Market continues digesting U.S. economic news; Pemex prices notes; Kepco mulls bond issue

By Christine Van Dusen

Atlanta, Aug. 25 - The recent bad economic news out of the United States was top on the mind of investors and issuers on a sluggish summer Wednesday, which was marked by just one new deal and light volume in the secondary.

"It's fairly quiet," a California-based buyside source said. "There's not a lot of activity."

Contributing to the slowdown was the economic crisis in Europe, which has not captured the market's attention lately but continues to fester in the background.

Wednesday saw Ireland downgraded by Standard & Poor's. And Hungary was denying reports that it is seeking further financing with the International Monetary Fund. The sovereign now says that the meeting scheduled for this fall is not a resumption of bailout talks but will be a typical country review.

"The market's a little heavy," a New York-based market source said. "The equity market and pessimism have weighed on spreads and prices over the last few days."

Spreads widen

Since Monday, spreads are "probably 25 to 30 basis points wider" for names like Brazil and Mexico, he said.

"With equities stabilizing today, we're seeing stability in emerging markets as well," he said. "But there's certainly been some selling. With the massive rally the returns on some of this stuff is astronomical. So we've seen some pretty good selling."

Overall, the market is "slightly negative," he said. "But I think it's probably OK. I think we've seen the bulk of the widening up to this point."

Fresh money is coming in, he said. "New names are popping up, looking for paper. So net-net we're a little heavier, but overall the trend is pretty good."

Pemex prices notes

On the primary side, Mexico City-based petroleum company Petroleos Mexicanos SAB de CV (Pemex) priced a $1 billion reopening of its 6 5/8% notes due June 15, 2035 at 108.339 to yield 5.975%, or Treasuries plus 239.7 bps, an informed market source said.

Bank of America Merrill Lynch and Credit Suisse were the bookrunners for the Rule 144A and Regulation S deal.

The California-based source was surprised that the deal came to market amid the summertime slowdown. "I think maybe there were some investors that needed to allocate to that name. That's how they were able to do that."

Said the New York-based source: "There was a pretty big concession, with it being 25 bps from yesterday's level. That's supposedly driven by reverse inquiries, so it's not a great measurement of that market. But it's a pretty good value."

Kepco eyes offering

Also on Wednesday, Seoul-based electric utility company Korea Electric Power Corp. (Kepco) was considering a benchmark-sized issue of dollar-denominated bonds that could price as soon as October, a market source said.

Proceeds would be used to fund a three-month bridge loan. No other details were available.

The day also saw Saudi Arabia-based economic development lender Islamic Development Bank mandate CIMB as one of five banks to lead a $1 billion sukuk transaction, a market source said.

The deal is expected to come to market in the fourth quarter.

Proceeds will be used to increase lending to member states coping with the economic crisis.

Philippines upsizes

And the Philippines increased the size of its planned global peso-denominated offering from $500 million equivalent to $1 billion equivalent, a market source said.

The sovereign also has shortlisted Citigroup, HSBC and UBS for a debt exchange of five- to nine-year dollar-denominated bonds for 10-, 20- and 25-year bonds, the source said.

Market sources also were whispering about a possible local currency deal totaling about 5 billion rubles from St. Petersburg in October or November.

Meanwhile, Indonesia-based oil and gas company PT Pertamina is delaying until at least first-quarter 2011 its possible $1.5 billion bond issue, a market source said. Credit Suisse and HSBC are the bookrunners for the deal.

Secondary mostly inactive

In the secondary, "volumes are light," the New York-based market source said. "It was marginally busy in the morning but then died down in the afternoon."

To blame, of course, is the "August mode," he said. "So no names have been particularly active."

The only standout was Argentina, the California-based source said. "Higher-yielders are having a bad day. It's not really surprising when the market is down. In Argentina in particular, it's selling off more than the rest of the market. It's down approximately 3%, though that number could change."

At late afternoon the JPMorgan Emerging Markets Bond Index Plus spread was 289 bps, versus 286 bps on Tuesday. And the JPMorgan Emerging Markets Bond Index Global spread was 316 bps, versus 312 bps the day before.

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