Emerging market debt takes a breather; Kexim sells $800 million in two-part deal

By Reshmi Basu and Paul A. Harris

New York, Sept. 28 - Emerging market debt took a pause Thursday, as the U.S. stock market briefly pierced new record highs. Meanwhile the primary market saw three corporates price deals.

First off, the Export-Import Bank of Korea (Kexim) sold $800 million in two tranches, comprised of $500 million in floating-rate notes due 2011 and $300 million of fixed-rate notes due 2016 (A3/A/A+).

The tranche of 2011 notes priced at par to yield three-month Libor plus 22 basis points while the portion of 2016 notes priced at 99.298 to yield 86 basis points more than Treasuries.

Barclays Capital, Credit Suisse, Morgan Stanley and UBS were joint lead managers for the Rule 144A/Regulation S transaction.

For these types of offerings, the secondary curves are so well established that pricing deals like Kexim is pretty straightforward during times of market stability, according to trader who focuses on Asian fixed income.

These bonds basically sit on the theoretical curves and tend to move very little. Kexim has fixed-rate bonds maturing in 2009 and 2010, and floaters in 2011, 2014 and 2015.

"It doesn't take a rocket scientist to figure out what the Libor curve looks like. And the bonds just sit on that curve these days," noted the trader.

Kexim is the latest Korean corporate to tap the international capital market.

This week, Korea Western Power Co., Ltd. (Kowepo) sold $150 million of 10-year fixed-rate notes (A1/A) at 98.964 to yield Treasuries plus 107.4 basis points or 55 basis points over mid-swaps via Barclays Capital and Deutsche Bank.

Last week, Korea Highway Corp. sold a €400 million offering of senior unsecured notes due 2016 (A3) at 99.555 to yield mid-swaps plus 42 basis points.

Deutsche Bank, JP Morgan and UBS were lead managers for the issue, which priced off the issuer's multi-currency medium-term notes program.

Overall, recent Korean deals have seen good demand and are well received, noted the trader. The backdrop is supportive, with equities firm and with the Treasury market providing some support.

Korean deals trading in secondary

Furthermore, there is a pretty good latent bid feeding through from the credit derivative swap market, according to the trader.

"There are quite a lot of structures getting printed at the moment, and when that happens there are generally sellers of CDS," he commented, adding that, at the margin, this provides some demand for cash products.

Moreover, technicals are helping these new deals. There is plenty of cash out there, since supply in the market has not been massive this year. In addition, there is a heavy redemption cycle underway.

"Also there have not been many big, billion dollar-plus high-grade deals, which is helping to keep the technicals pretty well supported," he told Prospect News.

Generally speaking, the market is in pretty good shape, the source said. Higher yielding paper has bounced back reasonably well, but nervousness still lingers for the category.

"We've had a better week this week in terms of flows. We've seen some buying in multiple sectors. So the tone is definitely better than it was late last week and early this week," he added.

Furthermore, the strong performance of the U.S. Treasury market has also provided relief.

Itabo sells $125 million in notes

Elsewhere, Dominican Republic thermo-electric generator Itabo Finance SA sold a $125 million offering of seven-year senior unsecured notes (/B/B-) at 10 7/8%.

The issue, which is non-callable for four years, came in line with price guidance for a yield in the 10 7/8% area.

Empresa Generadora De Electricidad Itabo, SA will guarantee the issue.

ABN Amro ran the Rule 144A/Regulation S transaction.

In the secondary, the new issue traded up to 101 bid, 102 offered from an issue price of par.

Out of Russia, Alfa Bank sold a $400 million offering of three-year fixed rate notes (Ba2/BB-/B+) at par to yield 7 7/8%.

The deal priced at the tight end of revised price guidance, which was lowered to 7 7/8% to 8% from the 8% area.

The book size was close to $900 million. The deal was described as a high quality transaction by a market source.

UBS and JP Morgan were the lead managers for the deal, which was launched under the issuer's euro medium-term note program.

EM on pause

Away from the new deals, trading in emerging market debt took a breather Thursday, following the recent positive run up on the back of an equities rally.

By the start of the New York opening, hedge funds took a nasty bite out of such sovereigns as the bellwether Brazilian bond due 2040, and the Ecuadorian bonds due 2011 and 2015, according to a market source.

More Ecuador worries

Elections jitters in Ecuador continue to put the market on edge amid the sudden rise in popularity of presidential hopeful Rafael Correa, who has unnerved investors with market unfriendly declarations on debt restructuring.

And Correa made few friends on Wall Street when he added to the confrontation between his friend Venezuelan president Hugo Chavez and U.S. president George Bush.

Correa said Wednesday that, "to call Mr. Bush the devil is an insult to the devil," in reference to last week's statement by Chavez, who called Bush "the devil" before the United Nations General Assembly.

Ecuador continued its trend as one of the worst performers this month.

The Ecuadorian bond due 2030 has seen dedicated selling over the last week. Any buying has been a result of short-covering. The Ecuadorian 2030 bond eased 0.80 to 91.80 bid, 92.50 offered.

Overall the market is positive, according to a source, who added that the market took a break Thursday.

Also in trading, the Brazil 2040 bond was up 0.30 to 130.35 bid, 130.40 offered.

Russia continued to lag behind the market. The Russian bond due 2030 gave up 0.32 to 111.50 bid, 111.93 offered.

Venezuela up, Thailand weak

And Venezuela continued to ride higher as oil prices remained above $60. On Thursday, oil pierced $64 a barrel before closing at $62.76.

In trading, the Venezuelan bond due 2027 was higher by 0.75 to 122.50 bid, 122.75 offered.

Over to Thailand, there reports of disturbances in the north of Thailand Thursday, which caused some widening in CDS by about a point or so, according to the trader quoted above.

However, it has since gone back to unchanged on the day.

Thailand is about 5 basis points wider than before the coup, having kicked out by as much as 30 basis points at one stage.

"There wasn't a lot of depth on the way out, or on the way back in," the trader noted.

Meanwhile rumors that Russia's natural gas giant Gazprom OAO will tap the international markets with an offering of 30-year bonds has put pressure on the its bond due 2034, according to a source.

In trading, the bond was spotted at 124.50 bid, 125 offered, down 0.75.

Speculation is that Goldman Sachs, Morgan Stanley, Dresdner Kleinwort and Citigroup have been mandated to manage the sale.

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