Emerging markets end flat; Argentina starts strong; CIS loads pipeline

By Aaron Hochman-Zimmerman

New York, June 23 - Emerging markets were better in the morning despite higher oil prices and waffling equities.

Prices declined in the afternoon, but most only fell back to their opening levels.

In trading, "emerging markets was pretty firm considering," an analyst said, although the day was "pretty quiet."

Investors were encouraged early by the end of another demonstration and strike in Argentina, but later "we kind of sold off," a buysider said.

In the primary, issuers from the Commonwealth of Independent States were releasing talk for their benchmarks.

Russia's OAO Severstal and Kazakhstan's JSC NC KazMunayGas both issued talk for their new issues. Kazmunaygas is expected Tuesday or Wednesday.

Equities ended mixed, but volatility fell lower by 0.23 to 22.64, according to the VIX index. The index is a frequently used yardstick of market volatility.

As a sector, emerging markets remained unchanged from Friday in spread terms at a spread of 260 basis points, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will require to hold assets in emerging markets debt.

Emerging Europe mixed

Emerging Europe ended mixed on a Monday of light trading.

In Russia, president Dmitry Medvedev signed the message attached to the 2009-2011 budget calling for "a stable and balanced budgetary system," and "measures to reduce inflation and return to the benchmarks we determined some time ago," according to the Itar-Tass News Agency.

Also, "there should be decent pension for all categories of people and guaranteed stability of the financial system that ensures the payment of pensions," he said.

In the agricultural sector, production was up 4.4% for the first five months of 2008, compared to the same period of 2007, Itar-Tass reported.

The Russian sovereigns due 2030 slipped by just 0.1 point to 113.4 bid, 113.6 offered.

Meanwhile in Georgia, the military of the breakaway region of Abkhazia held military exercises involving tanks, air defense units and light artillery.

The exercise came under the specter of conflict with Georgia.

The Abkhazian president Sergei Bagapsh said talks with the Tbilisi government will not resume until Georgia's military has withdrawn from Abkhazia.

Abkhazia has had Russian support throughout the recent flair up of hostilities.

Also in the European time zone, Israel raised its interest rates by 25 bps to 3.75%, according to a press release.

The 0.7% rise in May's CPI and a global environment of inflation made the hike necessary, the bank said in a statement.

To keep to its inflation target of 1% to 3% per year, the bank "will continue to monitor economic developments worldwide closely, and will raise the interest rate as necessary to achieve price stability," the accompanying statement said.

In Turkey, a market source said that Turkey's worsening inflation should be a signal to the central bank to further its monetary tightening program.

Still, other economists believe the lira is too strong and should be allowed to devalue in order to promote growth, the Turkish Daily News reported.

Economist Kemal Dervis advised that Turkey favor growth over reining in inflation, at a meeting of the High Advisory Council meeting of the Turkish Industrialists' and Businessmen's Association, the report said.

The lira was seen trading at 1.227 to the dollar.

The Turkish sovereign bonds due 2030 added 0.25 point to 144.25 bid.

Ukraine prepares sovereign

Ukraine ended last week with a gridlocked parliament with the pro-president alliance between the Yulia Timoshenko bloc and the Our Ukraine - People's Self Defense bloc missing votes to pass their draft laws.

Among other things, the sides were deadlocked over compensation for members of parliament.

"It's certainly going to have an impact on sentiment," a buyside source said about the upcoming $500 million sovereign, which will be on the road until Thursday.

"It's not going to be very liquid," the source said.

"It would make more sense for them to reopen the '17s," the buysider said, which came in the amount of $700 million last November.

"Why bring another illiquid deal into the market?" the buysider asked.

The most liquid Ukrainian bonds due 2016 were spotted at 91 bid, 92 offered.

More CIS benchmarks

In addition to the sovereign benchmark from Ukraine, deals in the pipeline are not in short supply from the CIS' corporate issuers.

Severstal (Ba2/BB/BB) will market a benchmark-sized dollar-denominated eurobond in the United States and Europe from June 26 to June 30.

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

Severstal is a Cherepovets, Russia-based steel producer.

KazMunayGas (Baa1/BBB-/BBB) released talk for its benchmark-sized dollar-denominated two-tranche bonds.

The five-year tranche was talked at 8¼% to 8½%.

The 10-year tranche was talked at 9% to 9¼%.

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

KazMunayGas is an Astana, Kazakhstan-based government-owned energy firm.

Russia's OAO TMK (Ba3/BB-/) asked ABN Amro, Barclays and ING to manage its upcoming dollar-denominated benchmark-sized loan participation notes, according to a market source.

A roadshow will be held in Asia and Europe during the week of June 23.

The bonds will be offered under Regulation S.

