Emerging markets ride rally; three issuers tap market, one offers price talk; spreads tighten

By Aaron Hochman-Zimmerman

New York, April 16 - Emerging markets recorded another strong session as spreads came in and more deals came out of the primary pipeline.

Indonesia priced a $650 million sukuk, the Industrial Bank of Korea priced $1 billion, while Brazil's Telemar Norte Leste SA priced $750 million.

Russia's OAO Gazprom followed close behind as it issued talk for its own deal $2 billion offering.

In trading, most issues had nothing but general market sentiment to thank for their better levels.

No one particular issue stands out, sources said, as emerging market credit continued to follow the major markets and equities.

"It's all one trade ... it's all one song," a trader said.

Venezuela may have forced its way to the front as it added 0.85 point to its bonds due 2027.

There has been "no surprises, no real negative news," a strategist said, who noted that "it's the sixth week of the rally."

By using the model of the five- to six-week cycle, the rally may not have long to run, but earnings from General Electric Co., Citigroup Inc. and Bank of America Corp. will be very telling, he said.

"If the market develops indigestion," he said, there is potential for some of the deals still waiting in the pipeline to stumble.

However, the way the market has "pushed off" so much of the bad news in favor of the good, "we seem to have some time," he said.

From the major markets, equities posted more gains as the market saw strong earnings. Volatility slipped another 0.38 to close at 35.79, according to the VIX index. The index is a common measure of market volatility.

"Emerging markets bond funds enjoyed their best week since early August as the spread between U.S. Treasuries and JPMorgan's benchmark EMBI+ index, a key measure of risk appetite, dropped back below 6% to settle around 570 basis points," said EPFR Global in a press release.

Treasuries fell on Thursday as emerging markets tightened by 10 bps to a spread of 554 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 12 bps with a spread of 601 bps.

The diversified index has a less strict liquidity rule for inclusion.

Primary pushes Asia

Asia traded well again on Thursday, spurred on by a strong market tone and two pricings in the primary.

Indonesia priced a $650 million five-year unsecured sukuk at par to yield 8.8% (Ba3/BB-/BB).

The bonds priced at the tight end of talk, which called for a yield of 8.8% to 9%.

Barclays, HSBC and Standard Chartered acted as bookrunners for the deal.

The offer represents Indonesia's first dollar-denominated global sukuk.

The 6¾% Indonesian bonds due 2014 were seen at 95 bid, 97¾ offered, while the 10 3/8% bonds also due 2014 were quoted at 109 bid, 111 offered.

On the corporate side, the Industrial Bank of Korea priced $1 billion five-year bonds at a spread of mid-swaps plus 556.6 bps (A2/A/A+), according to a source familiar with the deal.

The bonds priced at 99.265 with a 7 1/8% coupon to yield 7.303%.

The spread fell wide of guidance of mid-swaps plus 525 bps to 550 bps.

Barclays, Citigroup, Merrill Lynch and Morgan Stanley acted as bookrunners for the deal.

The Industrial Bank of Korea is a Seoul-based retail and commercial bank.

In the Philippines, the central bank cut overnight borrowing and lending rates by 25 bps to 4½% and 6½%, respectively, according to a statement from the bank.

Rate cuts since December total 150 bps.

The monetary board noted that inflation is becoming less of a danger and is likely to fall within the current 2009 and 2010 targets.

Also, "while there are initial signs of improvement, the restoration of the global financial system to normalcy may take some time," the bank's statement said.

The peso was seen trading at 47.625 to the dollar.

Also in China, GDP pulled back to 6.1% in the first quarter, down from 6.8% in the fourth quarter of 2008, reports said.

Many blamed the slip on the loss of strong export markets in the United States and developed Europe.

LatAm up, Telemar prices

Latin America was also lifted by the rising tide of U.S. equities and successes on the primary side.

In Brazil, telecom Telemar Norte Leste finally priced its $750 million 10-year bond offering at 99.209 with a coupon of 9½% to yield 9 5/8% (Baa3//BBB-).

The bonds priced with a spread of Treasuries plus 678.4 bps.

The deal also priced in line with the talk at 9 5/8%, which was tightened from 9¾% to 10%.

Citigroup, Banco Itau, Banco Santander, BB Securities and Bradesco BBI acted as bookrunners for the deal.

A roadshow was held from April 13 to April 16 in Boston, New York, London, the U.S West Coast and the Philadelphia area.

Proceeds will be used to refinance outstanding debt and for general corporate purposes.

Also, the 11% Brazilian government bonds due 2040 tacked on 0.6 point to 128.9 bid, 129.1 offered.

Meanwhile in the category, Argentina's 8.28% discount bonds due 2033 sank 1¼ point to 28 bid, 29.9 offered, while Venezuela's 9¼% sovereigns due 2027 added 0.85 point to 64.85 bid, 65½ offered.

Emerging Europe claws higher

Emerging Europe fought higher again on Thursday as every recent day seems to balance one of the dark days of last fall and winter, a trader said.

"People are looking for paper," he said.

As a mechanism of market stability "Obama is working," he said.

In Russia, the national oil company Gazprom announced talk of 9¼% to 9½% for its $2 billion 10-year bonds (Baa1/BBB).

Credit Suisse will act as bookrunner for the deal.

The bonds have a put option in 2012.

Gazprom is a Moscow-based energy firm.

The Russian sovereign bonds due 2030 jumped 1 5/8 points to 99 1/8 bid, 1031/4.

In Ukraine, the central bank has picked seven banks which are deserving of recapitalization, according to the Unian News Service.

"We worked yesterday till 10 p.m. and determined approaches, principles, and their pragmatic implementation begins [Thursday]," said bank governor Volodymyr Stelmakh in the report.

The Ukrainian bonds due 2016 were quoted at 55 bid, 60 offered.

Meanwhile in Turkey, the central bank cut interest rates by 75 bps to 6¾% on Thursday.

The cut was the sixth consecutive reduction but was only expected to be an easing of 50 bps.

Market watchers are still awaiting news of a deal between Ankara and the International Monetary Fund.

The lira was seen trading at 1.6047 to the dollar.

The Turkish government bonds due 2030 slipped by just ¼ point to 144¾ bid, 145¾ offered.

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