Emerging markets surge forward; Javer, Brazil, VTB price deals; levels jump higher

By Aaron Hochman-Zimmerman

New York, July 30 - Emerging markets added its own rally strength to the steam provided by the day's equity gains.

Asia and Latin America led the way, posting higher prices nearly across the board. Emerging Europe cooled its rally, but was still gliding higher.

South Korea's Woori Bank wrapped tighter by another 25 basis points to total an improvement of 75 bps since pricing on Monday.

On the primary side, high-yield issuer Servicios Corporativos Javer SAPI de CV from Mexico priced $180 million of notes at a 13% yield.

Brazil and Russia's VTB Bank followed in the trend of recent retaps by adding to their existing bonds, although it was only a small increment in Brazil's case.

The feeding frenzy was tempered in London where "it feels like some of the heat has gone out of the whole market," a trader said, but the slower pace may not be exclusively a draw down ahead of the release of the U.S. GDP number.

People are watching the stock market, he said and they are as "aware or concerned of that as anything else."

Many of the statisticians are claiming that "the stock market is increasingly due for a breather," he said.

However, on Thursday the upward drift was still intact.

"We'll need to see a major reversal in the stock markets and the general attitude towards risk," he said, before the rally turns around.

For the trader, "I started taking a bit of risk off the table today," he said, not because it seemed necessary, but "just because it's too easy."

The market was receptive and "you play the ball that's in front of you," he said.

The ball in front of many investors was the U.S. GDP announcement, but "I don't think it matters that much," another trader said.

"Every time that it's got a bit of an excuse to pull back," he said about levels, "there's a truckload of money sitting on the sidelines waiting."

From the major markets, equities had a strong day, but sold off late. Volatility only fell by 0.21 to settle at 25.40, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets widened by 4 bps to a spread of 391 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 4 bps with a spread of 397 bps.

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

Javer prices, others add on

Servicios Corporativos Javer announced the pricing of $180 million of five-year senior unsecured bonds (Ba3//BB-) at par to yield 13%.

Credit Suisse and Bank of America Merrill Lynch acted as bookrunners for the deal.

Servicios Corporativos Javer is a home builder based in Nuevo Leon, Mexico.

"That was kind of a surprise," the strategist said about the deal pricing with nearly no warning.

"I totally didn't expect that," he said about "even a Mexican BB- coming out that wide."

"It was priced to sell and it did," he added.

Also in Latin America, Brazil priced a $25 million reopening of its 7 1/8% bonds (Ba1/BBB-/BBB-) due 2037 at 108.63 to yield 6.45%.

Deutsche Bank and JPMorgan acted as bookrunners for the deal.

The retap carries the same terms as the $500 million reopening priced Wednesday and will be added to the $3 billion already outstanding on the issue originally sold on Jan. 18, 2006.

The issue has now been reopened on March 23, 2006, Aug. 16, 2006, Jan. 30, 2007, July 29, 2009 and July 30, 2009.

Proceeds will be used for general budgetary purposes.

The 11% Brazilian bonds due 2040 were seen unchanged at 130 7/8 bid, 131 offered.

Meanwhile, another retap, this one from VTB Bank came to market on Thursday.

The bank priced a CHF 300 million reopening of its 7½% bonds (A2/BBB+/BBB+) due 2011 at par to yield 7½%.

The Russian government holds a majority stake in VTB, a Moscow-based retail and commercial bank.

In the aftermarket, the bonds were seen trading up 3/8 point at 100 3/8 bid.

Elsewhere, Alestra SA added itself to the calendar as it mandated Citigroup and Morgan Stanley to market an offering of five-year bonds (B1/B+/BB-).

The deal is scheduled to price during the week of Aug. 3.

Alestra is a San Pedro Garza Garcia, Mexico-based telecommunications firm.

Alestra's outstanding bonds due 2029 were seen trading at a spread of 750 bps bid.

Historically, issuance does not top $5 billion in August, a strategist said, wondering why Brazil's Cosan Combustiveis E Lubrificantes and Malaysia's Petroliam Nasional Bhd. set up their deals for the slowest month.

"We've never had more than seven deals, ever," he said.

"After next week, it will be dead until the end of the month," he said.

Then in September, "it will be a year after the Lehman Brothers collapse," he said.

Ghosts of crises past always seem to haunt "the same month of a crisis years later," he said.

Calm emerging Europe slides higher

Emerging Europe on Thursday was "still generally looking good, but calmer," a trader said.