TMK is a Moscow-based pipeline materials manufacturer.

Asian issuers ring in

India's Vedanta Resources plc (Ba1/BB/BB+) talked its upcoming benchmark-sized dollar-denominated two-tranche senior unsecured notes.

The 51/2-year issue was talked in the 8¼% area.

The 10-year issue was talked in the 9% area.

The roadshow was extended until Tuesday with pricing to follow on Tuesday or Wednesday.

Barclays, Citigroup, Deutsche Bank, JPMorgan and Morgan Stanley will act as bookrunners for the deal.

Proceeds will be used for general corporate purposes and the refinancing of existing debt.

Vedanta is a London-based mining firm with most of its operations in India.

The deal has received mixed reviews from investors, a trader said.

"Clients have been going both ways," he said.

"All we know is it's very large."

Singapore's Metro Holdings Ltd. announced plans to issue S$200 million in either floating-rate notes or a transferable loan facility.

DBS will act as bookrunner for the debt sale.

Metro Holdings is a Singapore-based retailer.

Also from Singapore, the microchip testing and packaging firm, Stats ChipPAC Ltd. (Ba1/BB+) started a roadshow on Monday for its $1 billion two-part offering of senior notes.

Tranche sizes remain to be determined.

The deal is expected to price next week.

Credit Suisse and Deutsche Bank Securities are joint bookrunners.

Proceeds, along with proceeds from a new credit facility, will be used to fund a dividend to Temasek Holdings shareholders and to refinance debt.

Quiet Asia slips in afternoon

Asia's overnight session "started out weak but then had a short squeeze rally by the end of the day over there," a trader said.

"We sort of followed a similar pattern," he said, although volumes remained light on what was generally a quiet day.

In the Philippines, the government sold PHP 6 billion in one-year debt at its weekly Treasury auction after weeks of rejecting bankers' bids, according the Bureau of Treasury's web site.

The PHP 6 billion was lent at a rate of 6.703% compared to the previous auction's rate of 6.79%, the Manila Times reported.

With the new interest from lenders, the Treasury may resume auctions for three- and six-month debt as well, the report said.

The Philippine government bonds due 2030 were flat at 124.625 bid, 125.125 offered.

In Indonesia, the government will consider a bill to tax Bank Indonesia's surpluses in order to improve transparency, according to the Jakarta Post.

An income tax of 30% for 2008 and a tax of 28% for 2009 were proposed, the report said.

If the central bank runs a deficit, it will not be taxed under the new bill.

In the first quarter of 2008, the bank has run a surplus of $239 million.

The Indonesian sovereigns due 2017 were better by 0.5 point to 97.75 bid, 98.25 offered.

Elsewhere, the state-run steel firm PT Krakatua Steel will not be allowed to sell a portion of itself to Australia's Bluescope Steel, a market source said.

It is more likely that Krakatua will raise the funds it needs to increase its capacity to 5 million tons with an IPO, the source said.

In Pakistan, the high court of the city of Lahore ruled that PLM-N party chief and former prime minister Nawaz Sharif will not be allowed to run in the upcoming parliamentary by-elections.

The court maintained that Sharif is ineligible due to a 1999 conviction for his part in the hijacking of a plane carrying then army chief of staff, now president Pervez Musharraf.

The hijacking eventually led to the coup in which Musharraf replaced Sharif as the country's leader.

The Pakistani bonds due 2017 were quoted at 75.5 bid, 78 offered.

LatAm breaks even

Latin America was generally quiet as some early gains faded.

"I think we're rebounding from last week," a buysider said.

In Venezuela, bonds shifted back and forth but made no progress in either direction.

Meanwhile, the government will not allow mining in the Imataca Forest Reserve over concerns about damaging the environmental and water supply, a market source said.

The region is believed to contain two of the countries largest gold deposits.

The Venezuelan 9¼% bonds due 2027 were unchanged at 93.95 bid.

In Bolivia, 80% of the voters in the resource-rich Tarija region voted for greater autonomy from the poorer, western half of the country.

The government in La Paz considers the polls illegitimate, but they signal a general dissatisfaction with president Evo Morales' plan to enact wider socialist reforms.

Morales will face a recall referendum in August, but if he is allowed to remain in office he will push a constitutional amendment that will allow him to run for a third five-year term.

Also, Brazil's 7 1/8% bonds due 2037 were spotted at 112.75 bid, 113.25 offered.

Argentina positive early

In Argentina, "there was some positive action initially," the buysider said, but liquidity remained poor after farmers eased off from their strike on Friday.

The government's tax bill, which is at the center of the controversy, is before congress.

Market-watchers are divided over whether or not the bill will get through congress.

The Argentine 8.28% discount bonds due 2033 were also seen unchanged at 78 bid.

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