EM investors nervous, issuers cautious on global economic concerns; primary market quiet

By Christine Van Dusen

Atlanta, Nov. 16 - Emerging markets continued their steady slide on Tuesday with a fairly large sell-off and further anxiety about Ireland, Portugal, Greece and the European debt crisis as a whole.

"The market is fairly nervous and decidedly weak in the face of problems in the euro zone," a market source said.

And it remains to be seen whether this is "a healthy correction or a longer kind of slide lower," a New York-based market source said. "We're definitely in a different market, in a tone that's fairly negative."

Emerging markets assets saw "weakness across the board" as "flight-from-risk globally intensified," according to a report from RBC Capital Markets.

Brazil and Mexico were down 2 to 3 basis points by late morning and fell further before recovering a little bit by early afternoon, while Argentina, Colombia and Venezuela "underperformed in the EM sovereign credit space," RBC said.

The JPMorgan Emerging Markets Bond Index Plus widened by 5 bps on Tuesday morning before ending the day up 12 bps.

In light of this volatility, very few deals came to market on Tuesday. Brazil's Itau Unibanco priced notes, but planned notes from Ukraine's Mriya Agro Holdings plc and Brazil's Banco Bradesco were pulled.

Said a London-based trader: "It's looking horrible. We're all up to our eyeballs."

Another London-based trader put a bit more mildly: "The market is still trading on the sloppy side of things."

Bradesco cancels deal

Brazil was in focus on Tuesday with Banco Bradesco's cancellation of its planned benchmark-sized issue of real-denominated notes due January 2016 via Barclays Capital, Bradesco and Citigroup in a Rule 144A and Regulation S transaction.

"That's a fairly lustrous borrower, one of the best there," a market source said. "And they pulled a global (real) trade based on the negativity."

Another Brazilian lender, Itau Unibanco, did manage to sneak in a similar deal: R$500 million notes due November 2015, which came to market at par to yield 10½% and is payable in dollars, a market source said.

Morgan Stanley, Itau and Deutsche Bank were the bookrunners for the Rule 144A and Regulation S deal, which was talked at a yield in the 10½% area.

"It was fairly underwhelming, but they were able to get that trade through," the source said. "That's a sign of a little bit of weakness there."

Partly to blame, according to one source, were the recent troubles with Brazilian lender Banco Panamericano, which last week got a $1.5 billion bailout.

"The situation in Brazil has people a little spooked," he said. "A couple deals have received lukewarm reception as a result."

But another source said the Panamericano effect shouldn't be overstated, given that the market has had some time to digest the bailout news.

The lender's bonds were trading "roughly 10 points below par," he said. "That's not drastic, though it is a cause for concern."

Belarus, Albania plan notes

Also canceling a deal on Tuesday was Ukraine-based agriculture producer and trader Mriya Agro Holding, which had been planning an offering of dollar bonds via Bank of America Merrill Lynch and UBS, a market source said.

The Rule 144A and Regulation S deal was marketed on a roadshow that began Nov. 3.

No other details were available Tuesday.

The day also saw Albania considering an issue of up to €500 million of notes that could come to market in 2011, a market source said.

Proceeds would be used for infrastructure projects and to repay outstanding debt.

Belarus is also looking at a deal that could total as much as $1 billion and come to market before the end of the year, a market source said.

Poland-based oil refiner and petrol retailer Polski Koncern Naftowy Orlen SA (PKN Orlen) mandated Citigroup, Deutsche Bank and RBS for a euro-denominated offering of notes, a market source said.

A roadshow will begin Wednesday for the Regulation S transaction.

And Russia-based energy company OAO Gazprom talked its planned dollar-denominated issue of five-year notes at mid-swaps plus 340 bps to 350 bps, a market source said.

Credit Agricole CIB and JPMorgan are the bookrunners for the deal.

"It's a tricky market," a London-based trader said. "So it will be interesting to see how this goes."

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