S&P one-step upgrade for Brazil brings out sellers; Eskom sells €500 million eurobonds

By Reshmi Basu and Paul A. Harris

New York, Feb. 28 - Emerging market debt nudged lower Tuesday on the back of a disappointing upgrade of just one notch for Brazil by Standard & Poor's.

In the primary market, South African electricity company Eskom Holdings Limited sold a €500 million offering of eurobonds (A2/BBB+) at 99.694 to yield 64.9 basis points more than euro-bund futures (DBR).

Calyon and JP Morgan and were lead managers for the Regulation S transaction.

Hong Kong aluminum producer Ocean Grand Holdings, Inc. priced a $35 million add-on to its guaranteed secured notes due Dec. 7, 2010 (BB-) at 102.859 on Tuesday, resulting in a yield of 8 ½%.

The add-on notes priced on top of the 8 ½% price talk.

ABN Amro ran the books for the Regulation S add-on.

The original $125 million issue priced at 99.51 on Nov. 30, 2005 to yield 9 3/8%, bringing the total issue size to $160 million following Tuesday's tap.

Over to Indonesia, property developer PT Lippo Karawaci Tbk sold an upsized offering of $250 million in five-year fixed-rate bonds at par to yield 8 7/8%.

The deal, increased from $200 million, came at the tighter end of price guidance of 9% area.

UBS Investment Bank was the bookrunner for the Regulation S offering.

In more news out of Indonesia, the sovereign's dollar-denominated benchmark fixed-rate sovereign bond offering (B2/B+) will feature a 2017 tranche as well as a longer-dated tranche with a maturity that will be determined by investor demand.

Barclays Capital, JP Morgan and UBS Investment Bank are leading the Rule 144A/Regulation S offering.

And Inter RAO UES, a subsidiary of Russian state-controlled utility RAO UES, revised price talk on its $150 million offering of credit-linked notes to 7¾% to 8% from 8% to 8¼%.

The notes are expected to come with a two-year or three-year maturity.

Citigroup has the books.

Investors miffed by S&P rating upgrade

In trading, it took a disappointing ratings upgrade for Brazil to finally snap the market's recent rally.

Some investors were miffed that Standard & Poor's only lifted the country's ratings by a single notch.

The ratings agency raised Brazil's long-term foreign currency rating to BB from BB-, citing an overall improvement to the country's overall debt profile.

But the market had expected a two-notch lift, and disappointment brought out sellers, according to market sources.

"Brazil was lower on the day after the upgrade," noted a trader.

"As it came out, bonds traded up half a point. The 40s traded up to 133.90. And then a systematic sell-off, people didn't get their two-notch upgrade, so [they] had to let go of paper," he said.

Another reason why the sell-off may have occurred is because investors may be looking at double B rated corporates, noted a market source. Sentiment may now be questioning how much momentum Brazil can sustain now that the upgrade is out of the way.

Meanwhile, the trader added that with the Brazilian market closed due to the Carnival holiday, there was light volume leading up to the afternoon upgrade. But at the end of the trading session, there were decent volumes on the sell-off.

"There was some real money selling," he observed.

"Good account selling after the Brazil upgrade [who] just wanted to line up on paper. Looks like they got it right. Looks like we're closing on the lows of the day," the trader noted.

During the session, the Brazilian bond due 2040 eased 0.50 to 132.90 bid, 133 offered.

Peru weak on election worries

Elsewhere, Peru was the underperformer during Tuesday's session on election jitters.

Recent polls are showing that support for presidential candidate Lourdes Flores is waning while other presidential candidates are gaining support. Nationalist Ollanta Humala and former president Alan Garcia saw a jump in popularity in the Apoyo poll.

"Peru was down two points on political tension," remarked the trader.

"Had a lot of accounts selling and that kind of had a toll on the market."

During the session, the Peruvian bond due 2012 lost 1.05 to 115.50 bid, 116.20 offered while the bond due 2033 fell 1.75 to 121 bid, 122 offered.

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