Emerging markets up on light volumes; Russian Agricultural prices $1 billion; spreads tighter

By Aaron Hochman-Zimmerman

New York, June 4 - Emerging markets mostly moved higher again on Thursday and tightened along with rising Treasury yields.

Volumes were low around the sectors, but the primary market remained open for business as Russian Agricultural Bank priced $1 billion of bonds.

Also, China Glass Holdings Ltd. announced a $100 million tender offer on the heels of an encouraging equity raise by Hopson Development Holdings Ltd.

Elsewhere, Latvia consumed much of the market's attention, but hardly traded, as investors were frozen by the possibility of a devaluation of the lat.

Meanwhile, in the major markets, a healthy day for equities allowed volatility to slip back down by 0.84 to finish the session at 30.18, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets tightened by 10 basis points to a spread of 433 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.

RusAg prices $1 billion

Russian Agricultural Bank priced $1 billion five-year bonds at par to yield 9% (Baa1//BBB).

Barclays and Citigroup acted as bookrunners for the deal.

Russian Agricultural Bank is a Moscow-based lender.

Slow emerging Europe dips

Outside of the primary action, "there's been sporadic business and other bits and pieces," a London-based trader said.

"We're following equities, and it's another bad day for bonds," he said, although "by default, we're tightening," he said on "below average" volumes.

In Russia, president Dmitry Medvedev asked vice prime minister Igor Sechin to press for a solution to delayed gas payments from Kiev, which effect transport to the West.

"This problem is not a problem of only Russia and Ukraine. This is a problem of gas supplies to third European countries," Medvedev said, according to the Itar-Tass News Agency.

The long-running story of gas debts may seal another chapter with a demand from Moscow for prepayment.

"If the contract is not performed, we will have to impose sanctions and switch over to 100% prepayments for future supplies," he said.

"This is not a joke. This is normal legal practice," he added, although he acknowledged Kiev's dire financial straits.

The Russian government bonds due 2030 were quoted at 99¾ bid, 99 7/8 offered.

In Turkey, the government announced a number of investor incentives, according to the Hurriyet Daily News.

Ankara will support loans and cut corporate taxes to 2% for companies investing in the eastern and southeastern provinces.

"The investments that will increase the competitiveness and minimize regional development differences will be supported," prime minister Recep Tayyip Erdogan said in the report.

Other benefits will be extended to investments over $160 million and in the energy, metals and mining and transportation industries, Erdogan said.

The Turkish sovereign bonds due 2030 were spotted at 150¼ bid, 150¾ offered.

Latvian currency fears

Also in Latvia, the central bank announced its intention to hold its currency to the euro peg as investors feared a sharp devaluation of the lat.

Riga "will maintain the stability of the lats until the lats is replaced by the euro," the central bank said in a statement.

Many feel the devaluation is inevitable, despite the government's hesitancy to spark inflation and loan defaults.

The Latvian bonds did not trade and carried wide spreads, the trader said.

The bonds due 2014 were seen at 72 bid, 82 offered, while the bonds due 2018 were seen at 75 bid, 85 offered.

The lat was seen trading at 0.5 to the dollar.

China Glass tenders $100 million

Meanwhile in Asia, China Glass Holdings Ltd. announced at tender offer for $100 million of its 9 5/8% senior notes due 2012 at 48 cents to the dollar.

If noteholders tender before June 19, they will receive an additional 2 cents for each dollar; however, only $50 million of the offered amount will be available for early tender.

The offer expires on July 1 but will require the approval of noteholders at a meeting scheduled for July 6.

Settlement is expected on July 27.

Standard Chartered has been mandated to lead the offer.

China Glass is a Hong Kong-based glass manufacturer.

Hopson leads Asia

Asia traded on low volumes, a trader said, but the real action came from China's property sector.

"The Chinese property sector is all up 5 to 10 points on the equity raise by Hopson," he said.

Most of the sector was better by 3 to 5 points, but it was Hopson in the lead as it improved by 10 points since the $200 million equity deal closed.

"It was seen as pretty positive," he said, "that these guys can raise any kind of capital at all."

Hopson's bonds due 2012 were quoted at 78 bid, 83 offered.

The strength in Chinese finance and industry may lead people to believe that China Glass has funding "lined up" as well, he said.

On the sovereign side, in the Philippines, demand for cash grew by 13.7% in April, compared to 15.6% in March and 0.9% in April 2008, the central bank said in a statement.

"The expansion in liquidity was fueled mainly by the continued rise in net foreign assets," the statement said.

Those assets grew by 20.2% in April, while domestic assets eased down to 4.2% growth.

The Philippine sovereign bonds due 2030 slipped by ¼ point to 126¾ bid, 127¼ offered.

In Indonesia, rising oil prices have not forced the government to lift fuel prices, the Jakarta Post reported.

The government has budgeted its subsidy fund sufficiently to maintain the price even to 2008 levels.

"Even last year when the crude oil prices skyrocketed to over $140 per barrel, our state budget remained secure, let alone this time when the average crude prices stand at $60 per barrel," said energy and mineral resources minister Purnomo Yusgiantoro, in the report.

The Indonesian government bonds due 2019 were again unchanged at 128 bid, 129 offered.

Low volumes in LatAm

Latin America traded quietly on Thursday after the market welcomed the new $1 billion bonds from Brazil's Banco Nacional de Desenvolvimento Economico e Social without much trouble.

The next deal from the category waiting in the pipeline is from Brazil's Banco Cruzeiro do Sul.

Few details have been released about the expected two-year bonds via BCP Securities.

The bonds will come from a $1 billion program, but the issue itself "is not going to be $1 billion," a strategist said.

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