Emerging market primary rolls on; Hong Kong Mortgage prices, Turkey launches; calendar calms

By Aaron Hochman-Zimmerman

New York, July 24 - Emerging markets saw a marked decline in activity on a Friday in July, but the action was still at relatively thick for the hot summer season.

China's Hong Kong Mortgage Corp. priced $1 billion while Turkey launched a $1.25 billion retap of its 7½% bonds due 2017.

Brazil's Cosan Combustiveis e Lubrificantes added its name to the calendar with dollar-denominated five-year bonds.

In trading, OAO Gazprom's bonds, which priced on Thursday, found more buyers, particularly its euro-denominated tranche which gained 4 points in its first day of trading.

The new credits flourished, while many of the familiar names were all hiding from the sun.

A strategist said he could hardly find an offer for Brazil's bonds due 2040.

"The screen is totally dark," he said.

"Traditionally this time of the year is quite slow," an Asia-focused trader said.

Regarding further new issuance, "I haven't heard anything," he said.

From the major markets, equities were mixed while volatility shed 0.34 to 23.09, according to the VIX index. The index is a frequently used gauge of market volatility.

As a sector, emerging markets widened by just 3 basis points to a spread of 386 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 wider by 3 bps with a spread of 399 bps.

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

Friday primary still open

Hong Kong Mortgage Corp. priced $1 billion of five-year bonds (Aaa/AA+/AA+) at a spread of Treasuries plus 110 bps.

The 3½%.bonds priced at 99.527.

HSBC and JPMorgan were bookrunners for the deal.

Hong Kong Mortgage is a government-controlled buyer of home loans.

The mostly local-market issue saw very little U.S. trading, an Asian-focused trader said.

Cosan Combustiveis e Lubrificantes announced plans to sell a dollar-denominated five-year senior bond (/BB-/BB-), with the roadshow starting Monday.

Morgan Stanley, Bradesco BBI and Santander Investments are bookrunners for the deal.

A roadshow will be held on July 27 in Switzerland and Hong Kong, on July 28 in London and Singapore, on July 29 in Boston, on July 30 in New York and Miami, on July 31 in New York and on Aug 1 in Los Angeles.

CCL is a Brazilian agroenergy firm.

Sifting through new paper

With all of the successes from the syndicate desks, Dolphin Energy Ltd. arrived in lackluster fashion on Thursday with a $1.25 billion 10-year bond (Aa2/AA/AA).

The bonds priced at a spread of Treasuries plus 337.5 bps, but widened to Treasuries plus 340 bps on Friday.

"It's a high-grade," a strategist said, "people are moving down the credit curve ... you can get better from Gazprom."

Gazprom priced $2.5 billion worth of bonds in dollar- and euro-denominated tranches (Baa1/BBB/BBB) on Wednesday and they were performing strongly in the after-market.

The dollar bonds priced at par and were seen up by 1 1/8 point at 101 1/8 bid on Friday.

The euro bonds also priced at par and were seen better by 4 points at 104 bid on Friday.

Also doing well was Colombia's Empresas Publica de Medellin priced a $500 million 10-year senior unsecured bond (Baa3//BB+) at Treasuries plus 432.5 bps on Wednesday.

The bonds priced at a reoffer of 98.292, but were seen up by over 3 points at 101½ bid on Friday. The rise was mostly Treasury-related at the spread was only 9 bps wider at 241 bps bid.

Turkey launches retap

Turkey launched a $1.25 billion reopening of its 7½% bonds (Ba3/BB-/BB-) due 2017 at a yield of 6.65%.

Barclays Capital, Deutsche Bank and Goldman Sachs were bookrunners for the deal.

The deal priced late Friday but details had not been released by press time, sources said.

The original $1 billion bonds were priced on Jan. 7, 2009 by Citigroup and HSBC.

That offering came at par to yield 7½% and a spread of Treasuries plus 501.3 basis points.

Proceeds from the latest issue will be used for general purposes.

Meanwhile, "Turkey has been something that investors have been selling," a strategist said, although "it isn't down all that much."

There was no great calamity for the credit, he said. "People were just overweight Turkey ... or some profit-taking."

In trading Friday the Turkish government bonds due 2030 fell 3/8 point to 154¾ bid, 155 5/8 offered.

