Emerging markets open slowly; South Africa sniffs out new issue; Cemex withdraws bond offering

By Aaron Hochman-Zimmerman

New York, March 9 - Emerging credit markets were slow to leave the starting line on Monday.

Negative market data and headlines from the local markets greeted investors at the outset of the session on top of the news that Mexico's Cemex SAB de CV ended its bid to price a dollar bond.

On the other hand in the primary, lower visibility issuers Lebanon and South Africa were discussed as possible new issuers.

In trading, Venezuela slipped on heightened tensions with Colombia, even as oil prices reached as high as $47 per barrel.

Equities saw some sunshine but ultimately ended lower as volatility added 0.35 to 49.68, according to the VIX index. The index is an often used gauge of market volatility.

As a sector, emerging markets tightened by 4 basis points to a spread of 691 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging market debt.

New paper in European time zone

In the extended emerging European sector, South Africa may be testing the waters for a new benchmark-sized 10-year bullet bond, a market source said.

The decision is far from final, but investment-grade South Africa was interested to see what sort of yields it would pay for a rare bond sale.

The country was called a "judicious issuer," as it has only sold eight dollar or euro issues since 1997, the source said.

Also in the sector, Lebanon proposed to swap five bonds due in 2009 for a choice of three other issues.

The notes offered are 7½% bonds with $351.591 million outstanding at a price of 100.625, 10¼% bonds with $351.591 million outstanding at a price of 103.000, floating-rate notes with $351.591 million outstanding at par, 7% notes with $425 million outstanding at a price of 100.625 and 7¼% notes with €225 million outstanding at par.

The Regulation S only bonds offered in exchange are a dollar bond due 2012 at a coupon from 7 3/8% to 7 5/8%, a dollar bond due 2017 with a coupon from 8 7/8% to 9 1/8% and a euro-denominated bond due 2012 at a coupon from 7¾% to 8%.

The exchange does not allow investors to swap between dollar- and euro-denominated debt.

The offer began on March 6 and is expected to price on March 13.

The trade should go well as many local bankers hold that sort of paper, a buysider said. There are "good technicals" in the region.

Emerging Europe quiet

In the traditional eastern European portion of the sector, trading was slow as negative headlines chased off buyers.

In Russia, foreign investment fell by $103.77 billion, or 14.2%, in 2008, according to the Itar-Tass News Service.

Direct investment fell by 2.8% and amounted to $27.03 billion.

Still, the Russian government found what it considered a worthwhile investment just across its own border.

Moscow will soon send the next $500 million installment of its $2 billion loan to Belarus.

Only $500 million remains and is expected to be handed over to Minsk before 2010.

In Turkey, even if the government can reach an agreement with the International Monetary Fund, the loan will not be a "magic wand," said economy minister Mehmet Simsek, according to the Hurriyet Daily News.

Simsek reported no breakthroughs in talks with the IMF over the conditions of a possible arrangement.

"What I say is that our banking sector is strong at the moment," he said, according to the report, but the lira may not be strong enough to support Turkish businesses.

"The private sector is more in need of foreign currency. Under these circumstances, if the global markets stabilize and enter into a normalization process, the lira will not lose value because of the lack of an IMF agreement," he said.

The Turkish sovereign bonds due 2030 were quoted at 121 bid, 123 offered.

Cemex cancels issue, LatAm slips

Investors found that Cemex pulled the bond offering that it had said it would continue to pursue in a press release on Friday.

Trading across the category remained very slow, but Mexico suffered a "meltdown" in pesos, a buysider said, likely due to "low liquidity."

Meanwhile in Venezuela, president Hugo Chavez fired a verbal salvo in the direction of Colombia defense minister Juan Manuel Santos, reports said.

Chavez said Santos' claim that the Colombian military will pursue rebels into neighboring countries was destabilizing and inflammatory.

"Mr. Santos, the minister of defense of Colombia, has been declared an enemy of Venezuela," Chavez said on Venezuelan radio.

Nearly one year ago, forces on both sides of Colombia were mobilized by Venezuela and Ecuador after the Colombian military fired upon FARC rebels who fled across the Ecuadorian border.

The 9¼% Venezuelan government bonds due 2027 gave up 1 point to 53.25 bid, 53.75 offered.

Also in Brazil, discouraging reports came in of an approximate 50% drop in auto sales year on year.

The 11% Brazilian bonds due 2040 were seen at 121 bid, 121.5 offered.

Asia holds as currencies drop

Asia followed equities in waffling, but with a less severe impact on Monday.

"They continued to sell off," a buysider said.

In the Philippines, the central bank ordered electronic money transfer providers to obtain permission to continue to offer the service.

The bank issued the new regulation to offer more security to users of the quickly growing service, the Manila Times reported.

The Philippine sovereign bonds due 2030 were seen at 112.75 bid, 113.75 offered.

The peso was seen trading at 48.645 to the dollar.

In Indonesia, the state-run investment firm PT Danareksa predicted its profits will slacken in 2009, the Jakarta Post reported.

"Market depression will continue this year. That's why we're aiming at the target carefully by considering the market situation and foreign exchange volatility," said director Wahzary Wardaya at a press conference.

The firm recorded nearly 209 rupiah in 2008.

The rupiah was seen trading at 12,055 to the dollar.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.