Upsized Brazilian sovereign issue gives lift to emerging markets

By Reshmi Basu and Paul A. Harris

New York, June 21 - A new issue from Brazil helped lift emerging market paper higher on Monday.

The Federative Republic of Brazil priced an upsized $750 million of five-year floating-rate bonds (B2/B+) at 99.245 to yield three-month Libor plus 593 basis points via Merrill Lynch & Co. and Goldman Sachs & Co.

Price talk was three-month Libor plus 575 basis points, having tightened by 25 basis points.

The heavily oversubscribed deal was upsized from $500 million.

A market source told Prospect News that Brazil was anxious to get the deal done before the June 29-30 Federal Reserve meeting.

"The market did pretty well after the announcement by the Brazilian sovereign on the new issue," said a debt strategist at Refco EM. "It gave the market an incentive to rally."

The JP Morgan EMBI Global Index gained 0.25% during Monday's session. Its spread to Treasuries tightened by five basis points to 472 basis points.

Among existing Brazilian sovereign issues, the C bond was up 0.375 Monday at 90¾ bid. The bond due 2040 was bid at 903/4, down 11/4.

Brazil's component of the JP Morgan Index rose 0.35%. Its spread to Treasuries tightened by 15 basis points.

And Brazilian corporates were even up on the news of a new sovereign, according to an emerging market analyst.

MISC reschedules roadshow

Also in primary action, Malaysian International Shipping Corp. Bhd rescheduled last week's planned roadshow for its $1 billion five- to 10-year benchmark two-tranche senior unsecured notes (Baa1/BBB+) to this week.

The roadshow started Monday in Hong Kong, goes to Singapore on Tuesday, then London on Wednesday and finishes off in the United States on Thursday and Friday.

Barclays Capital and Citigroup are running the books for the Rule 144A/Regulation S deal.

The issue is expected to price at the end of this week, subject to market conditions.

And out of China, two banks added to the pipeline. State-owned Export Import Bank of China (Chexim) plans to issue $1 billion of 10-year global bonds (foreign currency rating A2/BBB+) in July.

Citigroup, Goldman Sachs & Co., and HSBC Bank are running the books.

And the Hong Kong-based division of Industrial Commercial Bank of China ICBC plans to issue $300 million bonds due 2009.

Goldman Sachs & Co., HSBC Bank and JP Morgan are running the books.

Also coming up, Export-Import Bank of India is expected to issue a five-year eurobond via Citigroup and Deutsche Bank.

And Vitro SA de CV is rumored to be in the market with a new corporate deal via Citigroup, according to a buy-side source.

The Monterrey, Mexico-based glass manufacturer priced a downsized offering of $225 million of 11¾% senior unsecured notes due 2013 (B2/B-) at 98.556 last Oct. 15 to yield 12% via Citigroup and Credit Suisse First Boston.

Argentina, Mexico up

Also on the Latin American front, a market source told Prospect News that Argentina generated one of the Monday's key headlines as its 11.2% gross domestic product numbers for the first quarter of 2004 beat market expectations.

Its component of the EMBI Global Index was up 0.35%. Its spread to Treasuries tightened by 15 basis points to 4,942 basis points during Monday's session.

Argentina's bond due 2008 was unchanged at 28 bid while its bond due 2030 was also unchanged at 27 bid.

Later this week on the economic front, Mexico will release its unemployment rate and trade balance data. And many are expecting that those numbers will signal an economic recovery for the country.

"We're expecting a good number [trade balance]," said the Refco EM debt strategist, adding that Mexico may rally on those numbers.

In trading Monday, the Mexican bond due 2007 was bid at 114.3, up 0.1. And its bond due 2026 was bid at 138.2, up 0.2.

Its component of the EMBI rose 0.27%.

Meanwhile, Mexican corporates were virtually unchanged in Monday's session.

Mexico's biggest railroad company Grupo TFM saw its bonds due 2009 unchanged from Friday at 96¾ bid, 99 offered.

Media company Innova S de RL's bonds due 2007 were unchanged at 101 bid, 102½ offered.

Industrial production company Cemex SA de CV's bonds due 2009 were unchanged at 116½ bid, 118 offered from Friday's 116½ bid, 118½ offered.

Meanwhile, despite the good news from the sovereign issuance by Brazil, with the Lula government having lost its minimum wage struggle in the Brazilian senate, the fight now heads from the lower house, the source said.

The Lula government wants a BRL260.00 minimum wage, whereas the one the senate passed was BRL275.00, the source added.

If the lower house signs off on the BRL260.00 level, the minimum wage would revert to its previous BRL240.00 level, and the legislative process would have to be restarted. However if the lower house agrees with the senate's BRL275.00, the legislation would be sent to Lula, who could veto it but at a considerable political cost.

If the BRL275.00 minimum wage becomes the law, the market source added, the 2004 social security deficit is expected to rise to BRL3 billion (0.18% of GDP) above the level projected in the annual budget, probably making it necessary for Brazil to cut spending or investment to meet its primary surplus target.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.