Colombia prices $375 million equivalent five-year bonds; emerging market debt trades in tight range

By Reshmi Basu and Paul A. Harris

New York, Nov. 9 - Both Colombia and Alrosa Finance SA tapped the capital markets Tuesday, a day ahead of the Federal Open Monetary Committee meeting.

The Republic of Colombia priced an upsized $375 million equivalent of global notes due March 1, 2010 (Ba2/BB/BB) at 99.658 to yield 11 7/8% via Citigroup.

The notes were increased to $375 million from $250 million amid high demand for the paper.

The notes were issued in pesos and will be repaid in dollars.

Colombia turned to its own currency because of the weakness of the U.S dollar, according to analysts.

"Investors are looking for value in EM external debt, and with spreads so tight on traditional dollar-denominated debt, the only thing left with any potential for upside is local currency debt," said an emerging market analyst.

"The peso is somewhat undervalued right now, so buying a peso-denominated bond leaves some room for upside potential if the peso appreciates over time.

"I think Colombia is realizing that investors would not be very excited about another plain vanilla dollar-denominated bond, but a peso-denominated bond might be able to generate extra investor interest," he said.

The Latin American country will use proceeds to refinance its 2005 budget. The country's external financing needs include $1.5 billion in bond issues.

Also tapping the market was Russian diamond company Alrosa Finance SA.

Alrosa Finance SA sold $300 million bonds due 2014 (B2/B) at 99.511 to yield 8.95%.

The deal came at the tight end of price guidance which had been set in the area of 9 1/8%.

JP Morgan and ING were the lead managers for the Rule 144A/Regulation S bond offering.

Wait and see mode

Emerging market debt traded in a narrow range ahead of Wednesday's expected decision from the Fed to move the benchmark lending rate up 25 basis points to 2%.

The Latin American market opened stronger during the morning but ended flat to slightly weaker by the close of the session, according to Enrique Alvarez, Latin America debt strategist for IDEAglobal.

"In the early morning, prices advanced by a half [point]," he said.

But as crude oil continued to slip to a seven-week closing low of $47.37 a barrel, emerging markets felt the pinch.

"Prices probably turned around on the focus that people are going to buy more into the strength of the U.S economic story.

"So that half point gain that you saw early in the morning vanished," noted Alvarez.

The Brazil C bond was unchanged on the day at 99¼ bid while the bond due 2040 fell 0.30 to 111½ bid.

Colombia's bond due 2008 was down 0.10 to 111.50 bid. The Ecuador bond due 2030 was unchanged at 83¾ bid. The Mexico bond due 2009 was bid at 114.30, down 0.05.

While it is a foregone conclusion as to what the Fed action will be on Wednesday, the market remains in a wait and see mode, according to Alvarez.

"I think everyone is observant of all the different global factors out there.

"No one is moving until we see something new come about in either the Treasuries or U.S dollar," he said.

Trading will continue to be in ranges, especially given this week's interruptions, such as the Federal Reserve meeting on Wednesday and the Veteran's Day holiday on Thursday.

Since the U.S market will be closed on Thursday, there will very little liquidity, said Alvarez.

"You don't want to be caught overly long if something undue comes out that day."

In other news, corporates from Latin American saw little price change.

However, Mexican wireless telecommunications provider Grupo Iusacell SA de SV saw its bond due 2006 up ¾ of a point to 28 bid, 30 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.