Emerging market sovereigns well-bid; Itau Unibanco, CEZ price; Credito Real could upsize

By Christine Van Dusen

Atlanta, April 8 - New issuance continued at a trickle in emerging markets on Thursday as issuers slowly returned from an extended post-Easter holiday and investors expressed some concern about whether Greece will default on its debt, market sources said.

"The day opened weaker with concern over what was going on in Greece and what's happening there," a Singapore-based trader said. "Now it's quite firm."

The sovereign, facing skepticism that it can resolve its debt crisis and that a bailout from European countries and the International Monetary Fund will come together, saw its stock market fall and its cost to insure against default rise. In a press conference European Central Bank president Jean-Claude Trichet rejected the idea that Greece would default on its debt.

After that, "things turned around fairly quickly, partly with the stocks turning around and generally guys taking the view that as CDS went wider, they'd use that as an opportunity to sell," the Singapore trader said. "On the cash side it was just buying anyway."

Prices are "little changed over the last 24 hours," he said, "and they're probably the stronger for having had a little potential pullback."

Many sovereigns were well-bid on Thursday, he said. "We've seen buyers of Indonesia, Philippines, Vietnam."

A London-based market source also noted that "Peru is firm."

Brazil was a solid performer for the day, a New York-based source said. "Brazil had a great day today: 7 to 10 basis points tighter, the best in a while," he said. "There are rumors that the government could be issuing a bond next week and retap its '19s or '41s. We'll see if anything happens there."

Overall, "the market remains very, very firm," the Singapore source said, "especially in the front end and the middle of the curve; where we're still seeing a lot of demand."

Investors have a lot of money on hand, the New York source said, and "I think people are either waiting to buy new issues or waiting for stability in the equity markets, to give them confidence to buy some paper."

New issuance still slow

Thursday didn't provide those investors with many new issues to choose from. There was Itau Unibanco's $1 billion 6.2% notes due 2020, which priced at 99.552 to yield 6.261%, or 237.5 bps over Treasuries. And the Czech Republic's CEZ priced €750 million 4 7/8% bonds due 2025 at 99.718 to yield mid-swaps plus 122 bps.

Also on Thursday, a market source said that the planned $150 million issue of five-year notes from Mexico's Credito Real SA de CV Sofom has the potential for some modest growth above the initial issue size. The deal was oversubscribed, with books of more than $250 million, and is expected to print in line with price guidance of 10¼%.

The Credito Real deal should come to market soon.

Inflows up again

Inflows into emerging markets bond funds hit $807 million for the week ended Wednesday, according to a new report from data tracker EPFR Global. That's up from $779 million last week and marks the 22nd consecutive week for inflows.

"It's been a good week generally for that asset class," said Cameron Brandt, global senior analyst for EPFR. "Commodity prices have been moving upwards and U.S. debt - which is obviously in some sense a big competitor - is starting to look a bit shaky. So EM bonds are getting a general re-rating in their favor."

Itau Unibanco prices notes

Brazil's Itau Unibanco priced $1 billion 6.2% notes due April 15, 2020 (Baa2/BBB-/) at 99.552 to yield 6.261%, or 237.5 bps over Treasuries, according to a market source.

Banco Itau Europa, Goldman Sachs and Morgan Stanley were the bookrunners for the Rule 144A and Regulation S deal, which was initially talked at the Treasuries plus 250 bps area.

Proceeds will be used for general corporate purposes.

Itau Unibanco is a banking company based in Sao Paulo.

CEZ prices bonds

The Czech Republic's CEZ priced €750 million 4 7/8% bonds due April 2025 (A2/A-/A-) at 99.718 to yield mid-swaps plus 122 bps, according to market sources.

Societe Generale, HSBC, Unicredit, Erste Group and Bayern LB were the bookrunners for the deal.

CEZ is a Prague-based power distribution company.

Credito Real could upsize

Mexico's Credito Real could upsize its planned $150 million issue of five-year notes (/BB-/), according to an informed market source.

Bank of America Merrill Lynch is the bookrunner for the Rule 144A and Regulation S deal, which includes a change-of-control put at 101%.

"The books are greater than $250 million," the source said.

Official price guidance stands at the 10¼% area.

Proceeds will be used for general corporate purposes, as well as to prepay short- and long-term secured and unsecured debt and to fund the growth of the company's loan portfolio.

Credito Real is a consumer financing company based in Del. Miguel Hidalgo, Mexico.

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