Emerging market debt crawls; VimpelCom sells add on in active primary; Brazil speculation

By Reshmi Basu and Paul A. Harris

New York, July 6 - Emerging market debt crawled Tuesday as summer break spilled onto the trading floors.

"Today has been kind of slow," said a market source. "People are still coming back from the long weekend."

And Friday's momentum on soft employment figures did not carry into Tuesday's session.

"It's been extremely slow," said a debt strategist at Refco EM.

"There's been lack of liquidity. The volume has been low," he added.

The JP Morgan EMBI index was down 0.14% on the day. Its spread to Treasuries tightened by four basis points to 478 basis points.

However, the Brazil benchmark bond due 2040 was up 2.15 to 96.050 in late trading. The C bond was bid at 93.125, down 0.375.

Despite the slow secondary, Tuesday did see some primary action.

Russia's second-largest cellular network operator VimpelCom sold an upsized $200 million add-on to its $250 million bonds due 2009 (B1/BB-) at 100.50.

The deal, increased to $200 million from the planned $100 million, came on top of price talk. The tap had been talked in the area of 100.50.

UBS Securities and JP Morgan ran the Rule 144A/Regulation S book offering.

VimpelCom priced the original $250 million deal on June 9 at par.

Also during Tuesday's session, Cyprus Popular Bank priced €300 million of notes at 99.854 (Baa1) to yield three-month Euribor plus 50 basis points via Deutsche Bank and Merrill Lynch. That was cheaper than talk of Euribor plus a spread in the low to mid 40s.

From Croatia, Zagrebacka Banka dd priced €450 million 4¼% bonds due 2009 (A2/BBB-) at 99.327 to yield mid-swaps plus 75 basis points or 4.403% via JP Morgan and UniCredit Banca Mobiliare.

Coming up Russia's Vneshtorgbank will start the European roadshow for an offering of three-year floating-rate loan participation notes (Baa3/BB+) on Thursday.

Barclays Capital, ING and HSBC Bank are the bookrunners for the Regulation S deal.

However, Industrial and Commercial Bank of China (Asia) is postponing its $300 million bond due 2009 (corporate credit rating A2) because of technical problems.

Brazil's rumored retap

Also for the forward calendar, rumor has it that Brazil may re-tap its $750 million five-year floating-rate notes as soon as next week.

However others think such a transaction is unlikely on the grounds that the market may be oversaturated with supply.

"I think investors are ready to come to the market, but not in size," said a market source.

"We're hearing some rumors of a re-opening of the floaters next week.

"I think we've seen a lot of supply lately for a market that is suppose to be quiet at this point in time," he added.

On June 21, Brazil surprised the market when it sold $750 million of five-year floating-rate bonds to refinance maturing debt. The deal was well received, oversubscribed and upsized from the original $500 million.

Then last week, the massively oversubscribed Aries Vermogensverwaltungs GmbH deal priced after being increased to €3 billion and $2.4355 billion. In that transaction, Germany repackaged Paris debt owed by Russia - a maneuver that could set a trend for other lending nations and lead to an unexpected dumping of new securities based on bilateral debt onto emerging market bond buyers.

"It's the beginning of July. It's going to get even quieter at the end of month," said the market source.

"Maybe this is not the right time for Brazil to re-tap the market - or for any other issuers," he noted.

One market source said the Aries deal could be a positive because it gives more liquidity to that market - although he acknowledged there could also be a short-term loss in value.

"If you are holders of the Russian bonds, that would create some type of pressure because you have more issues in the market," said the source.

"The rumor is that the new instruments are going to be priced cheaper to the curve. If you are a holder of Russian bonds, you will see some volatility in the price.

"The Russian curve will have to adjust to the new bond," said the market source.

In trading Tuesday, the Russian bond due 2030 was up 0.125 to 923/4.

CVRD down on its bid for Noranda

Brazil's mining company Companhia Vale do Rio Doce's potential bid for Canada's Noranda is weighing on its performance.

"That has been taken negatively by the local market," said a Refco EM strategist.

Although no bid has yet been announced, the iron ore mining company has been said since mid-June to be looking at Noranda. The transaction could be worth as much as $3 billion.

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