"It feels like some of the steam has gone out of it," he said, although "it's still on the same path though; we're not seeing any reversal."

Players in the region were still most interested in the recent new issues, but some of the excitement was beginning to fade.

Dolphin Energy Ltd.'s 5.888% bonds due 2019, which priced at par on July 23, were the clear underperformer of the new group as they dropped nearly 1 point after pricing.

By Thursday, the securities of the Abu Dhabi-based issuer were seen trading a 99¾ bid, "creeping back towards par," the trader said.

Kazakhstan's KazMunaiGaz "saw a bit of two-way today," he said on Thursday.

The 11¾% bonds due 2015 priced at 99.014 on July 17 and were retapped at 102 on Tuesday.

Thursday the bonds were quoted at 103¾ bid, 104 offered.

Meanwhile in news from the region, the Russian government announced that its 2010 budget will show a deficit of 7½% of GDP. In 2011, the shortfall is scheduled to drop to 4.3% of GDP and to 3% of GDP in 2012.

The government will submit a detailed budget to parliament shortly, with only budget outlines for 2011 and 2012, prime minister Vladimir Putin said, according to reports.

Also, Russia's Zarubezhneft will begin to drill for oil off Cuba.

After leaving Venezuela, Russia deputy prime minister Igor Sechin met with Cuban officials where an agreement was signed.

Part of the deal included a $150 million loan for industrial equipment.

Meanwhile, as the budget was passed to the legislature, Putin intends to visit Turkey on Aug. 6.

Reports indicated that Putin and Turkish prime minister Recep Tayyip Erdogan will discuss and sign agreements relating to fossil and nuclear energy.

The Russian government bonds due 2030 were seen at 100.35 bid, 100.45 offered, while the Turkish sovereign bonds due 2030 were spotted at 156½ bid, 157 offered.

Turkey's recent retap of its 7½% notes due 2017, which priced last Friday at 105.18 was up another ¼ point.

The Turkish government bonds due 2017 were quoted at 106 bid, 106¼ offered.

Also in the sector, Ukraine's bonds due 2016 were seen at 70½ bid, 71 offered.

LatAm catching up

Buyers came out for Latin America on Thursday as "everybody's just trying to play catch-up," a strategist said.

"I spoke to a few clients today," he said, they wanted to "catch up and buy the cheapest high-yield assets."

The most popular was Argentina, he said.

Meanwhile, the government hopes to step back in favor of free enterprise, but still protect the public interest in "strategic productive sectors," said cabinet chief Anibal Fernandez, according to the Buenos Aires Herald.

Fernandez used Aerolineas Argentinas as a part of a "strategic" industry.

To further its policy, the government may turn to the use of executive decrees after it loses its legislative majority in December.

In trading the 8.28% Argentine discount bonds due 2033 improved by 1½ points to 57½ bid, 59½ offered.

In Venezuela, the 9¼% sovereigns due 2027 also added 1½ points to 70 bid, 70½ offered.

Asia charges ahead

Asia was "incredibly strong" for another day, a trader said.

South Korea's Woori Bank, which priced new debt at Treasuries plus 450 bps on Monday, tightened 50 bps shortly after its debut and "another 25 bps today," he said.

The 7% bonds were seen at 375 bps bid.

The rally was not discriminating, the trader said.

"It's all been like that," he said.

Hong Kong Mortgage Corp., which priced at Treasuries plus 110 bps last Friday, was tighter by 5 bps to 88 bps bid, 80 bps offered.

Across markets in South Korea, Hong Kong and Singapore, issues have been 10 bps to 15 bps tighter, he said.

The South Korean bonds due 2014 were seen tighter by 5 bps at 215 bps bid, 200 bps offered.

Among deals yet to price, "I think it's going to be big," the trader said about Malaysia's Petronas.

"I think the order book is huge already," he said.

On the sovereign side, "Indonesia has been very, very firm today," he said.

"There was chatter about potential upgrades, but I don't know how real it was," he said.

Also, Indonesia's CIMB Niaga, the country's fifth largest bank plans to issue from $50 million to $100 million in debt in the second quarter of 2010, according to the Jakarta Post.

The bank faces nearly $100 million in maturities in 2010, the report said.

The Indonesian government bonds due 2019 were better by 2 points to 133 bid, 134 offered.

Elsewhere, the Philippines' bonds due 2030 added ¾ point to 124½ bid, 125½ offered.

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