Emerging market debt sees constructive tone; more issuers add to pipeline

By Reshmi Basu and Paul A. Harris

New York, Sept. 18 - Emerging market debt traded in tight ranges Monday ahead of this week's Federal Open Market Committee meeting.

In the primary market, several new issuers added to the pipeline.

From Mexico, transport company Grupo Senda Autotransporte SA de CV is marketing its $200 million offering of 10-year senior notes (/B+/B) on an investor roadshow this week.

The Rule 144A and Regulation S offering via Citigroup is expected to price next week.

The notes will come with five years of call protection and a three-year 35% equity clawback.

Also hitting the road this week, the Republic of Seychelles will begin marketing a $200 million offering of five-year notes via Bear Stearns & Co. and Lehman Brothers.

Elsewhere, Korea Highway Corp. plans to issue €400 million of senior unsecured notes due 2016 (A3).

Deutsche Bank Securities, JP Morgan Securities and UBS Investment Bank are lead managers for the issue, which will be priced off the issuer's multi-currency medium-term notes program.

And two corporates issued price talk. Krung Thai Bank PCL set price guidance for a $200 million offering of perpetual hybrid tier I securities (Ba1/BB+/BBB- expected) at mid-swaps plus 200 to 210 basis points.

The deal will have a step-up after 10 years. If not called, the coupon changes from a fixed to a floating rate.

Merrill Lynch is the bookrunner for the Regulation S transaction, which is being issued through the issuer's Singapore branch.

And turning to Brazil, petrochemical company Braskem SA set price talk for a $200 million minimum offering of fixed-rate senior unsecured notes due 2017 (BB/BB+) at 8 1/8%.

The ultimate size of the issue depends upon the results of the company's tender for its $275 million of 12½% notes due 2008.

ABN Amro and Citigroup are leading the Rule 144A/Regulation S offering.

Standstill ahead of Fed meeting

Investors are expecting zero surprises at Wednesday's rate setting meeting, since the odds are stacked in favor of the Federal Reserve keeping short-term lending costs unchanged. That argument was further reinforced by Friday's benign Consumer Price Index data.

Instead, the market's focus will be on the accompanying statement as investors look for clues as to how long the current monetary pause will last.

In anticipation of the Fed meeting, U.S. Treasury and stock markets saw quiet and softer sessions on Monday, which meant that emerging markets lacked any triggers to move in one direction or another.

However, market sources noted that the overall tone was constructive if uneventful.

"Brazil is a tad higher," noted a trader. "But overall, it's been pretty slow," he added.

In trading, the Brazilian bellwether bond due 2040 gained 0.10 to 130.30 bid, 130.35 offered.

Additionally, emerging markets saw light trading volumes, as many investors are in Singapore for the International Monetary Fund meeting, noted a market source.

Meanwhile another trader saw Mexico's debt trading down on the back of lower U.S. Treasures. In activity Monday the Mexico bond due 2026 gave up 0.25 to 157.76 bid. 158.50 offered.

Ecuador down again

Ecuador continued to under-perform the market on election uncertainty. This week will likely see more volatility as presidential hopeful Rafael Correa is expected to see more support in this week's polls.

Correa's market unfriendly populist platform has scared off investors, but in turn has captured support among voters.

During the session, the Ecuadorian bond due 2012 lost one point to 100.25 bid, 100.75 offered.

In other news, the Philippines emerged as the winner of the session, as the country recorded a budget surplus of 14.3 billion pesos in August.

In trading, the Philippines bond due 2025 added 0.25 to 132.75 bid, 133.37 offered.

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