Emerging market debt immune to equities plunge; Panama issues $1.363 billion new bonds in swap

By Reshmi Basu and Paul A. Harris

New York, Jan. 18 - Emerging market debt continued to remain resilient Wednesday even in the face of a global equities meltdown.

Meanwhile the Republic of Panama announced it will issue $1.363 billion in new 6.7% amortizing global bonds due 2036 in its Dutch auction exchange offer.

The new bonds were priced at 98.418. Panama accepted $1.062 billion of existing global bonds maturing in 2020, 2023, and 2034.

In primary news, Kazakhstan's Bank TuranAlem, issuing via its special-purpose vehicle BTA Finance Luxembourg SA, sold $400 million of hybrid tier 1 perpetual preferred securities (Baa3/B-/B+) at par to yield 8¼% via Credit Suisse and ING.

Elsewhere, Brazil's Cosan Industria e Comercio SA set price guidance for a maximum $250 million offering of perpetual bonds (Ba2/BB) at the 8½% area.

Credit Suisse, Morgan Stanley and Deutsche Bank are running the deal.

Late Tuesday, National Gas Co. of Trinidad and Tobago Ltd sold $400 million of 30-year bonds (A3/BBB+) at 99.617 at a spread of Treasuries plus 158 basis points.

The bonds were spotted at Treasuries plus 155 basis points bid, 150 basis points offered in trading, according to a source.

Citigroup and Lehman Brothers were joint bookrunners for the Rule 144A/Regulation S deal (with no regulation rights).

EM resilient despite equities scare

During Wednesday's session, emerging market debt held on even as global equity markets tumbled.

The U.S. equity market was smacked Wednesday on the back of a furious sell-off in Tokyo and disappointing earnings reports from Intel Corp. and Yahoo! Inc.

The Dow Jones Industrial Average slipped 41 points to 10,854 points while Nasdaq slumped to a two-week low, losing 23 points to 2,279.

At the start of Wednesday's session, the debt market looked to mimic the equities sell-off but later shrugged off the pressure, according to a buyside source.

"Initially, it sold off in the morning [London time] and then New York took everything higher," commented the source.

"It looks like nothing happened. We're actually tighter on the day."

The JP Morgan EMBI+ narrowed by three basis points, according to a market source.

In late trading, the Brazilian bond due 2040 was spotted at 129.85 bid, 129.95 offered, down 0.20. The Russian bond due 2030 was quoted at 113.063 bid, 113½ offered, up half a point. The Venezuelan bond due 2027 was seen at 122.60 bid, 123.10 offered, up 1.10 points.

"We had a fair amount of activity," remarked a trader.

"Prices are a little bit higher than yesterday's [Tuesday] levels and [EM] has taken volatility in external markets relatively well," he added.

EM flows provide resistance

One reason why emerging markets have proven resilient is that investors see the asset class as appealing, noted the trader, who added that emerging markets continues too see cash being put to work.

EmergingPortfolio.com Fund Research reported that for the week ending Jan. 11, emerging market bond funds had their best week since early March 2005 with $388.5 million of inflows.

That inflow story is buffering emerging markets from external volatilities, the buyside source commented.

"As long as there's money coming into emerging markets, we're going to be fine," noted the source.

"Until election volatility kicks in, we're going to be in good position if indeed these inflows materialize.

"I think that's the risk I see here, maybe inflows will not be as high as everyone expects."

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