Emerging market debt higher on lower oil prices; Intergas sells upsized $250 million notes

By Reshmi Basu and Paul A. Harris

New York, Oct. 27 - Emerging market debt traded higher as oil prices slid nearly 5% Wednesday in an otherwise quiet session.

In primary action, Intergas Central Asia/KazTransGas priced $250 million bonds due 2007 at 98.641 to yield 7 1/8%.

The deal, increased to $250 million from $200 million, came at the tighter end of initial price guidance. Guidance had been set at 7 1/8% to 7¼%.

"KazTransGas went real well," said an informed source.

But one buyside source decided not to play in the deal.

"We looked at it," the source said. "But we didn't think the pricing was wonderful - too low yields."

ABN Amro and JP Morgan ran the Rule 144A/Regulation S deal.

Russian diamond company Alrosa will start a roadshow Thursday for its benchmark-sized offering of dollar-denominated bonds due 2014 (B3/B) via JP Morgan and ING.

There is already a decent book built for Alrosa, which is pricing after the U.S. presidential election during the week of Nov. 8, according to the informed source.

"Alrosa will probably come in the $300-$500 million range.

"They said 'benchmark,' but I think benchmark for a corporate means something like that," said an informed source.

Falling oil pushes EM up

The headlining story Wednesday belonged to oil prices, according to Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

"We had an upside pop in the market generated more than anything by the big drawdown in crude prices," he said.

Oil slid after the U.S. government's Energy Information Administration said crude inventories were up by four million barrels to 283.4 million barrels last week, double the size Wall Street was expecting.

Prices fell to $52.46 a barrel, down $2.71 from Monday's record high of $55.67.

That drop in crude oil levels essentially dispelled a little bit the continuous fears that have been gripping the market about the effects of crude oil prices over time on growth and inflation," said Alvarez.

"It has not killed off those fears but it has diminished them at on least an intraday basis, so we had a rise," he commented.

Overall, emerging market debt was up. The JP Morgan EMBI Global index tightened 10 basis points to 423 basis points more than Treasuries.

"The big action has been again confined to high beta, which is where you are seeing most of the activity," said Alvarez.

"Brazil overall is up nearly 1%, and that has been leading the market. And then you have some action in Venezuela, which is counterintuitive that it would rise in light of the fact that crude oil prices are down," he said.

But Brazil's gain is pulling in Venezuelan paper, noted Alvarez.

"Those are your two basic large movers," he said.

The JP Morgan EMBI Global index for Brazil tightened 23 basis points. Venezuela narrowed by 19 basis points. Mexico, Russia and Turkey tightened by six basis points, 11 basis points, and 16 basis points, respectively.

The Brazil bond due 2040 gained half a point to 111¼ bid.

But overall the tone of the market was very quiet, according to the buyside source.

"We've got earnings season and that seems to be catching the attention of more people," he said.

"But there doesn't seem to be that much going on."

He predicted that the quiet trading would continue, with the market moving sideways until the U.S presidential election next week.

"Everyone seems to be thinking the same way that I am. They are worried about the current pricing but don't know what else to do," he said.

"I am looking more at the high yield side than I am on the EM side" - to balance out the risk of high-priced emerging markets bonds, he added.

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