Emerging markets flail; Argentina announces repayment plan; Wing Hang Bank prices $225 million

By Aaron Hochman-Zimmerman

New York, Sept. 3 - Emerging markets dragged through Wednesday's session, but Asia managed to outperform the other sectors late in the day as it was able to produce another new issue.

In the other sectors, "a lot of our issuers have decided to wait," a syndicate official said, in light of the day's choppiness.

They will "stand down and wait to see the data points and see how they shape up," the official said.

China's Wing Hang Bank Ltd.'s pricing of $225 million gave the primary market some momentum, but in the other sectors "the Latins [are] going to pay the new issue premiums that people think are appropriate," a strategist said, implying that the other sectors have been too eager to issue.

Emerging Europe "is doing it for reasons that I don't entirely understand, because I don't think they need the money," the strategist said.

In Latin America, if the price to issue is too high, "they just won't come."

In trading, issues were generally weaker as emerging Europe led off with a full showing of political volatility in Ukraine, which hung heavy on Russia's paper.

Elsewhere, sources noted that Argentina wasted a chance to inspire confidence in its credits by poorly timing its debt repayment.

In the broader market, equities struggled to find a direction, but volatility found its way down by 0.56 to 21.43, according to the VIX index. The index is a commonly used gauge of market volatility.

Argentina to pay $6.7 billion

In Argentina, president Cristina Kirchner announced the country will repay its $6.7 billion Paris Club debt in full.

About one-sixth of the country's $47.1 billion in foreign currency reserves will be used to redeem the debt.

The payment program "once again confirms Argentina's willingness to meet its international obligations," Fernandez told reporters at a press conference, according to the Buenos Aires Herald.

The outstanding debt dates back to the crisis of 2001 and 2002 when Argentina defaulted on its obligations.

Cristina Kirchner's husband and former president, Nestor Kirchner, restructured some of the debt in 2005 as well as paid a portion of its loans.

"It's a shame they could've done it in a way to get a nice uptick from it," a strategist said.

The proper way to have implemented the buyback was to have "done it a lot sooner, accompanied by some policy changes," the strategist said.

The 8.28% Argentine discount bonds due 2033 slipped by 0.4 point to 73.35 bid.

LatAm pushed lower

Latin America traded softer on equity weakness with very little activity on Wednesday.

"It still looks pretty difficult," the strategist said in both the primary and secondary markets.

The market may be ready to move toward a September turnaround, but it is not as likely as some had expected in the earlier parts of August, the strategist said.

Elsewhere in Venezuela, president Hugo Chavez agreed to a deal to ship oil to energy-strapped South Africa.

On a visit to South Africa, Chavez arranged the contract with South African oil firm Petro SA.

"It will be a wonderful day when the first Venezuelan tanker stops by to leave oil for South Africa," Chavez said.

Light sweet crude was seen trading as low as $109.35 per barrel.

The 9¼% Venezuelan sovereign bonds due 2027 dropped 0.15 point to 91.6 bid.

"Venezuela's been trading in its own little world," a syndicate official said.

Many are grasping at a correlation between the credit and oil prices, but "it's kind of bulls**t," he said.

"It hasn't traded off as much as oil has for the year," he added.

Also, Brazil's highly traded 11% bonds due 2040 were quoted at 132.2 bid.

Meanwhile in corporates, the up to $2 billion three-tranche deal from Brazil's Telemar Norte Leste SA would be "a no-brainer" to buy, a strategist said. "It's a great company."

Many believe the there is less of a need for cash within Latin America and particularly in Brazil, the strategist said.

Still, some "second-tier people" have been saying that the liquidity situation in Brazil is getting tighter," the strategist said.

"Maybe a Telemar is willing to pay," the strategist said, "but I don't think so ... it is a humongous company" and should have ample funding available within Brazil.

Wing Hang prices $225 million

Wing Hang Bank (A3//BBB+) priced $225 million upper tier II perpetual notes at par to yield 9 3/8%, according to a market source.

The final price guidance was lowered to 9 3/8% to 9½% from 9½% to 10%.

