European debt crisis sidelines investors, silences primary market; CAF, Delong plan deals

By Christine Van Dusen

Atlanta, Nov. 15 - With Ireland vehemently denying that it is seeking a bailout and Portugal and Greece continuing to struggle under the heavy burden of debt, investors in emerging markets debt did some selling on Monday and issuers mostly hung back.

"Most of the requests today are for bids, not offers," a New York-based market source said. "I wouldn't say there's panic selling, but there's weakness in the marketplace driven by concerns on Europe."

This also led to a quieter primary market, with little going on in terms of pricing, and a smattering of issuers taking small steps toward the market, including Venezuela's Corporacion Andina de Fomento, Mumbai's State Bank of India, Russia's Commercial Bank Renaissance Capital, China's Delong Holdings Ltd. and Brazil's Itau Unibanco and Banco Bradesco SA.

"The calendar is slowing down pretty dramatically in EM," the New York source said. "We had a large new issue calendar in September, October and early November, so there's some indigestion going on."

Also, emerging markets investors are "up 15% this year," so they're not anxious to step off the sidelines, he said.

"When you have only four weeks left in the year - because the second half of December is quiet - you have to wonder what the upside is," he said. "It can only hurt. So investors may become a bit more cautious."

Trading mixed

In trading, it was "kind of a mixed bag," a market source said. "High-beta stuff is trading pretty poorly, like Argentina and Venezuela. The BBBs were kind of down and now they're better bid with Treasuries. But more than anything else, it's marked by inactivity across the board. It's very, very quiet."

EM assets lacked "any real direction," according to a report from RBC Capital Markets.

The JPMorgan Emerging Markets Bond Index Plus ended the day 10 basis points tighter, with most sovereigns tighter by between 5 bps and 15 bps, but "the spread narrowing was insufficient to keep prices stable amid the relatively sharp spike in U.S. Treasury yields," RBC said.

At the current levels, "there's a little bit of takeout from clients," a source said. "There's been a massive re-pricing. I think at these levels clients are probably going to back off."

For the most part, "the street is sort of redistributing," he said. "Bonds are being taken out a little in Brazil and Mexico and then Argentina seems pretty heavy. It just seems like at this juncture they're looking for any excuse not to trade."

Investors are coping with a great deal of uncertainty, he said, with the ongoing European crisis and in the post-quantitative easing environment in the United States. "Now it's a 'now what' scenario. Everyone is just digesting everything and interpreting it. We're in uncharted waters," he said.

CAF plans roadshow

In the meantime, several issuers plotted roadshows for new issues, including Venezuela-based lender Corporacion Andina de Fomento, which is looking to issue euro-denominated notes, a market source said.

BNP Paribas and HSBC are the bookrunners for the deal, which will be marketed in London, the Netherlands, Frankfurt, Munich and Paris before wrapping up on Tuesday.

Also planning a roadshow is Mumbai-based State Bank of India, which could set out as soon as Wednesday to market a benchmark-sized euro-denominated issue of notes due 2015.

And Russia-based investment bank Commercial Bank Renaissance Capital is on a roadshow for a potential issue of lower tier two subordinated notes via JPMorgan and Renaissance Capital, a market source said.

Brazilian banks mull deals

Also on Monday, China-based steel manufacturing and trading group Delong Holdings mandated Credit Suisse as the bookrunner for a planned issue of senior notes that will be marketed on a roadshow, according to a company announcement.

Proceeds will be used for general corporate purposes and the repayment of the company's outstanding 5% convertible bonds due 2012, for repayment of bank loans and for acquisitions of strategic investments in businesses engaged in iron ore mining and other raw material and steel mining businesses.

Two Brazilian banks also moved forward with real-denominated deals.

Brazilian lender Itau Unibanco talked its planned issue of five-year real notes at a yield in the 10½% area, a market source said.

Morgan Stanley, Itau and Deutsche Bank are the bookrunners for the offering.

And Banco Bradesco is planning a real-denominated benchmark-sized issue of notes due January 2016, a market source said.

Barclays Capital, Bradesco and Citigroup are the bookrunners for the deal, which could price as soon as this week.

"Absent that, the calendar looks relatively light," the New York-based market source said.

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