Emerging market debt rises on muted inflation data; two corporates raise funds

By Reshmi Basu, Paul Deckelman, and Paul A. Harris

New York, Dec. 15 - Emerging market debt posted gains Friday on the back of subdued inflation numbers in the United States.

On the primary front, two corporates priced deals worth $520 million as the issuance pipeline dried up for the year.

AES Panama SA sold a $300 million offering of 10-year senior notes (/BBB-/BBB-) at 99.177 to yield a spread of Treasuries plus 195 basis points.

The deal came tighter than price guidance for a spread of the 200 basis points area over Treasuries.

Credit Suisse was the bookrunner for the Rule 144A/Regulation S transaction.

Proceeds will be used for the repayment of existing debt, for dividend payments to shareholders, and for general corporate purposes.

AES Panama is a subsidiary of global power company AES Corp.

Next up, Argentinean electric company Compañía de Transporte de Energía Eléctrica en Alta Tensión SA (Transener) placed a $220 million offering of amortizing notes due 2016 (B//B) at par to yield 8 7/8%.

The deal will be non-callable for five-years.

Proceeds from the sale will be used for the company's current cash tender offer.

Deutsche Bank was the bookrunner for the Rule 144A/Regulation S deal.

Sources noted that the deal went well.

Following the two pricings Friday, there are no new issues definitely scheduled on the forward calendar.

EM firm on tame CPI data

Emerging market debt clocked in a positive session Friday, after U.S. economic data suggested that inflation was under control.

The U.S. consumer price index was unchanged in November. Additionally, the core index, which excludes food and energy prices, was also unchanged

Those subdued numbers reinvigorated sentiment that the Federal Reserve would stay put or possibly even cut the fed funds rate in 2007.

In response to the data, U.S. Treasuries rallied but then erased gains on profit-taking, closing unchanged on the day.

But a steady Treasuries market provided an anchor for emerging market debt as the asset class continued to trade with a firm tone while trading volumes were thinner in Asia than Latin America.

A trader in Latin American issues opined that the market "was really strong," adding that the overall flows were good.

Meanwhile high beta credits such as Argentina and Brazil posted gains.

During the session, the Argentine discount bond due 2033 rose 0.40 to 107.10 bid, 107.35 offered. The benchmark Brazilian bond due 2040 added 0.15 to 133.25 bid, 133.35 offered.

On the other hand, Asia was quieter. A trader who watches the Asian markets said the day was "a typical December Friday."

He characterized Asia's movement as "an uptrend with Treasuries."

Nothing really stood out he said and volume "was incredibly light."

The market "was firm in the morning, as Treasuries traded higher, and then as the Treasury market sold off the [EM] cash prices came off with them but finished up.

He spotted the Philippines and Indonesia issues up ¼ point "on the long end."

Ecuador slips again

Meanwhile, Ecuador bucked the market's overall positive trend as its spreads continued to widen on hard-line comments made by president elect Rafael Correa regarding debt negotiation.

The uncertainty surrounding how the Andean nation will handle its debt has pressured the country's bonds in recent sessions, noted market sources.

"The reality is that "restructuring" could imply many things, including (1) calling the '12s and the '30s at par, (2) issuing new bonds to Venezuela and using the proceeds to buy the outstanding bonds in the secondary markets at depressed values (his unfriendly talk could be part of this strategy), or (3) unilaterally decreeing a debt servicing limit (reducing the coupons)," wrote Alberto Bernal, fixed income analyst for Bear Stearns in a research note.

"All of those paths remain possible, yet we think that Correa calling the '12s and the '30s at par remains quite unlikely," he added.

On Friday, investors continued to shed risk in the country. During the session, the Ecuadorian bond due 2030 fell 2.25 to 87.75 bid, 88.75 offered.

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