Argentina debt moves higher on IMF payment news; IBK prices $300 million deal

By Reshmi Basu and Paul A. Harris

New York, March 9 - Argentina's looming deadline to make a substantial payment to the International Monetary Fund was the big news in emerging markets trading Tuesday - and the country's debt moved higher after news reports said it had reached a deal that would avoid a default.

Meanwhile the new issue market saw some activity, with the Industrial Bank of Korea bringing a $300 million offering.

Argentina was scheduled to pay $3.15 billion to the IMF Tuesday but the country's request for assurances before it met its obligations had raised some concerns in the bond market.

Had it failed to pay it would have been the country's second default in six months.

Argentinean president Nestor Kirchner had threatened to default on the loan unless he received assurances that the IMF would deliver the next installment of a more recent loan in the next few weeks.

The IMF has been displeased with Argentina's negotiations with individual and institutional creditors owed billions in defaulted bonds.

But reports during the day said the country had reached an agreement and would make the payment, prompting the country's debt to move higher in trading - although several market participants said some sort of agreement was already largely priced in.

As news of an accord surfaced, a trader said he saw the Bodens due 2012 at 66 bid after the announcement, up two points on the news.

He saw Argentina's debt due 2008 trading at 28½ and its 2031 bonds trading at 28.5, up a quarter to half a point from previously.

IMF deal is "the easy part"

But a market analyst said Argentina is still not in the clear because it has to convince irate bondholders to accept a big discount to par.

"The IMF accord was the easy part," said the analyst.

"We still have concerns over Argentina because the government still has to convince bondholders to accept its proposal to repay 25% of the $88 billion it defaulted on in 2002."

In September, the IMF agreed to provide $12.5 billion over the next three years to help Argentina out of its financial crisis.

"Investors have been extremely agitated because those IMF loans were given on the understanding that the government would pay back bondholders. They haven't seen a cent," the analyst added.

"The Kirchner government wants the bondholders to be happy with a return of 25% of the value of the debt. The IMF and creditors aren't too keen on that."

Another informed source agreed a deal with the IMF was largely reflected in earlier market prices.

"The Latin American market has been pretty calm over whether or not Argentina would default," said an informed source. "Investors were not panicking, but were cautious. The news of a default was priced in."

Brazil CPI ahead

Looking ahead, the source said this week all eyes will be on Brazil's release of its consumer price index data, scheduled for Thursday.

"The news from Brazil will not be the political scandal but the CPI index that comes out this week. It looks like inflation is down, which means that the Central Bank should cut interest rates."

IBK leads issuance

Meanwhile, the new issue market showed some life.

Industrial Bank of Korea priced $300 million of 4% 10-year bonds (Baa1/BBB) at 99.639, to yield 4.079% or a spread of 138 basis points, according to a market source.

Credit Suisse First Boston, HSBC and UBS Investment Bank were the underwriters.

Industrial Bank of Korea is 70% state-owned.

Also tapping the markets was NIKoil Financial Corp., which brought its debut eurobond deal.

The Russian bank and financial services company priced $150 million of three-year notes at par to yield 9%. Deutsche Bank led the offering.

Also from Russia, OAO Lukoil said it plans to issue $500 million of eurobonds as part of its 2004 borrowing program. No syndicate names or details on structure were disclosed by the oil company.

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