Emerging markets hang on; Digicel talks 15% yield on bonds; Cemex stagnant; spreads stretched

By Aaron Hochman-Zimmerman

New York, March 5 - Emerging market credits held together during another beating for equities on Thursday.

The major markets were "a disaster," a strategist said.

Still, emerging market trading was steadily becoming more detached from equities, a trader said, as much of the damage has priced in on the credit side.

However, in the primary, there was still damage to be found.

Jamaica's Digicel Ltd. found enough traction to talk its five-year deal at a 15% yield with an anticipated price of 90, a source said. Pricing is expected Friday.

Mexico's Cemex SAB de CV was unable to move its bond offering forward as doubt grew from around the emerging market and high-yield sectors.

Meanwhile on Wall Street, volatility tacked on 2.61 to close the session at 50.17, according to the VIX index. The index is a common measure of market volatility.

Investors went back to the safety of Treasuries as emerging markets were thrown wider by 20 basis points to a spread of 692 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors are willing to accept to hold assets in emerging market debt.

LatAm fixed on high-yield deals

The two deals that were on the minds of many investors ended Wednesday bogged down with speculation over whether or not each could price at all.

Despite struggling on both of their parts, Digicel was first to move on Thursday.

It issued talk of a 15% yield for its offer of $435 million senior unsecured notes due 2014 (confirmed B1//existing B-), according to a market source. The deal is expected to come at a dollar price of around 90.

The bonds are expected to price on Friday.

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

The bonds carry three years of call protection. At the beginning of the fourth year the bonds may be called at par plus the full coupon.

Also, the debt incurrence covenant will now conform to the covenant of Digicel's 9¼% notes.

That change places the incurrence ratio at a multiple of 3.25 rather than 4.0. The $100 million general debt basket will also be deleted.

The new provisions limit the priority debt to 1.75 times EBITDA.

Proceeds will be used to fund the acquisition of a subsidiary's equity and for general corporate purposes.

Digicel is a Kingston, Jamaica-based wireless services provider.

Less movement was seen from Cemex; however, the same was not true on the equity side.

Trading of Cemex stock was "briefly halted" and then resumed as it fell 16.5% earlier in the trading day, a source said.

Many sources expressed their doubts about the ability of Cemex to price.

Down on the farm

Meanwhile in Argentina, fissures from within the farm groups began to show in the wake of reported progress in negotiations with the government, reports said.

On Tuesday, president Cristina Kirchner arrived unexpectedly at a meeting between farm and government negotiators and proved to be a useful presence at the meetings.

The government agreed to eliminate export taxes on dairy goods, while increasing the current annual beef export quota and raising wheat prices.

In the days that followed, reports surfaced that Alfredo de Angeli, head of the Entre Rios branch of the Argentine Agrarian Federation, criticized FAA leader Eduardo Buzzi and said that he would not have signed the accord.

In turn, Buzzi accused de Angeli of grandstanding, but other voices within the farm agricultural societies played down the spat as a minor internal matter.

Asia rises above

The sector was "performing alright," an emerging Asia trader said as equities were thrashed again.

The stability could be a result of the lack of volume, but "maybe it's stabilizing a bit."

"We've probably priced in a lot of this downside," he said.

In Indonesia, with a mind to spur growth in the sector, the chief of an Islamic bank suggested the government shield shariah-compliant banking from taxes.

"I think, for the Islamic finance here to grow well, the government should provide tax neutrality to any transaction made in Islamic finance," said Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bhd., according to the Jakarta Post.

Islamic banking has been less damaged by the economic crisis and has been recently regarded as a force which may help Indonesia recover from the downturn.

The Indonesian sovereigns due 2014 were unchanged at 98.5 bid, 99 offered, while the bonds due 2019 lost 1.65 points to 97.35 bid, 98 offered.

"There was better buying at these lower levels," the trader said.

"The market's reached equilibrium," the trader added.

Also in Asia, Pakistan's sovereigns due 2017 were seen at 37 bid, 42 offered.

In the Philippines, the government is likely to take on more domestic debt as it attempts to stimulate the economy.

National treasurer Roberto Tan said that in 2009 the government may increase its debt by PHP 50 billion to PHP 436.5 billion, according to the Manila Times.

To increase social spending, the government increased its deficit ceiling to PHP 177.2 billion, which is about 2.2% of the GDP, the report said.

The Philippines government bonds due 2030 were spotted at 113 bid, 114 offered.

Emerging Europe wobbles

Emerging Europe has traded "like a rollercoaster" in line with equities, a trader said, but volumes have been low.

"I've been working like a dog for not a lot, is the bottom line," he said.

Still, the market does "try and have little bouts" of recovery, but "I'm not convinced," he said.

"The big picture is all pretty bleak," he said, but "EM is still holding."

Investors still find sufficient yields in the less risky investment-grade market, but "we've actually stabilized and have done OK ... in the face of the global picture," he said.

In Russia, the thought of cutting off gas to Ukraine was again suggested by prime minister Vladimir Putin, according to a RIA Novosti report.

From Moscow, Putin worried that recent police raids and an ongoing investigation into misconduct within Kiev's national energy firm, NJSC Naftogaz Ukrainy, may interrupt payment for February's supply of gas.

"This could lead to a cutoff in deliveries for Ukrainian consumers, and possibly for consumers in Europe," Putin said.

"In view of reports on the actions of Ukrainian security services in relation to Ukraine's Naftogaz and its officials, including the intention to seize gas on the territory of Ukraine, we cannot but express our extreme concern over the possible consequences of these actions," Putin added.

Meanwhile in Paris, Ukraine prime minister Yulia Timoshenko accused the federal police of wanting "simply to paralyze the activities of Naftogaz," the Unian News Service said.

The Russian sovereign bonds due 2030 were unchanged at 87.5 bid, 87.75 offered.

The Ukrainian bonds due 2016 were also unchanged at 35 bid, 37 offered.

Also in emerging Europe, Turkey and the International Monetary Fund are close to a deal, said deputy prime minister Nazim Ekren, according to reports.

Ekren was in the United States for talks with the IMF, the World Bank and Obama administration officials.

The Turkish government bonds due 2030 fell 1.75 points to 122 bid, 123 offered.

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