Investors embrace risk then back off; primary quiet; Kazkommertsbank, Cosan, Arcor on tap

By Christine Van Dusen

Atlanta, Oct. 25 - With somewhat positive global economic news as the backdrop, spreads tightened and emerging market investors embraced risk on Monday morning before taking a step back by afternoon. Issuers, meanwhile, stayed out of the fray and ended the day in near-silence.

"We had a reasonably strong start to the morning," said Nick Chamie, global head of emerging market research for RBC Capital Markets. "Certainly the efforts at the G20 meeting to cool any concerns around exchange rate movements seem to have given the market a reason to cheer, particularly early on."

Officials from the Group of 20 during the weekend agreed to cease the so-called currency war in which some sovereigns have sold their currencies and bought dollars in an attempt to slow gains from the inflow of foreign investment.

And comments from a Federal Reserve official, who said the bank will take action if the economy needs support, helped give the morning a rosy glow. But that glow faded as the day progressed, resulting in a "tapering in the gains," Chamie said.

"To a certain extent everyone is still trying to get their bearings as to where global policy setting is going," Chamie said. "There's the Fed meeting next week, though I think people have more or less priced in expectations of quantitative easing."

Spreads tighten

Still, there was a "mild tightening bias" in spreads, a market source said.

The JPMorgan Emerging Markets Bond Index Plus was 8 basis points tighter. Argentina and Venezuela saw their spreads tighten by 14 to 15 bps.

Most names, including Turkey, saw their spreads tighten by closer to 7 bps.

Volumes on Monday were "relatively thin," Chamie said. "It's a quiet start to the week. Argentina did see some reasonable volumes go through this morning, but otherwise it's been kind of quiet."

Risk aversion seems to have waned a little bit, but "there doesn't seem to be a discernable trend," he said. "It's slightly biased to the risk-on mode but unable to make any significant headway in any way."

Pipeline slows

After late Friday's pricing of Ukraine-based egg producer Avangard Group's $200 million 10% senior notes due 2015 - which came to market at 98.093 to yield 10½% - the primary market was quiet, a source said.

"We haven't seen much in the way of new issues today," he said.

JPMorgan and Troika Dialog were the bookrunners for Avangard's Regulation S-only deal, which was talked to yield 10¼% to 10½%.

Monday saw Albania's planned issue of up to €400 million in five-year bonds whispered to yield 7½%, a market source said.

Deutsche Bank and JPMorgan are the bookrunners for the Regulation S-only deal, which is expected to price this week.

This follows the sovereign's May announcement that it would delay a dollar-denominated issue of notes via JPMorgan and Deutsche Bank. At the time, a source said current market conditions were to blame.

Also coming soon is an issue of seven-year notes from Kazakhstan-based lender Kazkommertsbank, which on Monday announced that regulators had approved its plan to sell up to $2 billion in debt. The deal was initially expected to total no more than $750 million.

Brazil heats up

Brazil once again bubbled with activity, with sugar and energy producer Cosan Overseas Ltd. planning a roadshow from Tuesday to Thursday for an issue of $300 million perpetual bonds, a market source said.

Credit Suisse, Morgan Stanley and JPMorgan are the bookrunners for the Regulation S-only notes, which are non-callable for five years.

Brazil-based retail and shopping center company General Shopping Finance Ltd. will embark on a roadshow starting Oct. 27 for a dollar-denominated offering of perpetual notes, a market source said.

Bank of America and BTG Pactual are the bookrunners for the notes, which are non-callable for five years. Proceeds will be used to redeem outstanding debt and to finance capital expenditures.

The roadshow will travel through Singapore, Hong Kong, Zurich, Geneva and London before wrapping up on Nov. 3 in the United States.

And the Brazil sovereign could be looking to issue a new real-denominated bond due 2020, a market source said. "They might tap the markets two or three times."

Sources also were whispering that Brazil's Banco Gerador could be planning a $10 million deal.

Arcor, Maquinaria plan notes

In other news from Latin America, Argentina-based candy maker Arcor SAIC is planning to issue $200 million senior notes due 2017, a market source said.

The yield has been whispered at the 8% area.

And Mexico's Maquinaria Especializada MXO Trust will embark on a roadshow starting Wednesday for an offering of dollar notes, a market source said.

The roadshow for the Rule 144A and Regulation S deal will be held in London, Boston, New York and Los Angeles.

Maquinaria Especializada is a special purpose vehicle designed to provide the majority of construction machinery services to Corporacion GEO, a Mexico City-based homebuilder.

Also planning a roadshow is Turkey-based construction company Yuksel Insaat. The issuer has mandated BNP Paribas and Standard Chartered for a marketing trip, a market source said.

No other details were available Monday.

Lenders look at deals

In other news Monday, Bank of Moscow mandated ING and UBS for a roadshow on Wednesday and Thursday in Singapore, a market source said.

Belarus-based lender Belagroprombank set the yield for its planned $100 million offering of three-year notes at 9.95%, a market source said.

The Regulation S deal is expected to price as soon as this week.

Burundi's Eastern and Southern African Trade and Development Bank (PTA Bank) will hold a roadshow from Thursday to Nov. 3 for a dollar-denominated offering of notes, a market source said.

HSBC and Standard Chartered are the bookrunners for the Regulation S offering.

And Riyadh-based petrochemical, fertilizer and metals conglomerate Sabic Capital has revived plans for an offering of five-year senior notes, a market source said.

JPMorgan, HSBC and RBS are the bookrunners for the Regulation S deal, which is being whispered at a yield in the mid-swaps plus high-100 bps area.

The company, which is 70%-owned by the Kingdom of Saudi Arabia, postponed a similar offering in May after being unable to achieve internal price targets and determining there was no immediate need for funding, a source said.

Posco oversubscribed

The final book for the $700 million 4¼% notes due 2020 from South Korean integrated steel producer Posco - which priced last week at 99.557 to yield 4.305%, or Treasuries plus 179 bps - was $3.8 billion from 302 orders, a market source said.

About 46% came from the United States, 38% from Asia and 16% from the European Union.

Funds accounted for 38%, insurers 19%, banks 14%, retail 5% and others 24%.

Also from Asia, Hong Kong's Chong Hing Bank is planning an issue of notes due November 2020, a market source said.

Proceeds will be used to strengthen the bank's capital base and to fund business growth, according to a Fitch Ratings report.

Local currency deals eyed

Local currency bonds continue to hold "much value" despite rising inflation in emerging markets, according to a Barclays Capital research report.

"We expect the recent flow trend to remain, leading to more dislocations in the back end of local curves, as we look for global portfolios to pay a premium to diversify into local currency debt," the report said.

Standouts, according to Barclays, include Brazil and Turkey. The latter sovereign shows "rates and appreciation potential."

Also showing potential are 10-year local bonds from Indonesia, Peru, Korea and Malaysia. "Currencies and local rates look promising for the risks," the report said.

South Africa's 10-year local bonds, meanwhile, "look expensive" relative to inflation and currency risks.

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