Emerging market prices down; Napocor retaps bonds due 2011 to add $100 million

By Reshmi Basu and Paul A. Harris

New York, Aug. 24 - Emerging market debt turned cautious a day ahead of congressional testimony by a former aide to Brazilian finance minister Antonio Palocci, who levied corruption charges against him.

In the primary market, state-run National Power Corp. reopened its floating-rate notes due 2011 (B1/BB-/BB) to add $100 million in a drive-by on Wednesday.

This brings the total size of the deal to $400 million.

The cash-starved company has ongoing needs, said a trader who focuses on Asian credits.

"Historically Napocor has struggled to issue in its own name," added the trader. "So quite a number of recent Philippine issues have been for Napocor financing. The fact that they have been able to get something done in their own name - albeit with guarantee - is an improvement."

On Aug. 11, the company priced an upsized offering of $300 million in six-year notes at par to yield three-month Libor plus 425 basis points.

That issue was increased from $200 million.

Bear Stearns ran both Rule 144A/Regulation S deals.

The Republic of the Philippines will guarantee the issuance.

A market source said there was a lot of demand from Asia and the United States when the original issue was first announced.

"The Philippines mostly trades in the U.S. There was a lot of demand and the issuer thought it might be good to reopen," he said.

The source said the deal went well, but cautioned that it was hard to read its performance in the secondary, given how low trading volumes are.

"We'll have to wait until September... but it'll trade like the rest of the market. I think it will trade better because of the floating thing."

EM down

With such low liquidity, the market tends to flip on headlines, said the market source, which makes it difficult to assess sentiment. Investors will have to wait till September, he said.

Meanwhile the political news in Brazil - or the lack of news -resulted in the country's bonds slipping Wednesday.

Investors are nervous ahead of testimony by Rogerio Buratti, a former aide to Palocci, who said he was paid off when he was mayor of the Sao Paulo State city of Ribeirao Preto.

Buratti was scheduled to testify Wednesday, but "health reasons" pushed the date to Thursday.

A trader said that the market will be closely watching to see if Palocci is implicated.

"The less he says, the more likely we will see a recovery," he said.

During Wednesday's session, the Brazil bond due 2040 lost 0.55 to 116.85 bid. Other Brazilian losers included: the bond due 2014, which lost half a point to 114 ¾ bid, the bond due 2019 fell 0.60 to 102.30 bid, the bond due 2027 dipped 0.45 to 113.85 bid.

Other credits were also yanked lower. The Venezuela bond due 2027 lost half a point to 105¾ bid. The Mexico bond due 2033 slipped 0.30 to 115.55 bid. The Ecuador bond due 2012 was down a quarter of a point to 99.80 bid.

Decline of the Indonesian rupiah

The Indonesian rupiah has been on a two-week slide. There has been an increased focus during the past 24 hours on what has been going on in Indonesia, said the first trader.

The currency was weaker Wednesday. The stock market was hit. And it caused some collateral damage in the rest of the markets, remarked the trader,

The Indonesia bond due 2015 traded at 96 5/8 bid Wednesday, down from 98 ¾ bid on Tuesday.

The currency decline is a function of the country's slight slowness to raise interest rates, said the trader.

Indonesia also has an issue with subsidies on oil, and the shift from being a net exporter to a net importer of oil.

"That's causing some pressure on their foreign exchange payments," he said.

High oil prices have resulted in a plunge in the Indonesian currency while domestic bond yields have spiked and share prices have fallen.

Rising fiscal costs are forcing the government to eliminate subsidies on domestic fuel prices. That increases both inflation risk and political risks, said the trader.

A market source told Prospect News that the Indonesian currency has fallen 6% since May and bond yields have spiked by 320 basis points since June.

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