Emerging markets hold steady; Indonesia prices $2.2 billion; new lows for Argentina

By Aaron Hochman-Zimmerman

New York, June 17 - Emerging markets had a generally mild day punctuated by a giant sovereign issue and a new low from one of the usual suspects.

Indonesia priced a $2.2 billion retap of three existing issues at what the market considered a sizable discount.

In trading, the continued political tempest raged in Argentina while the benchmark discount bonds due 2033 set a new yearly low.

Volatility made a steady climb in the afternoon to end higher by 0.18 at 21.13, according to the VIX index. The index is a common measure of market volatility.

As a sector emerging markets widened by 1 basis point to a spread of 243 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will require to hold assets in emerging markets debt.

Indonesia lights up primary with $2.2 billion

The long awaited issue from the Republic of Indonesia (Ba3/BB-/BB) arrived in the much upsized amount of $2.2 billion as the country reopened its bonds due 2014, 2018 and 2038.

The 6¾% bonds due 2014 were retapped for $300 million at 100.25.

The 6 7/8% bonds due 2018 were retapped for $900 million at 97.25.

The 7¾% bonds due 2036 were retapped for $1 billion at 95.5.

The deal was upsized from $1.5 billion and priced in line with talk.

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

"There was a pretty nice concession on all of them," a buyside source said.

"It was pretty cheap, but they had to do that if they wanted to get it done," the source said.

Also in sovereigns, the government of Jamaica (B1/B/B+) priced $350 million bonds to yield 8 3/8%.

The final payment on the 10-year average life bonds is due in 2019.

Deutsche Bank and Morgan Stanley acted as bookrunners for the registered deal.

Corporates ready to go

Brazil's Lupatech SA began its roadshow for its $150 million deal on Tuesday.

"Shooting from the hip, my guess is Lupatech will get done, add-ons always seem to get done," a trader said.

Meanwhile, Brazil's Camil Alimentos begins its roadshow on Wednesday, but "I think all eyes will be on Arantes, the deal was worked around back in November-December 2007 at 12% and was issued June 2008 at 10.50%," he said.

"I stayed away and was shocked it traded up a point," he said.

"If Arantes tanks I would guess Camil Alimentos will be postponed," he said.

"That said, leads were smart on the Arantes deal as they downsized the deal by $50 million and then supported it; I'm guessing leads bought back about $20 to $25 million of the Arantes deal."

The trader was referring to the $150 million offering from Arantes International Ltd. priced on June 12 at 99.046 to yield 10½% via Credit Suisse and Banco Santander.

"If ABN and Santander are willing to issue $150 million and buy back $20 to $25 million it can get done too," he added.

Sberbank names managers

In Russia, OJSC Sberbank (A2//BBB+) asked Barclays and JPMorgan to manage a benchmark-sized dollar-denominated offer.

The issue is from the bank's medium-term note program.

Sberbank is a Moscow-based commercial bank.

The Netherlands' Nanette Real Estate Group NV priced NIS 130 million debentures with a coupon of 8%.

The coupon is linked to the Israeli consumer price index while the principal amortizes over a three-year period beginning in 2011.

Proceeds will be used to expand the group's real estate holdings in Eastern Europe.

Nanette is an Israeli real estate development firm with offices in the Netherlands, Poland and Hungary.

"Nanette has again proven that in spite of the global financial turmoil, our capable management and quality projects provide an excellent investment case. We are delighted at this sign of confidence from international institutional investors and look forward to continuing our impressive growth throughout the Central and Eastern European region," Nanette said in a statement.

Also, China National Materials Co. Ltd. plans to offer 3 billion yuan five- to 10-year bonds on the local market, according to a press release.

Proceeds will be used to adjust the company's debt structure.

Sinoma, as the company is known, is a Hong Kong-based building materials manufacturer.

LatAm trades mixed

Latin America saw a mixed bag on Tuesday with most trading flat.

Argentina was clearly the laggard with small successes elsewhere as a balance.

In Venezuela, investors are still not showing a major reaction to new finance minister Ali Rodriguez.

"He comes from the central bank minor leagues per se," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, but added that of course "policy runs through Chavez" alone.

"In general oil credits are a little bit soft today," he added.

Light sweet crude traded lower near $133 per barrel.

The 9¼% Venezuelan sovereigns due 2027 slipped just 0.125 point to 95.1 bid, 95.75 offered.

Elsewhere, "Ecuador bucked the trend," Alvarez said.

The bonds strengthened after finance minister Fausto Ortiz reassured investors that all debts would be honored even if the federal commission determines them to be technically illegitimate.

The Ecuadorian bonds due 2030 added 1 point to 99 bid, 100 offered.

