Emerging market debt listless; Brazilian bonds down on Lula's rating slippage

By Reshmi Basu and Paul A. Harris

New York. Sept. 13 - Emerging market debt dipped slightly Tuesday as investors awaited forthcoming economic data in the United States for clearer insight into the impact of Hurricane Katrina.

Meanwhile in the primary market, Banco do Estado de Sao Paolo sold an upsized offering of $500 million in non-cumulative perpetual tier 1 bonds (Ba2) at par to yield 8.70%.

Merrill Lynch & Co. was the bookrunner for the Rule 144A/Regulation S transaction.

Also out of Brazil, engineering and construction firm Construtora Norberto Odebrecht SA set price guidance for a $150 million offering of perpetual notes (BB-) in the area of 9 7/8%. Subsidiary Odebrecht Overseas Ltd. will issue the notes. Credit Suisse First Boston is the bookrunner for the Regulation S offering. Deutsche Bank Securities is a joint lead manager.

Adding to the pipeline, Mexico's Desarrolladora Homex, SA de CV plans to issue $200 million of 10-year notes (Ba3/BB- expected).

The senior guaranteed notes will be non-callable for five-years.

Credit Suisse First Boston is the bookrunner for the Rule 144A with regulation rights issue. HSBC is the co-lead manager.

Moving to Asia, Industrial Bank of Korea inwardly revised talk on a $500 million offering of five-year floating rate notes (A3/A-) to Libor plus 33 to 35 basis points from 34 to 37 basis points.

The issue is expected to price during morning hours on Wednesday in London.

Credit Suisse First Boston, HSBC and Morgan Stanley are the bookrunners.

And Temasek Holdings set initial price guidance for a $1 billion offering of 10-year bonds (Aaa/AAA) at 10-year mid-swaps plus three to five basis points.

The deal is expected to price on Wednesday.

Goldman Sachs, Deutsche Bank and Morgan Stanley are lead managers for the Rule 144A/Regulation S transaction.

Finally, the State Export-Import Bank of Ukraine plans to start a roadshow for a $150 million bond offering (Ba2/BB-) this Friday.

The roadshow will next move to London on Monday, then off to Frankfurt and Munich on Tuesday, and wrapping up in Zurich and Vienna on Wednesday.

The bonds will carry a seven- to 10-year tenor.

Credit Suisse First Boston and UBS are joint managers for the Regulation S transaction.

A buyside source described the pipeline as "steady."

"I think people expected more, particularly as far as Asia," he remarked.

"It will be interesting to see when we get the results from the Colombian buyback. That might clear up some more money, particularly focused on Latin America.

"The Asian stuff seems steady. The Latin American stuff seems to be a function of the overall market," he noted.

Brazil down in secondary

In trading, Brazilian bonds came under pressure as polls showed that the popularity ratings for president Luiz Inacio Lula da Silva hit a record low.

Lula's popularity dropped to 50% from 59.9% in July, according to a survey by Instituto Sensus.

In response, the Brazil bond due 2040 slid 0.15 to 119.80 bid.

On the economic front, Brazil's consumer price index will be an important reading, according to the buyside source.

"I guess there's two different opinions that we are going to have another round of volatility in Brazil again," he said.

But in general, a trader described the session as "sluggish".

Other movers included the Russia bond due 2030. The bond gained a quarter of a point to 114.81 bid. The Venezuela bond due 2027 lost 0.30 to 110.40 bid.

Cash in EM

Overall, the buyside source said, there seems to be plenty of cash around as buyers outnumber sellers, an obvious positive for the market.

"Asia has a tremendous amount of money," he observed.

"They seem to be keep adding everyday.

"Asia is the only one that clearly has money sitting in their balance sheets," he added.

That "steady demand" has resulted in emerging market debt divorcing itself from U.S. Treasuries in recent sessions, he remarked.

Attributing the decoupling to Asian buying, he said: "When Treasuries go down, spreads tighten. When Treasuries go up, spreads widen."

Looking ahead, the buyside source, who is underweight in emerging markets, is concerned over politics in Latin America.

"I prefer Asia over Latin America at this point, given that you get paid more and I think it's a better longer term story.

"I still like Brazil but I expect volatility in trading," he told Prospect News.

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