Emerging markets restrained; CapitaLand plans debt issue; China Molybdenum deal possible

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Aug. 17 - The emerging markets remained subdued Tuesday, and one market watcher opined that the muted tone would continue until September.

"A few things will come through," the source said of the remainder of August. But the deals will only serve to "keep things moving" until "the busy September."

In the meantime, investors are focusing on China, according to another source.

"All I have been talking to clients about for the last two days is China," the trader said. "That's sort of the story in terms of them passing Japan."

The source was referring to Monday's news that China's gross domestic product had outpaced Japan, allowing it to take the number two spot in terms of the world economy.

"It's funny that we're talking about the number two world economy and it's an emerging market," the trader added. Still, "that's where the focus is among clients."

Asian investors will have something to look forward to, it seems, as Singapore's CapitaLand Ltd. announced its plan to issue $350 million in fixed-rate notes. China Molybdenum Co. Ltd. might also soon be bringing a deal.

Away from the Asian markets, there continued to be an influx of economic data. The data, however, was mixed.

According to a recent report from ZEW Center for European Economic Research, German investor sentiment hit a 16-month low, falling to 14 from 21.2 in July. Still, Moody's Investors Service said it believed that Germany - as well as France, the United Kingdom and the United States - was "well positioned" based on a "forward-looking assessment of their debt dynamics and debt affordability."

Also, Spain and Ireland saw their borrowing costs fall at recent auctions of securities. The decline in borrowing costs could signal that investors are less concerned about the countries' ability to get a handle on budget deficits.

And., U.S. Treasuries' yields gained ground, which could potentially take some emerging market risk off the table.

High-yield credits outperforming

The emerging markets secondary continues to be strong, according to a mutual fund manager whose portfolio includes EM corporates and sovereigns.

Cash continues to flow into the global and local currency funds, said the investor.

However, with no calendar expected to materialize until September, the only place to put the cash to work is the secondary market.

So prices there are high.

Lately the outperformers have been the high-yield credits, the manager said.

Argentina, Peru, Indonesia, Philippines, Ghana, Gabon and Egypt have all been performing very well, the source specified.

"They are catching up with the rest of the market," the investor said.

"There is an insufficient supply of sovereign paper, so everybody is chasing the same names."

Venezuela, the exception

One exception to the rally in high-yield emerging markets sovereigns is Venezuela, the fund manager specified.

Venezuela has been underperforming in part because of the market's wariness of new supply.

"No one knew how much they were going to issue," the investor reflected.

"It turns out they only issued $3 billion."

To recap, Venezuela recently priced the 12¾% bonds due in 2022 at par.

The bonds were placed primarily with local investors seeking to gain exposure to dollar-denominated assets, the investor added.

"It was well placed, in terms of small allocations to individuals and corporations," the buy-sider commented.

"Because of that atomized placement, there is a decent chance that there won't be a huge offering of those bonds in the secondary market," the source added, noting that the new Venezuela paper is expected to be free to trade globally in about 40 days.

CapitaLand plans notes

CapitaLand intends to issue $350 million of 4.3% fixed-rate guaranteed notes through its CapitaLand Treasury Ltd. subsidiary.

The 10-year notes - which will be issued at par - are being sold under its $3 billion medium-term note program.

The Singapore-based property developer will use the proceeds to refinance debt, for new investments and for working capital.

China Molybdenum deal possible

Luoyang, China-based China Molybdenum meantime is considering a note sale for proceeds up to RMB 4 billion, according to a press release.

The one- to five-year notes could come in multiple tranches, depending on market conditions.

Interest on the notes will be based on the best lending quote by People's Bank of China.

Proceeds will be used, in part, for operations. The company needs to obtain shareholder approval before going forward.

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