Emerging markets firm as cash-heavy investors await new supply; Poland, Votorantim launch

By Christine Van Dusen

Atlanta, Jan. 7 - Emerging markets were fairly firm Thursday as the pace of new issuance slowed slightly and investors eagerly anticipated putting their newly accumulated cash to work on new deals, market sources said.

"Investors built up some cash positions during December and the first week of 2010 as a result of all the interest income they've received," an emerging market strategist said. "There hasn't been a lot of issuances until very recently, so there's excess cash that can be put back to work."

Investors are awaiting several deals.

New on the radar screen as of Thursday was Poland's planned benchmark-sized, euro-denominated bond offering and Brazil-based Banco Votorantim SA's planned benchmark dollar issue of 10-year tier two capital subordinated notes.

Timing on the Poland offering, according to the sovereign's Finance Ministry, is "the near future." Votorantim could price as soon as next week, a market source said.

Also ahead is Indonesia's planned $4 billion offering of 10- and 30-year bonds, which "has some pre-launch indigestion," the strategist said. "That's taking a toll on existing issues. Generally investors sell in advance to purchase the cheaper new bonds, so that's what's happening."

Investors also are keeping an eye out for $1 billion in bonds from Vietnam, $250 million in bonds from Mexico-based Urbi Desarrollos Urbanos SAB de CV and a planned $200 million issue of five-year bonds from Grupo Posadas SAB via JPMorgan.

"Investors are ready to get more active," the strategist said.

A London-based market source agreed: "The market is waiting for more."

Philippines, Turkey eyed

On Thursday investors paid attention to the recent two-part $1.5 billion reopening of global notes from the Republic of the Philippines, which included the pricing of $650 million 6½% bonds due 2020 at 106.25 to yield 5.674% and $850 million 6 3/8% bonds due 2034 that priced at 96.5 to yield 6.664%.

Investors also carefully considered the Republic of Turkey's $2 billion 6¾% 30-year fixed-rate notes that priced Tuesday at 98.655 to yield 6.85%.

"The Turkey bond is a little softer," the strategist said. "It was a big deal, and for investors to assume all of it took its toll. There was some indigestion."

Concerns about BNDES, Argentina

The $1 billion 5½% 10-year fixed rate notes from Banco Nacional de Desenvolvimento Economico e Social (BNDES) that priced Tuesday at 98.949 to yield 5.634%, or Treasuries plus 187.5 basis points, were "very well bid," a New York-based market source said. "But then they dropped pretty hard."

Argentina also had its share of difficulty on Thursday, as Central Bank governor Martin Redrado continued to refuse to step down from his post after president Cristina Fernandez asked for his resignation following a disagreement over the use of bank reserves to pay debt.

"It's still trading pretty heavy," the New York market source said. "Things have stabilized somewhat, but we're still waiting to see what happens."

Spreads in Argentina are "another 12 basis points wider, and the discount bonds are off by about $1.75," the strategist said.

Overall the secondary on Thursday was "kind of mixed, frankly. It's sort of credit-by-credit," the New York-based source said. "Brazil's trading a little bit heavy. Other triple-Bs are a little heavy with Treasury volatility too. So some investors have taken a few chips off the table. I don't think that's the right move. They're waiting for the noise to pick up, but they're way ahead of the curve on that one."

The JPMorgan EMBI Global Diversified Index was 281 bps on Thursday, unchanged.

Poland plans bonds

Poland has mandated HSBC, ING, Societe Generale and Unicredit for a planned benchmark-sized, euro-denominated bond offering, according to a statement on the Polish Finance Ministry's web site.

The transaction will be launched "in the near future," subject to market conditions, the statement said.

Other details on the size and timing of the transaction were not immediately available.

Votorantim plans notes

Brazil's Banco Votorantim (Baa2) is planning a benchmark-sized, dollar-denominated issue of 10-year tier two capital subordinated notes, according to a market source.

Deutsche Bank, Bank of America Merrill Lynch, Banco do Brasil and Banco Itau are the bookrunners for the deal, which could price as soon as the middle of next week.

This follows a non-deal roadshow that was held in November.

Proceeds will be used for general corporate purposes.

Banco Votorantim is a Sao Paulo-based financial services company.

Kansas City Southern de Mexico prices

Elsewhere Kansas City Southern de México, SA de CV priced an upsized $300 million issue of 8% eight-year senior notes (B2/B+) at 98.55 to yield 8¼% on Thursday.

The yield printed at the tight end of the 8 3/8% area price talk. The deal was upsized from $250 million.

Bank of America Merrill Lynch, JP Morgan and Scotia Capital were joint bookrunners for the quick-to-market deal.

Proceeds will be used to redeem a portion of the company's 9 3/8% senior notes due 2012.

Not much on the table

Discussions of a deal to address Kansas City Southern de Mexico's debt maturing in 2012 began three weeks ago, according to an asset manager involved in the credit.

However, those discussions began in the context of an 8 7/8% yield, the source added.

Since that time the market moved 30 to 40 basis points, the manager allowed.

Even in that context, though, the new 2018 bonds would have made more sense had they come with a yield of 8 3/8% to 8½%, the source asserted.

No doubt the company - having seen its issues in the not-too-distant past rocket higher in the secondary market - held the feet of its investment bankers to the fire, making certain, given the present hot market conditions, that not too much would be left on the table for investors, the manager said.

The manager, who stayed in the deal at 7¼%, saw the bonds trading 0.25 to 0.5 points higher in the secondary, and remarked that, like the above-mentioned Qwest bonds, the Kansas City Southern de Mexico 7¼% notes due 2018 were fully priced.

-Paul A. Harris contributed to this report

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