Kosep, Dominican Republic, MCC Holding sell bonds; Greek deal, U.S. talks spur volatility

By Christine Van Dusen

Atlanta, July 22 - Korea South-East Power Co. (Kosep), the Dominican Republic and MCC Holding (Hong Kong) Corp. Ltd. sold notes on Friday as emerging markets investors and issuers were at first encouraged by the agreement on a bailout plan for Greece.

"News overnight that the E.U. has agreed to further measures to address the sovereign debt crisis has provided further support to risk assets," according to a report from RBC Capital Markets. "External debt spreads have shown little change, after what was a modest rally late in the U.S. trading session."

The JPMorgan Emerging Markets Bond Index plus spread was holding at Treasuries plus 271 basis points, about 20 bps tighter since the start of the week.

"All in all, it's been a good week," a trader said.

The Greek deal will provide more than €100 billion in financing for the sovereign, with about €37 billion from private sector bondholders. Officials are expecting about 90% of these bondholders to voluntarily participate.

That last detail - along with uncertainty about the United States' debt talks - had some market-watchers a little bit worried on Friday and managed to dampen enthusiasm toward the end of the New York trading day.

"This is almost surreal. The E.U. finally proposes the default terms for Greece and manages to not actually include the word 'default,'" a London-based trader said. "What I don't get in this wave of resulting euphoria is where the magic 90% participation rate comes from. What about the mess the remaining 10% of holdouts can create, and is the reduction in debt stock meaningful? But anyway, the sun is shining, so there's no time for bearishness."

Dominican Republic prices tap

In its new deal, the Dominican Republic priced a $500 million add-on to its existing 7½% notes due May 6, 2021 at 103.545 to yield 6.95%, or Treasuries plus 393.5 bps, a market source said.

The notes - via Barclays Capital and JPMorgan in a Rule 144A and Regulation S deal - were talked at the low 7% area.

Proceeds will be used to fund infrastructure projects and provide economic support to other sectors of the economy.

The issue size now totals $1.25 billion.

Kosep sells notes

In another new deal, Korea South-East Power, a unit of Korea Electric Power Co., sold $300 million 3 5/8% notes due Jan. 29, 2017 to yield Treasuries plus 225 bps.

The notes priced at the low end of talk, which was set at Treasuries plus 225 bps to 230 bps.

Citigroup, Goldman Sachs and Morgan Stanley were the bookrunners for the Regulation S deal.

This followed the July 13 news that Kosep was abandoning a similar offering, which was talked at Treasuries plus 230 bps.

MCC Holding prices tap

The day also saw Beijing-based construction and engineering services company MCC Holding (Hong Kong) sell $500 million 4 7/8% notes due July 29, 2016 at 99.405 to yield 5.011%, or Treasuries plus 350 bps, a market source said.

The notes priced below talk, which was set at the Treasuries plus 375 bps area.

Morgan Stanley, HSBC, Barclays Capital and Goldman Sachs were the bookrunners for the Regulation S deal.

The notes are guaranteed by China Metallurgical Group Corp.

Proceeds will be used for working capital, to refinance short-term loans, for capital expenditures and for general corporate purposes in the company's overseas operations.

Usina Vista sets guidance

In other deal-related news, Brazil-based sugarcane grower and sugar and ethanol producer Usina Vista Alegre set price talk for its planned issue of $150 million to $200 million seven-year notes at the 11% area, a market source said.

BTG Pactual is the bookrunner for the Rule 144A and Regulation S deal.

The notes are non-callable for four years.

And Chennai, India-based lender Indian Bank has postponed its plans for $500 million to $1 billion medium-term notes due to investor response, a market source said.

Citigroup, HSBC, RBS and Standard Chartered were the bookrunners for the deal.

Proceeds were to be used to fund the bank's international operations and for general corporate purposes.

South Africa a good bet

Overall, the situation in the euro zone remains fragile, and further market volatility could have an impact on emerging markets assets, according to a report from Barclays Capital Markets.

"However, traditional risk measures show little signs of stress, and for EM markets, our generally positive medium-term fundamental outlook and helpful technicals should offer support," the report said.

Analysts from the bank are recommending investors take a look at South Africa, particularly the long end.

"Yields are among the highest in the major EM local markets, sovereign debt metrics are among the strongest, and the path of future inflation relative to target is one of the least challenging in the major EM economies," Barclays said. "We like the 10-year bonds, which are trading cheaper to swaps versus the shorter tenor instruments and, at the same time, should be less sensitive to changes in expectations around the start of the hiking cycle."

Looking at Latin America, the situation is "convex," Barclays said.

"With emerging Europe, the Middle East and Africa tighter and Asia dogged by numerous headwinds that have the potential to worsen, we view longs in LatAm as relatively convex positions," the report said. "Year-to-date underperformance leaves less room for disappointment should the sovereign crisis and U.S. debt negotiations and growth concerns intensify, while leaving enough room for spread performance should risk appetite build."

Russia corporates in demand

In trading, Russia's corporates, including Vimpelcom and Metalloinvest, saw good demand.

"The Middle East and North Africa are also firm, with more buying of International Petroleum and Qtel International," a trader said.

The new deal from Cairo-based African Export-Import Bank (Afreximbank) - an issue of $500 million 5¾% notes due 2016 that priced at par - opened Friday at 101.50 bid, 101.65 offered.

"It's all very firm," he said.

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