Emerging market debt firm ahead of holidays; three corporates tap market

By Reshmi Basu and Paul Deckelman

New York, Feb. 16 - Emerging market debt scooted higher Friday as volumes thinned out ahead of upcoming holidays in Asia, Latin America and the United States.

In the primary market, three corporates issued new debt.

From Russia, Alfa Bond Issuance sold a $300 million offering of 10-year subordinated lower tier II notes (Ba2/BB) at par to yield 8.635%.

The issuance of loan participation notes came with five years of call protection. If the notes are not called, the coupon steps up by 150 basis points.

Alfa Bank, a Moscow-based privately owned commercial bank, will borrow the proceeds from the sale. Alfa Bond Issuance is a financing unit of Alfa Bank.

Dresdner Kleinwort and JP Morgan were joint bookrunners for the Regulation S offering.

Out of Brazil, SA Fabrica De Prods Alimenticios Vigor sold a $100 million offering of 10-year senior unsecured notes (B2) at par to yield 9¼%.

The deal came at the tight end of guidance, which was set at a yield of 9¼% to 9½%.

The notes are non-callable for five years. If the notes are not called, the coupon steps up by 100 basis points.

The deal was a Rule 144A and Regulation S transaction.

Vigor is one of Brazil's largest nationally owned conglomerates in the dairy and vegetable oil products segments.

Elsewhere Mexico's Ixe Banco SA sold a $100 million offering of non-cumulative subordinated perpetual securities (//B+) at par to yield 9¾%.

Goldman Sachs was the bookrunner for the Rule 144A and Regulation S deal.

Ixe Banco is the retail banking arm of Ixe Grupo Financiero, which is a Mexico City-based bank offering multiple financial services.

Still basking in Bernanke's comments

Emerging market debt continued to tick higher Friday as credits remained well bid amid an abbreviated trading session in the United States ahead of the long holiday weekend.

On Wednesday, emerging markets rallied in response to congressional testimony by Federal Reserve chief Ben Bernanke, who said that U.S. growth was on track while inflation was expected to moderate gradually.

On Thursday, the Fed chief tempered his outlook in his second congressional appearance, warning that price pressures were still a concern for the central bank and that investors may be underestimating the growth of the U.S. economy. Nonetheless the market still held on to the belief that an interest rate cut in 2007 is in play.

Since Wednesday, the asset class has seen somewhat more muted gains. But on Friday, hopes of an interest rate cut were supported by the release of U.S. economic data such as housing starts in January, which fell short of expectations.

That helped the debt market move higher, although it remained range-bound, noted a market source.

Among benchmark names, the Argentinean discount bond due 2033 was up 0.25 to 115 bid, 115.50 offered. The Brazilian bond due 2040 edged up 0.10 to 133.75 bid, 133.80 offered. The Russian bond due 2030 increased 0.13 to 113 bid, 113.25 offered. And the Turkish bond due 2030 crept up 0.13 to 153.625 bid, 154.125 offered.

Asia firm ahead of festivities

Turning to Asia, a trader in Asian debt said that with the upcoming Chinese (Lunar) New Year upon it, "the market was very quiet. We've got two days of holidays on Monday and Tuesday for the New Year, so the market was winding down pretty early in Asia."

He also noted the confluence of the Lunar New Year with Carnival, which will likewise close Brazil and quiet other Latin American markets, and the long President's Day holiday weekend in the United States, remarking that activity in the run-up to the holiday triple-header "has been pretty thin."

He said that the overall tone in his market was firmer, albeit perhaps with a little bit of profit-taking here and there but generally, "there was little to report."

Looking at the sector's sovereign benchmark issues, the Philippines and Indonesia, the trader said that "they're trading with a reasonably firm tone - but with [U.S.] Treasuries having rallied so much in the last two or three sessions, we have lagged a bit on a spread basis." However, he added that "overall, things are trading reasonably well."

ICICI tighter

In the corporate realm, he remarked on the sale of a $500 million offering of five-year floating-rate notes by ICICI Bank UK plc, the British unit of Indian bank ICICI Bank Ltd.

The new bonds, he said had tightened by 4 or 5 basis points, to Libor plus 58-56 bps.

MagnaChip up again

High-yield traders in the United States, meantime, saw MagnaChip Semiconductor Ltd.'s bonds continuing to improve, with the Korean-based computer chip manufacturer's 8% subordinated notes due 2014 at 73 bid, 74 offered and its 6 7/8% senior notes due 2011 at 87.5 bid, 88.5 offered, which one trader called up a point on the session "in pretty decent volume for them," while another trader noted that the bonds were up 2½ to 3 points on the week.

The first trader attributed the recent rise in the company's bonds to "short-covering, and a little bit of good news." Among that good news was signs of strength in the junk market's high-tech sector, including such names as Amkor Technology Inc., and Freescale Semiconductor, as well as investor optimism about the prospects for Korean electronics manufacturer (and MagnaCip customer) LG Electronics. MagnaChip had its own good news this past week, announcing several product launches.

LatAm range-bound

In the Latin American market, a trader said that he "couldn't tell you one exciting thing that happened," other than the pricing of IXE Banco's deal. He said that after pricing at par, the Mexican bank's 9¾% notes moved up by 2 points in aftermarket dealings.

Also seen firming after breaking into the secondary market was Brazilian issuer Vigor SA, whose 9¼% notes due 2017 firmed by ¾ point to a full point from their par issue price. However, he said that the issue was "not very active - it was too small [$100 million] a deal."

Sovereign debt issues were unchanged on a spread basis "pretty much across the board," he said. "There was nothing going on - nothing moved - nothing exciting."

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