Emerging markets gain; Brazil 2040 breaks 116; Braskem to issue $150 million bonds

By Reshmi Basu and Paul A. Harris

New York, May 23 - Emerging market debt rose Monday with the Brazil bond due 2040 a notable gainer, pushing above the 116 level.

In the primary market, Mexico's Grupo Televisa SA reopened its 6 5/8% bonds due 2025 (Baa2/BBB) to add $200 million, according to a market source.

The retap priced at 98.632 for a spread of Treasuries plus 234 basis points. The addition brings the total size of the issue to $600 million.

Credit Suisse First Boston ran the reopening for the media company.

Also, shareholders have given approval to Kazakhstan's CenterCredit JSC (Almaty)'s 400 million eurobond issue, to be issued in dollars and/or euros, according to information published Monday by the Kazakhstan Stock Exchange.

And Taiwan's Nan Ya Plastics, a unit of the Formosa Group, plans to sell approximately $300 million of notes sometime during June.

"That's part of Formosa Plastics," said a trader.

"There has been very little supply from Taiwanese corporates.

"We had the first Taiwanese bank deal, ChinaTrust [ChinaTrust Commercial Bank of Taiwan's 5.625% perpetual bonds], earlier in the year.

"Given the rarity factor, I would expect Taiwanese deals to be well-received," added the trader.

Citigroup, Deutsche Bank Securities and HSBC have the bookrunning mandate.

The notes are expected to have a tenor of between five years and 10 years.

However, the most exciting news in emerging markets Monday was a potential new issue from Brazil's Braskem SA, according to a buyside source.

The petrochemical company set price talk for an offering of $150 million in 10-year notes (/BB-/BB-) in the area of 9 5/8%.

Citigroup and ABN Amro are running the Rule 144A/Regulation S offering.

The proposed notes gave investors "something to do," remarked the buyside source.

"The market has been pretty quiet all and all. Everything's moved up, but I don't get a sense there's a lot of volume going through," he replied.

EM up as Treasuries bounce

A U.S. Treasuries rally helped breathe life into emerging markets as Brazil led the way Monday.

"The 10-year bonds are up half a tick," said the buyside source.

"Thirty-year bonds are up a full point. Seems like everything is pretty healthy today [Monday]."

By the end of trading the yield on the 10-year note was 4.072%, down from 4.12% on Friday. The yield on the 30-year bond stood at 4.387%, hitting its lowest level since Feb. 9.

During the session, the Brazil C bond was up 0.062 to 101.187 bid while the bond due 2040 moved up 0.45 to 116.15 bid. The Mexico bond due 2009 added a quarter of a point to 118.95 bid while the bond due 2034 gained 1.1 points to 102½ bid. The Russia bond 2030 rose half a point to 108½ bid. The Venezuela bond due 2027 moved up 0.15 to 98½ bid.

Meanwhile, Turkey's bonds lost ground Monday on news that German chancellor Gerhard Schroeder's party performed worse than expected in local elections, said a source. Schroeder has been a prominent advocate of Turkey's accession to the European Union.

The Turkey bond due 2030 fell 5/8 of a point to 135 7/8 bid.

Asia's prices up

Asia also was up across the board with a firm tone, according to a trader. Benchmark higher-beta spread products were between two and five points tighter.

Both Philippines and Indonesia bonds were 3/8 of a point to half a point better in the long end, said the trader.

The Philippines bond due 2030 was at 99 7/8 bid, 100 3/8 offered, up 3/8 of a point.

The Indonesia bond 2015 was bid at 98 3/8 bid, 98 7/8 offered, also up 3/8 of a point.

"There is definitely money coming into the asset class," remarked the trader.

"The view seems to be that EM is somewhat insulated from the problems that are hitting the U.S. corporate market, and for that reason they are attracting some money.

"We've been pretty well stress tested for the past week or so. And the market has done pretty well," he remarked.

Meanwhile the trader expects to see reasonable amount of supply from Korea, Malaysian banks, India, Philippines and Indonesia.

"It's really a function of market conditions: as they get better you will likely see some more high-yielding cusp-type credits looking to come again."

EM not a safe haven, says investor

In the last couple of months, emerging markets has outperformed high-yield and high-grade markets. Nonetheless, the buyside source was skeptical that emerging markets is the new safe haven.

"We're still adding U.S. and selling EM," he remarked. "We'll still at very tight levels as relative value shifts."

"I don't buy the argument that EM is the new safety area."

He added that he is not a believer because "history has proven otherwise."

"I'm not looking for a big market correction," he mentioned. "I'm just looking for relative underperformance by EM."

And one point of concern for the buyside source is forthcoming elections. In 2006, presidential elections will be held in Brazil, Mexico, Dominican Republic, Costa Rica, Colombia, Hungary - just to name a few.

Furthermore, he pointed to recent headlines in Peru as a point of consternation and questions why the market seems uninterested.

Peru's president Alejandro Toledo has been accused of being involved in the forgery of signatures to register his Peru Possible party in 1998. On Friday, the Peruvian Congress rejected a motion to impeach him.

"He'll be charged, but he won't be thrown out of office yet. Those are the kind of headlines that the market seems to be ignoring," noted the buyside source.

Things have been good for a while, so until there's a real blowup people seem to be happy with how things are. And they don't seem to be looking at what's happening in other markets."

While strong fundamentals have given emerging markets resilience to recent shocks in other credit markets, new leadership can usher in looser economic policies, he warned.

"Fundamentals are still pretty good. And policy is decent. It's a question of how the policy will change and affect the fundamentals going forward."

He cites Ecuador as a perfect example of what can go wrong.

"Ecuador can happen to Brazil. It can happen to Peru. It can happen to a number of countries in the next year or so," he noted.

And he adds that any one country in emerging markets can be the next Ecuador.

"You can be Ecuador and call the elections. I suspect that's a danger to the market. And I think Ecuador is microcosm of that," he cautioned.

Ecuador's finance minister Rafael Correa told reporters Monday that the nation would not implement structural reforms not approved by the people and that the country would not buckle to the International Monetary Fund. He was speaking after meeting with the IMF delegation.

In other news, Correa sent Congress a bill to amend the Fiscal Responsibility Law, along with changes to the allocation of the FEIREP oil fund resources, according to a market source.

Under the bill, there would be more discretionary use of the FEIREP oil fund. There would be changes in the allocation guidelines: 40% for "production reactivation and job creation," 20% for budget shortfalls, 15% for health, 15% for education, and 10% for science and technology.

According to the source, some political parties have already thrown their support behind the bill. The passage of the bill could threaten the disbursement of the $300 million of exceptional finance pledged by the IADB and World Bank in 2005.

Investors have feared that Ecuador's government has become more fiscally loose since Congress kicked out former president Lucio Gutierrez and replaced him with Alfredo Palacios.

Nonetheless, during Monday's session, the Ecuador bond due 2012 added ¾ point to 93½ bid while the bond due 2030 gained half a point to 79 bid.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.