Venezuela, Guatemala price new deals; market slightly higher as investors weigh possible issuers

By Reshmi Basu and Paul A. Harris

New York, Sept. 29 - Emerging market debt was bid slightly higher Wednesday as Venezuela priced a $1.5 billion 10-year global bond offering, partly for cash, partly in exchange for existing Brady bonds.

"The markets are up a little today [Wednesday], but not massively," said a senior sell-side source.

A combination of the U.S macroeconomic picture and a little bit of the immediate technicals are driving emerging markets these days, according to the source.

"We had a lot of supply in the market. People are trying to guess or second-guess who else may still come.

"Investors are also expecting inflows into the market.

"So while investors feel the market is still pretty expensive on a fundamental basis, on a technical basis maybe it can go tighter," added the source.

Paper from Brazil and Russia traded edged higher during the session. The Brazil C bond added 0.062 to 98.687 bid while the bond due 2040 gained a quarter of a point to 111.80 bid. The Russia bond due 2030 was bid at 96.625, up 3/8.

Venezuela's "give-away"

In primary news, two Latin American sovereign deals came to market.

Guatemala priced $330 million of 30-year bonds (Ba2/BB-) at par to yield 8 1/8% or Treasuries plus 403 basis points.

Citigroup ran the Rule 144A/Regulation S bond offering.

But the headlining story of the day belonged to the Republic of Venezuela in what the senior sell-side source referred to as the "Venezuela bond give-away."

The Latin American nation priced its $1.5 billion global due Oct. 8, 2014 to yield Treasuries plus 520 basis points.

The Latin American country issued $710 million of its 8½% global bonds due 2014 in an exchange for Brady bonds. The remaining $790 million was sold to investors for cash.

Barclays Capital and Merrill Lynch & Co. were lead managers.

"It came in very cheap," said the sellside source.

But the deal had a muted effect on the overall market, said the source.

"It's not like Brazil where if Brazil does a deal and it goes well it has a broader impact on the market.

"Although Venezuela is a widely held credit I think the market has known long enough that the deal was coming and it was cheap.

"I think it had an impact on the Venezuelan curve but it didn't have a broader impact on anything else especially," said the source.

In trading Wednesday the Venezuela bond due 2013 closed at 112.31, down 0.30. The bond due 2027 was bid at 98.40, down 0.80 and traded at 456 basis points over the 30-year U.S. Treasury. And the bond due 2034 lost 0.45 to 98¾ bid.

"It looks like the sale of the new 10-year went relatively well, especially because it was clearly priced cheap to the curve in order to drum up interest," said an emerging market analyst.

"You have to wonder, though, whether they needed to make it that cheap - it's difficult to see how Venezuela can underperform the market for very long with oil prices north of $40 per barrel.

"Yes, Venezuela appears to be squandering its excess oil revenues right now, but the fiscal outlook will remain supportive as long as oil prices remain high," he commented.

With the deal coming in so cheap and oil prices so high, investors were left wondering why Venezuela gave up so much.

"You have a political situation in Venezuela that is not great. It could be better," said the sell-side source.

"But on the other hand with oil prices above $40 a barrel, you have to feel pretty comfortable about Venezuela's ability to service their foreign debt.

"And you still get very good yields in Venezuela. Venezuela's spreads are right in line with Brazil's," said the sell-side source.

"Did a good Venezuela deal push up Brazil? I don't think so."

Latin American corporates flat

Prices for Latin American corporates were overall flat during Wednesday's session at London close.

But there were exceptions.

Mexico's wireless telecommunications company Grupo Iusacell's bond due 2004 was up a point to 60 bid, 62 offered.

Venezuela's oil company Petrozuata bond due 2017 was up 8½ points to 98 bid, 100 offered.

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