Emerging markets mixed; Indonesia to price bonds Thursday; Argentina rejects foreign tender

By Aaron Hochman-Zimmerman

New York, Feb. 25 - Emerging markets logged a mixed day as equities gave up their midday gains and a new batch of Treasuries hit the market.

Indonesia hit the streets with the announcement of its own five- and 10-year bonds, which will likely price on Thursday, sources said.

The long-awaited dollar benchmark issue will follow a successful $500 million local-currency sukuk.

Information from Indonesia was welcome in the emerging market circles, but many were in awe of the mammoth Roche Holdings Ltd. deal, which was poised to draw capital out of emerging portfolios and influence the market in the coming months.

Meanwhile, Argentina traded well after it rejected a debt swap request by foreign investors.

Argentina's local investors ran to take advantage of a recent domestic debt swap, but the government proved it would not be as generous to overseas players.

The Argentine discount bonds due 2033 added 1.5 points.

From the major markets the tone was fair, but equities could not manage to stay on the sunny side of the day's trading. Volatility fell by 0.82 to 44.67, according to the VIX index. The index is a frequently used gauge of market volatility.

LatAm steady, Argentina rejects tender

Latin America took small steps higher on Wednesday, but while attention was focused on holidays, money was focused on Roche Holdings in Switzerland, a syndicate official said.

"It's massive; it's a whole new benchmark," he said about the $14 billion equivalent euro and sterling deal.

On the emerging market side, Mexico's Cemex SAB de CV, if it prices, will be the "first true EM corporate bond" in some time, the syndicate official said.

For the category, it is the "trendsetter," he said.

"We'll see how it does in the roadshow," which runs from Friday to March 4, he said, but by early next week the market should have a "good indication."

Meanwhile in Argentina, the government rejected international offers to exchange $2.4 billion in peso-linked debt for dollar debt.

Argentina recently wrapped up a successful debt swap with local investors but was disinclined to free international investors from their peso holdings.

The 8.28% Argentine discount bonds due 2033 added 1.5 points to 30 bid.

In Venezuela, prices crept back north as oil traded close to $43 per barrel on Wednesday.

The 9¼% Venezuelan bonds due 2027 inched up by 0.35 point to 55 bid.

Also in Latin America, Brazil's 11% bonds due 2040 were quoted at 123.75 bid.

Indonesia to price Thursday

At long last, the Republic of Indonesia plans to issue benchmark-sized dollar-denominated five- and 10-year bonds, according to a market source.

The sale is expected on Thursday.

Barclays and UBS will act as bookrunners for the deal.

The bonds will come from a medium-term note program established in January.

Asia sitting tight

Elsewhere in Asia, the rest of the category held its relative strength as another credit started to bud into the primary.

In South Korea, a non-deal roadshow will begin on March 2 for the Industrial Bank of Korea, the market source said.

During the show, run by Bank of America and Merrill Lynch, Indkor will provide information about its own credit as well as the health of the Korean financial system, the source said.

The U.S. roadshow will end on March 6.

Meanwhile in the Philippines, with slowing remittances the central bank cut the outlook for the country's balance of payments, the Manila Times reported.

The balance of payment is only expected to manage a $700 million surplus compared to the initial projection of $2.3 billion.

"There's a spread of recession, starting in the U.S. and moving in the emerging markets," central bank governor Amando Tetangco said.

Ratings hurt emerging Europe

Emerging Europe fought through a difficult day as Ukraine's rating was cut to CCC+ from B by Standard & Poor's.

Meanwhile, embattled Turkey found room to grow even as prime minister Recep Tayyip Erdogan said that the offer from the International Monetary Fund is unacceptable if it is contingent on the lender's terms.

"If they bring us an IMF deal in line with Turkey's interests, then we will sign it. We would not sign an IMF agreement that harms Turkey's interests," Erdogan said, according to reports.

The development lender asked that Turkey's revenue service be made autonomous, but "that's not possible," he said.

The IMF also demanded further transparencies in tax collection and documentation.

The Turkish government bonds due 2030 found some buyers and added 1.3 points to 126.30 bid.

In Russia, the government's budget stands at a 3 trillion ruble deficit, finance minister Alexei Kudrin said on Wednesday, according to the Itar-Tass News Agency.

The deficit represents more than 7% of the GDP; then, within three years Moscow hopes to whittle the figure down to 3%, the report said.

The ruble was seen trading at 35.805 to the dollar.

The Russian sovereign bonds due 2030 dropped by 0.5 point to 88 bid.

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