Cooler heads for old Cold War

In a step forward for U.S.-Russia relations, president Dmitry Medvedev did not make his government an obstacle between the relationships of Washington D.C., Kiev and Tbilisi.

After a series of meetings with U.S. president Barack Obama, Medvedev said that U.S. relations with the former Soviet Republics are not incompatible with strong ties to Moscow.

During his visit to the region, U.S. vice president Joe Biden told Ukraine that it has U.S. support for its accession to NATO; and while in Georgia, Biden spoke in support of a fully united country.

Biden stopped short of offering Tbilisi military aid, but said the United States considers the breakaway provinces of Abkhazia and South Ossetia to be part of Georgia proper.

Meanwhile in Ukraine, the Russian-leaning Party of Regions blocked the rostrum in parliament, halting deliberation on Friday, the Itar-Tass News Agency reported.

The at times allied Bloc of Yulia Tymoshenko criticized the move, noting that the Party of Regions was not able to work constructively towards an agreement on a national minimum wage.

Asia trades 'in line'

Asia could find little motivation internally and "traded in line with markets overall," a trader said, "which has been stronger for the last couple days."

During the later part of the week, the atmosphere of a "pretty positive earnings season so far out of the U.S." helped emerging Asia tighten by 10 bps to 15 bps, he said.

However, market moves have been exacerbated, he said, by investors covering shorts.

The region took note of new bonds from the Hong Kong Mortgage Corp., but after pricing "late in Asia's time" the bonds were nearly untouched.

"I don't expect to see this traded in New York time," he said, adding "most of the allocations went to accounts based in Asia."

On Thursday, Korea National Oil Corp. priced $1 billion five-year bonds and by Friday it had tightened to trade at a mid level of 272 bps.

Despite the resent supply pressure, South Korea's sovereigns continued to hold their value at a mid spread of 218 bps.

Elsewhere in the region, after a positive economic outlook from an Asian Development Bank report, the Philippines still traded flat. Its bonds due 2020 were unchanged at 100½ mid.

In Indonesia, the government released its own report on economic growth.

Second quarter growth hit 3.7% the Central Statistics Agency said, according to the Jakarta Post.

Second quarter "consumption is still strong, though not as strong as the first quarter," said Anggito Abimanyu, Finance Ministry head of fiscal policy, in the report.

Anggito also forecast another period of growth in the third quarter and an annual growth rate of 4.3%.

The Indonesian government bonds due 2019 were seen at a mid price of 130 3/8.

LatAm less 'entertaining'

Latin America pressed through a "ho-hum" summer Friday after a "pretty entertaining" week, said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

There was "nothing external" to move the market, he said, so most credits were just sitting and "holding onto their gains."

The "topic du jour," he said continued to be the possible debt swap or buyback in Argentina.

Still, even after speaking with a market watcher in Buenos Aires, there was no news, he said, "not that I've heard of."

The 8.28% Argentine discount bonds due 2033 slipped by 1/8 point to 55 bid, 56¼ offered.

In Venezuela, rumors were traded surrounding "some friction within PDVSA," the national oil firm, Alvarez said.

The company has delayed contract negotiations and "the potential is there for a strike," he said.

A 2002 strike "nearly broke everything," for president Hugo Chavez, he said.

Civil unrest and a military coup nearly brought down Chavez's government, so "even a whiff of something like this is a bad thing," he said.

The rumors may have held the sovereign flat while oil has been recovering, he said.

Light sweet crude was seen trading as high at $68 per barrel while the 9¼% Venezuelan bonds due 2027 added ¼ point to 66¼ bid, 67 offered.

Also in Venezuela, Chavez announced that he plans to double the size of his fleet of tanks and station more troops along the border with Colombia.

The news comes after Bogota allowed a significantly greater U.S. military presence which will focus on counternarcotics operations.

Chavez expressed a worry that the United States intends to invade Venezuela to capture its oil reserves.

The 8 1/8% Colombian bonds due 2024 added 1 point to 110½ bid, 111¾ offered.

Also, while it was almost impossible to find an offer for the 11% Brazil bonds due 2040, a strategist said, the 7 1/8 Brazilian bonds due 2019 were quoted up 1/8 point at 102 bid, 103¼ offered.

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