Lukoil, Pacnet price on mixed day for emerging markets; Qatar National Bank paper on tap

By Christine Van Dusen

Atlanta, Oct. 29 - Emerging market investors remained cautious ahead of the Nov. 2-3 meeting of the Federal Reserve's Federal Open Market Committee and reigned in their excitement about financial policy change in Argentina on a Friday that saw just Russia's OAO Lukoil and East Asia's Pacnet pricing notes.

The day was somewhat "weaker" and "mixed," a Toronto-based market source said, due in part to continued uncertainty related to whether next week's meeting of the Fed will result in further quantitative easing.

Given that the discussion of QE is "already mature," having gone on for many days now, "the short-term risks are for some disappointment," according to a Barclays Capital Emerging Markets Research report.

"However, in the medium term, the diversification of flows are likely to continue to push EM currencies higher, and EM credit, perhaps more so than local bonds, is likely to remain well supported by favorable liquidity conditions."

Chile in focus

Word that Chile's central bank would not likely institute any capital controls - something that was believed to be an immediate threat - inspired "a little more optimism" early in the day, a source said.

But "toward the end of the day we got back toward flat," he said.

In the secondary market, where many of the recent new issues haven't been faring as well as expected, the new $1 billion 3¾% notes due 2020 from Santiago, Chile-based copper company Corporacion Nacional del Cobre de Chile (Codelco) were "doing quite strongly" at the start of the day, the Toronto-based market source said.

The notes priced this week at 98.239 to yield 3.965%, or Treasuries plus 130 basis points.

"Then there was some profit-taking on new bonds," he said.

Smaller rally for Argentina

Argentina's assets continued to benefit from the news that the death of former president Nestor Kirchner might fracture president Cristina Fernandez Kirchner's power base and decrease the chance that she will run for re-election, a move that could attract market-friendlier candidates to the race.

"Argentina continued to rally, though it was much more muted than yesterday and the day before," a source said. "Spreads on five-year credit default swaps are between 10 and 15 bps tighter, [the] same for Venezuela."

The rest of Latin America's spreads were "generally flat," he said.

Overall, it's a "mixed bag," a source said. "It's a day with no clear direction. There doesn't seem to be any clear driver. People are just thinking about the weekend."

Lukoil, Pacnet price notes

In the primary market, Russia-based energy company Lukoil priced $800 million 6 1/8% senior notes due Nov. 9, 2020 at 99.081 to yield 6¼%, or Treasuries plus 362.3 bps, a market source said.

RBS, Barclays Capital and ING were the bookrunners for the Rule 144A and Regulation S deal, which was talked at a yield in the 6¼% area.

And East Asia-based submarine cable network operator Pacnet priced $300 million 9¼% notes due Nov. 9, 2015 at par, a market source said.

Credit Suisse, Barclays, DBS and Standard Chartered were the bookrunners for the Rule 144A and Regulation S deal, which was talked at a yield in the 9 3/8% area.

This followed the late Thursday pricing of Russia-based lender Sberbank's CHF 400 million 3½% notes due Nov. 12, 2014 at par to yield mid-swaps plus 248.5 bps.

RBS and Troika were the bookrunners for the deal, which was marketed on a roadshow from Oct. 20 to Oct. 22.

Also pricing late Thursday was Russia-based diamond mining subsidiary Alrosa Finance SA's $1 billion 7¾% notes due Nov. 3, 2020 at par, a market source said.

JPMorgan, UBS and VTB Capital were the bookrunners for the Rule 144A and Regulation S deal.

Maquinaria postpones roadshow

In other deal news on Friday, Mexico-based Maquinaria Especializada MXO Trust suspended its roadshow for a planned offering of about $160 million in bonds due 2020 due to a scheduling conflict, a market source said.

The roadshow coincided with the earnings call for Mexico City-based homebuilder Corporacion GEO, for which Maquinaria Especializada is a special purpose vehicle.

The notes, via Santander, are still expected to price during the Nov. 1 week in a Rule 144A and Regulation S transaction.

Also on Friday, Brazil-based Odebrecht Drilling Norbe VIII/IX Ltd. mandated Santander, HSBC, Deutsche Bank and BB Securities as joint bookrunners for a $1.5 billion issue of 10-year notes, a market source said.

The Rule 144A and Regulation S offering will be launched following a roadshow from Monday to Nov. 5 in London, New York, Boston, Singapore and Hong Kong.

Proceeds will be used to refinance existing debt related to the construction and operation of two deepwater drill ships chartered to Petroleo Brasileiro SA under 10-year agreements.

Roadshows ahead

Also tapping bookrunners was Qatar National Bank, which mandated Barclays Capital, BNP Paribas, JPMorgan, QNB Capital and Standard Chartered for a benchmark-sized offering of dollar-denominated notes, a market source said.

The Regulation S-only transaction is expected to launch following a roadshow starting Wednesday and traveling through Asia, Europe and the United Kingdom.

Also planning a roadshow is Abu Dhabi-based oil industry investment company International Petroleum Investment Co., which will set out on a marketing trip starting Oct. 31 for a benchmark-sized offering of bonds, a market source said.

Goldman Sachs, Bank of America Merrill Lynch, HSBC, National Bank of Abu Dhabi, Standard Chartered and RBS are the bookrunners for the deal.

The roadshow will take place in the United Arab Emirates, Asia, Europe and the United States.

Kazkommertsbank whispered

And Kazakhstan-based lender Kazkommertsbank's planned offering up to $2 billion in seven-year notes was whispered to yield in the high 9% area, a market source said.

JPMorgan and UBS are the bookrunners for the Rule 144A and Regulation S deal.

Market-watchers were also talking about a possible $568 million seven-year bond from Ukraine for financing infrastructural projects.

A Rule 144A and Regulation S deal could come at a yield in the low 8% area, a New York-based trader said.

Brazil finds oil

Also attracting attention on Friday was the news that the Libra offshore oil field in Brazil may contain as much as 16 billion barrels of recoverable oil, a "significant find" given that previous estimates were closer to 8 billion, a market source said.

It's "the largest oil find in the Americas in over 30 years," according to an RBC Capital Markets report.

"The discovery of new mega oil fields in Brazil will continue to act as a positive catalyst for economic growth prospects in years to come and underpins our view that growth will remain above potential," the report said.

During the next five years this should drive "strong investment" and "capital flow," as well as "a strong real appreciation of the currency" that will keep interest rates elevated and attract "large flows," RBC said.

The immediate impact of the news was not felt in the markets on Friday, said RBC debt strategist Eduardo Suarez.

"It's positive news, but in corporate bonds it's hard to tell whether there's a clear trend" related to it," he said. "We need to give it a couple more days, to see the impact."

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