Philippines bringing $1 billion; CVRD readies $300 million; Russia steady but Ukraine off on gas flap

By Paul A. Harris

St. Louis, Jan. 3 - With a perceived appetite for longer dated paper in the emerging markets, the Philippines wasted no time heading for the starting line Tuesday.

Market sources said that the first trading day of 2006 saw the Philippines prepping a $1 billion equivalent suite of dollar- and euro-denominated bonds that could include two or possibly three tranches.

Launch and pricing of the deal are thought to be imminent.

Elsewhere Tuesday, Brazilian mining firm Companhia Vale do Rio Doce announced a $300 million offering that is expected to come without a full roadshow.

And the dispute over the rate that Russia's state-controlled OAO Gazprom will charge Ukraine for natural gas - and what Russia might do if Ukraine doesn't pay up - saw the Russian Federation's sovereign debt hold fairly steady while the Ukraine's fell.

Philippines to bring $1 billion

Although it began Tuesday's session as a rumor, quite a lot of detail emerged during the session on an expected $1 billion equivalent of issuance from the Philippines, a deal that could price later this week.

The offering, led by Citigroup, Credit Suisse First Boston, Deutsche Bank Securities and UBS Investment Bank, is expected to include both dollar- and euro-denominated bonds.

The issuance is expected to come as a new issue of 30-year notes and/or a tap of the Philippines 9½% bonds due Feb. 2, 2030, said a trader who focuses on high-yielding Asian credits. The source added that the issuance is also expected to include new euro-denominated 10-year notes.

The trader, who put the market a little lower on the day, down with U.S. Treasuries, said that the Philippines 2030s were down slightly on the news of the pending issuance, closing at 118 bid, down from last Friday's 118.125. However, the source added, Treasuries traded down "six or seven ticks late, so [Philippines] spreads have tightened since the announcement."

The trader added that the Tuesday session saw the market "pretty strong in sovereigns," but added that away from sovereigns not a lot was going on in terms of higher-yielding Asian credits.

Rumors also circulated during the session that Indonesia is preparing to come to the global bond market. However the trader said that would not happen until after the lunar New Year in late January.

As for anticipated high beta corporate issuance, the trader said that typically the sovereign issuance leads the corporate issuance in order to "define the curve and the space."

Having said it the trader added that "a handful of corporates out of Vietnam and the Philippines and maybe Indonesia" can be expected before the year advances too far.

CVRD announces $300 million

From the Latin American corporate sector, Brazil's CVRD announced it was coming with new bonds.

The company intends to sell $300 million of 10-year unsecured and unsubordinated notes.

Timing remains to be determined. However a buy-side source told Prospect News that the deal will likely come without a roadshow, and will probably be announced this week, and price late this week or early next week.

JP Morgan will run the books.

On Tuesday Fitch assigned a BB rating to the notes.

The investor said that the new bonds are likely to "price fairly close to the curve," noting that the level at which CVRD is trying to buy back its 2013 paper is 157 basis points over the benchmark Treasury.

Latin sovereigns stable in trading

Meanwhile trading was light Tuesday with regard to Latin American sovereigns.

One source characterized it as a "pretty firm and stable market.

"We're trying to get some sense of what market trend is going to be a price driver," the source added.

Mid-morning New York time the source had the benchmark Brazil global bonds due 2040 trading at 129 bid, 129.10 offered, up 0.10.

Meanwhile the Venezuela global bonds due 2027 were at 118.55 bid, 118.90 offered, unchanged to slightly down.

The source added that higher yielding Latin sovereigns were performing a little better, and spotted Ecuador's global bonds due 2030 at 91.75 bid, 92.25 offered, up 0.75, "recovering a little terrain after the finance minister resigned and was replaced at the end of December."

Meanwhile a trader who focuses on Latin American sovereigns characterized the Tuesday session as "pretty quiet.

"Latin American prices pretty much tracked Treasuries, and closed tight on the first trading day of the new year," the trader said.

This source spotted the Brazil 2040 at 129.25 bid, higher by 0.25 to 0.30, and added that just about everything else was "in line" with that move, with Venezuela's 2027 paper closing at 119 bid and Mexico's bonds due 2015 closing at 109.50 bid.

Peru's sovereign paper was the weakest, the trader added, specifying that the bonds were down half a point on the short end of the curve and a whole point on the long end.

Ukraine hurt by row with Russia

Sources also commented Tuesday on the ongoing dispute between the Russian Federation and Ukraine which began when Russia's state-controlled gas giant, OAO Gazprom, insisted that the subsidized levels at which Gazprom was selling natural gas to Ukraine were becoming untenable in light of global prices for the commodity.

Prospect News asked Enrique Alvarez, Latin America debt strategist at think tank IDEAglobal, whether Russia's move two days ago to reduce the volume of gas in the pipelines feeding Ukraine could have a destabilizing effect on the emerging markets.

Alvarez responded that for the time being investors seem to be taking the position that what's most important is whether or not Russia is paying off its debt, which it is doing.

"Russian credits have been steady to very slightly lower in the morning in Europe," Alvarez commented, spotting Russia's global bond due 2030 at 183.75 bid, 184.375 offered, down approximately an eighth.

"Ultimately what people are focusing on right now is that no matter what the situation in natural gas is in Russia, prices are still very high and Russia is still making a great deal of money.

"This situation does not point to a disruption in the servicing of Russia's debt, which is what preoccupies the market primarily at this time."

However Alvarez conceded that the flap and Russia's seeming heavy-handedness in dealing with it could have a negative impact on confidence in the emerging markets asset class in the long term

"You have the added detraction that Russia has been in default before," he recalled.

"Putin has basically put the hammer down on more free market reforms, and is continuously trying to accumulate more power in Russia's overall economic sphere," Alvarez added.

"Over time you may start to see a little less confidence in the Russian economy.

"But that is still a longer term play."

Later in the day an investor told Prospect News that while the Russia-Ukraine natural gas situation appeared not to be harming Russian debt, Ukrainian debt was suffering.

The investor said that the Ukraine bond due 2013 was 10 to 15 basis points wider at a 198 basis points spread to Treasuries on the news, and added that the Ukraine's bonds were feeling the impact more than its currency.

"There will probably be some impact on inflation and growth within the Ukraine," the investor added. "It's hard to say what that impact will be until they settle on a price.

"Right now they're talking about four times what the Ukraine has been paying. But even if it's just two times more that's certainly not a positive.

"We saw bonds sell off last week and there was some weakness today too."

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