In Brazil, the 7 1/8% government bonds due tacked on 0.25 point to 113.35 bid, 113.8 offered.

Strong words over strikes

In Argentina, accusations were tossed around as the strike labored on.

Pro-government advocate Luis D'Elia accused the former president Eduardo Duhalde of plotting a coup against president Cristina Kirchner, the Buenos Aires Herald reported.

Protests raged overnight in Buenos Aires and the surrounding areas, but farmers and truckers enforcing roadblocks allowed grain and meat products to pass, the report said.

"Even within the government itself there is some fracturing," a buysider said.

The 8.28% Argentine discount bonds due 2033 dropped 1.85 points while the five-year CDS traded 22 bps wider.

The plot thickens there; it's getting a lot nastier," Alvarez said, adding that Argentina is not a good place to have a big position, "unless you're already short."

Asia gives up early gains

Unlike the Asian primary, Asian trading was mostly quiet, a trader said, although some morning gains were surrendered in the afternoon as equities slid.

Indonesia had not traded much, with all eyes on the new issue, but "there was some selling in the in the Philippines," he said, as it now "looked quite cheap to Indonesia."

In the Philippines, foreign investments registered with the central bank saw $158 million in outflows in May, the central bank said in a statement.

The outflows more than tripled the $50 million of outflows in April.

The bank blamed commodity prices, a slowdown in growth and mounting inflation for the losses.

The peso was seen trading at 44.01 to the dollar.

The Philippine government bonds due 2030 slipped 0.25 point to 127.75 bid, 128.625 offered.

In Indonesia, by a count of nine of 10 factions in favor, the House of Representatives passed a law allowing the creation of sharia-compliant banking regulations.

Religious affairs minister Maftuh Basyuni will begin working with Bank Indonesia to draw up the regulations.

"The sharia banking industry needs special regulations that accommodate both Muslims' and non-Muslims' interests considering the industry's universal nature," said a spokesman for the Indonesian Democratic Party-Struggle (PDIP) which helped pass the bill.

The Indonesian sovereigns due 2038 were up 0.25 point to 97.5 bid, 98 offered.

Elsewhere in Asia, Vietnam has traded better by nearly 20 bps over the last two or three sessions, the trader said, as the local markets have stabilized on the perception of an improved funding situation.

Also, Pakistan's bonds due 2017 were unchanged at 74 bid, 78 offered.

Emerging Europe quietly higher

Emerging Europe crept higher on a quiet day as most of the action came from the other sectors.

In Russia, finance minister Alexei Kudrin will submit a program of anti-inflationary proposals to the government on June 25, the Itar-Tass News Agency reported.

"Inflation is top priority for the government," Kudrin said, also complimenting the central bank for "positive actions" in the fight against inflation.

The ruble was seen trading at 23.64 to the dollar.

Also, the government-run oil giant OAO Gazprom announced that it has opened a representative office in Algeria, the first in Africa, a press release said.

The office will coordinate joint projects with the Algerian State Oil and Gas Corp. (ASOGC).

"It will be correct not to limit the potential of cooperation by only areas of extraction, processing and sale of hydrocarbons. Under today's conditions when a special role belongs to issues of energy saving, environmental protection, introduction of new types of energy resources into the world economic turnover, our companies have a lot of opportunities for taking joint efforts," Russia's president Alexander Medvedev said in the release.

The Russian government bonds due 2030 inched up by 0.05 point to 113.05 bid, 113.2 offered.

In the Ukraine, opposition leader of the Party of Regions, Viktor Yanukovich, said that joining NATO should only come after a referendum of the Ukrainian people.

"We as a political force will protect the interests of Ukrainian people," Yanukovich said.

The comments were made after president Viktor Yushchenko met with NATO secretary general Jaap de Hoop Scheffer and a NATO delegation on Monday.

Ukraine "will go to NATO through a nation-wide referendum," the president also promised.

The Ukrainian sovereign bonds due 2016 were quoted at 91.75 bid, 92.75 offered.

AK Party campaigns for foreign support

In Turkey, while the AK Party prepares to fight for its life in constitutional court, the foreign minister, Ali Babacan has been on the road drumming up international support for his party, according to the Turkish Daily News.

Babacan has visited 10 countries in the last month, the report said.

"The foreign minister is trying to explain himself and his party to the world while endeavoring not to delay trips abroad," Sedat Laciner, president of the International Strategic Research Organization, said in the report.

At home Babacan's comments that the disbanding of the party would severely hurt Turkey's accession into the European Union, brought criticism that he is advocating more for the AK Party than Turkey itself.

The Turkish sovereigns due 2030 were better by 0.55 point to 146.8 bid, 147.3 offered.

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