Emerging markets open week flat; Philippines prices $750 million; spreads pull in slightly

By Aaron Hochman-Zimmerman

New York, July 13 - Emerging markets gingerly opened what felt like another summer's week of trading on Monday.

Still, on the primary side, the Philippines wasted no time coming to market with a $750 million offer that traded slightly better after pricing.

Some syndicate desks also saw movement on a potential issue from Korea Electric Power Corp., but details were in short supply.

Other investors watched for news of deals from the other sectors.

Colombia's Ecopetrol SA and Qatar's RasGas are both expected to bring new paper during the week.

In the day's light secondary action, Argentina and Venezuela were weaker again in Latin America, but low flows precluded any major drop-offs.

Argentina's discount bonds due 2033 lost 1 point.

From the major markets, buyers showed strong motivation on the equity side which sent volatility down by another 2.71 to close at 26.31, 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 449 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.

Philippines prices $750 million

Asian activity was led by the Philippines, which opened the week by pricing $750 million of senior unsecured bonds (B1/BB-/BB) due 2020 with a coupon of 6½% at 99.065 to yield 6 5/8%.

The deal priced with a spread of Treasuries plus 332.6 basis points.

Citigroup, Credit Suisse and Deutsche Bank acted as bookrunners for the Securities and Exchange Commisison-registered deal.

Proceeds from the sale will be used for general purposes.

After pricing, the bonds were seen "a little tighter," the strategist said.

Meanwhile in Indonesia, textile manufacturers have asked the government not to go ahead with China-Asean agreements which would allow free trade with China, the Jakarta Post reported.

Organizations representing the industry said local producers have enough trouble coping with what they already see as an influx of Chinese products.

"It's hard for us to compete in many aspects," said Arryanto Sagala the Industry Ministry's director for textile industries.

"For instance, China has resources to produce cotton thread, while Indonesia has to import cotton," he said.

LatAm dips lower

Latin America weaved through a quiet summer Monday without much commotion, a strategist said.

Ecopetrol was discussed, but no revelations came regarding the dollar-denominated benchmark-size bonds.

"It should be an interesting deal," the strategist said.

Meanwhile, the high-betas, Argentina and Venezuela were lower even as U.S. equities performed well.

However, many commodities declined including light sweet crude which traded as low as $59 per barrel.

The 8.28% Argentine discount bonds due 2033 gave back 1 point to trade at 50½ bid, 51 offered.

The 9¼% Venezuela government bonds due 2027 fell ½ point to 66 bid, 67 offered.

Elsewhere in Latin America, Brazil's 11% sovereigns due 2040 were quoted at 130½ bid, 130¾ offered.

Emerging Europe bubbles over oil

Emerging Europe, which has been forced to constantly look ahead to the next gas crisis, took further steps to diversify its supply lines on Monday.

Turkey along with Austria, Bulgaria, Romania and Hungary signed more agreements to support the Nabucco gas pipeline project which will bypass Russia on its way from producers in the Caspian Sea to central Europe.

Turkey expects to receive at much as €400 million to €450 million in revenue each year from transport fees, the Hurriyet Daily News reported.

The plan is seen as a competitor to Russia's planned South Stream pipeline which would connect Russia with the Balkans, underneath the Black Sea.

Nabucco is scheduled to be operational in 2014 when Azerbaijan will be its primary supplier.

Some have suggested that Iran as well as Iraq, Kazakhstan and Turkmenistan will one day supply gas to the pipeline.

Meanwhile in Russia, the national gas firm OAO Gazprom, will only make $23.5 billion in new investments this year, prime minister Vladimir Putin said, rather than the expected $27.8 billion.

The cuts did not surprise many who follow the industry, reports said, but many had anticipated a drop of nearly 30%.

The company will narrow its focus to "priority projects, such as the development of new deposits on the Yamal Peninsula and Kamchatka, diversification of gas transportation routes and the development of capacities for liquefied natural gas production," Putin said, according to reports.

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