Emerging markets still slow on Greece worries; BESI prices; local currency funds' flows lag

By Christine Van Dusen

Atlanta, March 19 - Investors continued to be shaken on Friday by conflict among European leaders over what to do about Greece's problems with debt repayment and a budget shortfall, and that kept emerging markets moving at the same slow pace seen throughout the week, market sources said.

"Emerging markets were softer in line with the global souring and markets as well as the recent dollar gains," an emerging market strategist said. "Despite the gains we saw in the Dow it seems as though uncertainty is being driven by events in Europe, specifically related to Greece."

European finance ministers met this week to discuss Greece's issues and ended up disagreeing about whether to provide the sovereign with a bailout package via the European Union and/or the International Monetary Fund.

"So there's a little bit of fear out there," a London-based trader said. "Generally the picture is weakening a bit."

Once the situation in Greece clears up, market-watchers expect to see emerging markets activity improve. On the radar screen is Brazilian refractory supplier Magnesita Refratarios SA's planned dollar-denominated notes due 2020, which roadshow until Wednesday. Also upcoming is Terphane Inc's planned $90 million notes due 2017. The polyester films manufacturer based in New York and Brazil started a roadshow on March 15.

Secondary 'too quiet'

In the secondary on Friday, it was "too quiet," the trader said as the European close neared. "From the gun this morning, there's been about 20% of the prices you expect to see out there, and it's drifting lower. It's as if we've started the weekend early. That's really the picture. It's like a half-holiday."

Still, the JP Morgan Emerging Markets Bond Index Global "is only down 0.14%, which is not much, just 3 basis points," the strategist said. "Meanwhile spreads have compressed because Treasuries have come down, so it's not such a big deal, at least from the emerging markets perspective. Not yet, anyway."

After Thursday's pricing of Brazil-based banking company BES Investimento do Brasil SA's $500 million 5.625% bonds due 2015 at 98.93 to yield 5.875% or 346.3 basis points over Treasuries, the primary market was largely silent on Friday.

"It's been a deathly day," the trader said. "There's hardly any pricing around. It's very, very quiet."

Russia prepares bonds

The only activity, he said, was the announcement of a roadshow in New York on April 21 and 22 for Russia's planned issue of euro-denominated bonds. It's the sovereign's first eurobond in more than 10 years and could have a 30-year maturity.

"This deal has been discussed for months now," the London-based trader said. "That's a growing story."

Also on Friday, data tracker EPFR Global released a report showing that February was the best month in two years for emerging markets local currency bond funds. So far this month, however, the funds have seen their share of flows fall below that of their hard currency counterparts.

BESI prices bonds

Brazil's BES Investimento do Brasil SA priced $500 million 5.625% bonds (Baa2/BBB-/) due 2015 at 98.93 to yield 5.875% or 346.3 basis points over Treasuries, according to a market source.

Deutsche Bank, ES Investment and Standard Bank were the bookrunners for the Rule 144A and Regulation S offering, which includes a change-of-control put at 101% if BESI Portugal ceases to control BESI Brazil.

The deal easily beat price talk of 6% to 6 1/8%.

BESI is a banking company based in Sao Paulo.

Russia roadshows

The Russian Federation is roadshowing a planned issue of euro-denominated bonds on April 21 and 22 in New York, according to a market source.

VTB Capital, Citi, Barclays and Credit Suisse are the bookrunners for the deal, which would be the sovereign's first eurobond in more than a decade, according to a press release from the Finance Ministry.

The Finance Ministry has said it was considering issuing ruble-denominated eurobonds and bonds with a 30-year maturity.

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