Emerging markets debt gains with Treasuries; Magyar Telecom prices

By Paul A. Harris

St. Louis, July 30 - Friday's session saw emerging market bonds trading higher in tandem with a rally in U.S. Treasuries, market sources said.

Late in the session a source spotted the EMBI plus one basis point wider at 464 basis points. However, the source added, the index had come in from 474 since the morning of Monday July 26. And Treasury rallies are difficult for emerging markets to keep pace with, the source noted.

One deal was completed in the new issue arena, as Magyar Telecom BV, a subsidiary of Hungary's Invitel, sold €142 million of eight-year notes that were said to have played to interest from both emerging markets and high-yield investors.

Meanwhile on Friday Russia's debt was seen unchanged to slightly better as the courts granted some breathing room to the embattled energy company, Yukos.

Russia's sovereign and corporate paper has recently been shaken by investor worries that the Russian government's seeming rabidity in its dealings with the tax issues of petroleum giant Yukos might signal a return of Soviet-era government heavy-handedness.

Numerous commentators have asserted that the legal assault on Yukos and its owners amounts to Kremlin payback for the company's majority shareholder, Mikhail Khodorkovsky, getting involved in politics.

In any case, sources told Prospect News on Friday that the market seems to be taking heart in recent pronouncements on Yukos from the Russian courts.

"The court clarified the freeze on Yukos assets, indicating that the company could continue to operate," one sell-side emerging markets source explained.

"People had been taking the freeze on assets to mean that the court was literally freezing all of the company's assets so that Yukos wouldn't be able to produce.

"Also today the court gave Yukos a month to pay their tax liability. I guess that's a slightly more flexible and therefore positive statement," the source added.

"Overall, though, it's still pretty bad."

The source spotted that EMBI index's Russian component at 314 basis points, flat on the day, but having tightened from the 316 close on Thursday

"Don't forget you have a much tighter Treasury market today," the source added.

"In emerging markets, just to stay even with the kind of Treasury rally that we saw today is pretty good."

Another market source said "The news gave the entire Russian corporate sector, and also the oil sector in Russia, as well as the sovereign sector a little support.

"The whole Russian curve is up a point to a point and a half."

Brazil grinding back

A sell-side source also said that the sovereign paper of Brazil seems to be stabilizing following scandal news that emerged late last week.

Last Friday the Brazilian press reported two Brazilian central bank officials were being investigated for alleged tax evasion. One subsequently resigned although he denied the charges.

The Brazil bond due 2040 was unchanged Friday at 98.35, according the source.

"That's getting to be a stale price," the official added. "But it's had a pretty good week.

"Monday morning the Brazil '40 opened at 96.40. So it's up a little over a point and a half from the Monday open.

"Last week the '40s were higher, but the scandal news knocked things down."

The source also said that the Brazil component of the EMBI index was only one basis point tighter on the day.

Latin debt bathes in good quarterly numbers

Late in Friday's session an emerging markets analyst told Prospect News that corporate earnings news out of Latin America has been solid to unexpectedly good - a rising tide that appears to be lifting all boats.

"Mexican companies that have eurobonds in the market are reporting excellent numbers," said the analyst.

"Also the Brazilian corporate sector has posted strong numbers for the quarter.

"That has given the usual suspects in the Latin American corporate sector a very good lift in prices."

Shortly later another market source provided some trading levels.

The 8½% notes due 2008 of Petroleos Mexicanos (Pemex) were unchanged at 111.75 bid, 112.375 offered, while the 9% notes due 2007 were 111.50 bid, 112.125 offered, also unchanged.

The 2018 notes of Brazil's Petrobras were 95.25 bid, 96.375 offered, up 0.50

Meanwhile the 2013 notes of Companhia Vale do Rio Doce SA were unchanged at 106 bid, 107.5 offered.

The 2013 notes of Brazilian brewer Ambev were spotted at 108 bid, 109.5 offered, up 0.50.

Turkey sovereign up on IMF decision

The International Monetary Fund approved a $661 million payment to Turkey on Friday, which the country may draw upon immediately.

Following the IMF's executive board discussion, Rodrigo de Rato, managing director and chair, said: "Turkey's economic performance continues to be impressive. Growth has been sustained and rapid, and is likely to exceed this year's 5% target. Inflation has been lowered dramatically to single digits and the 12% end-year target is clearly achievable. The government's record of strict fiscal discipline, including taking remedial actions where necessary, has been instrumental to this success."

The news appeared to spur activity in the sovereign. A market source, late Friday, saw the benchmark Turkey bond due 2030 trading at 127.625 bid, 128 offered, up 2.50.

New Ukraine floater trades up

Elsewhere in secondary market action, Ukraine's new five-year floater (B1/B/B+) that priced Thursday at par to yield six-month Libor plus 337½ basis points, was spotted Friday trading at 100 bid, 100.875 offered.

One market source told Prospect News that the downsized $500 million deal had widened out from its original price talk before pricing on Thursday.

"Once they did it seemed okay," the source added.

Invitel to both junk, EM buyers

The only deal on the international market in which emerging markets player reportedly took an interest during the final session of the July 26 week was issued by Hungary's Magyar Telecom BV.

The subsidiary of Invitel, Hungary's second largest local fixed-line telephone company, sold €142 million of 10¾% eight-year senior notes (Caa1/B-) at 98.682 to yield 11%.

The deal, via Credit Suisse First Boston and BNP Paribas, came at the wide end of the 10¾%-11% price talk.

The deal had been marketed to both emerging markets and high yield accounts, according to source close to the transaction.

"The book had in excess of 70 accounts and was about 2.5 times oversubscribed," the source disclosed in a Friday email message to Prospect News.

The source added that the deal is "a landmark" for the telecom sector, being the first triple-C euro-denominated telecom deal to price in at least two years.

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