Deutsche Bank, HSBC, Merrill Lynch and RBS acted as bookrunners for the eurobond.

The bonds from a $2 billion medium-term subordinated note program are non-callable until Sept. 11, 2013.

Proceeds from the sale will be used for general corporate purposes.

Wing Hang is a Hong Kong-based provider of commercial banking and related financial services.

Asia ends stronger

Asia began the day weaker along with the other sectors but pulled away toward the close to end with a firmer tone, a trader said.

"Philippines and Indonesia cash felt relatively firm," he said.

In the Philippines, the government is expected to fall short of its tax collection target for August, according to the Manila Times.

The Bureau of Internal Revenue hoped to collect PHP 90 billion.

Still, BIR commissioner Lilian Hefti believes the agency will surpass the PHP 79 billion collected in August 2007.

The Philippine government bonds due 2030 were spotted at 129.125 bid, 129.625 offered.

In Indonesia, accounting errors cost the country up to 7.6 trillion rupiah in 2006 and 2007, according to the Supreme Audit Agency (BPK), the Jakarta Post reported.

State owned oil firm PT Pertamina used pricing formulas that were not in line with the applicable subsidy laws, BPK head Anwar Nasution said on Wednesday, according to the report.

A misreading of the phrase "a month before" is believed to have caused the government to overpay for oil subsidies.

The Indonesian sovereigns due 2017 were quoted at 101 bid, 101.5 offered, while the bonds due 2018 were seen at 100.375 bid.

In Pakistan, prime minister Yousuf Raza Gilani was the likely target of assassins as his motorcade was targeted by gunfire as it drove to the airport to meet Gilani at the Islamabad airport.

Gilani was not likely in the motorcade during the attack and none of the shots penetrated the armored vehicles.

There have been no claims of responsibility for the attack.

In corporates, South Korea's computer chip producer MagnaChip Semiconductor's 8% notes traded up 3 points to 35 bid.

Also, the company's 6 7/8% notes were better by 1 point to 58 bid, while the floating-rate notes added 2 points to 59 bid.

A trader was unsure what affected the credits.

Turkey announcement drops tone

Turkey's long-expected announcement of another sovereign offer did little to help the floundering sentiment in emerging Europe.

The country's credits were "in the long end, quite badly smashed off the announcement," said a London-based trader, although "some have come back" toward the London close.

The new $1.5 billion 10-year bonds through Deutsche Bank and UBS were talked at 7.05%.

Turkey's benchmark bonds due 2030 were quoted at 151.5 bid, 152 offered.

Emerging Europe falters

Most of emerging Europe's accounts were "looking for offers still," the trader said, adding that it had been some time since he had a request for a bid.

"Today is the first real day of a retracement of the rally that has happened over the last couple of weeks," he said near London's close on Wednesday.

In Russia, the sovereign credit suffered as the ruble sank along with oil, the trader said.

"Russia is trading very poorly today," he said.

The five-year CDS traded generally 10 basis points wider while the ruble was seen trading at 25.132 to the dollar.

Russia was also pulled down by regional instability.

In Ukraine, president Viktor Yushchenko moved closer to dissolving parliament after his party fractured the ruling coalition.

Yushchenko's Our Ukraine-Popular Self-Defense Party walked out of a session over a joint vote between the prime minister Yulia Timoshenko's bloc and the opposition party, the nationalist Party of Regions.

Both Yushchenko and Timoshenko are pro-Western and have expressed serious concerns over the Russian invasion of Georgia, but both are also engaged in the early stages of the 2009 presidential race.

A break-up of parliament and new elections could come within 30 days.

The Ukrainian five-year CDS was "performing fairly poorly," as the spread traded near to 462 bps mid, but as high as close to 469 bps mid, the trader said.

Those levels were reminiscent to the first few days of the Russian invasion of Georgia, he said.

The Ukrainian sovereign bonds due 2016 were quoted at 84.625 bid, 85 offered.

The Russian government bonds due 2030 were seen at 111.375 bid, 111.5 offered.

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