sector led the record exports at $2.5 billion followed by iron and steel and chemicals at $2 billion and $1.5 billion, respectively.

Russian engineers sent to Georgia

In Georgia, Russian army engineers were sent to the breakaway Abkhazia province amid protests from the Tbilisi government, which accused Moscow of fueling the conflict.

The Russian defense ministry said the troops' role is only to repair railroads to allow for the transport of humanitarian aid.

"We view this as yet another aggressive step by Russia aimed against the territorial integrity of Georgia," said Georgian deputy foreign minister Grigol Vashadze, according to the BBC.

"They are strengthening their military infrastructure in order to start intervention in Georgia," he said.

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