Payroll numbers cause some risk aversion, muting activity; Cordoba, Olam price new notes

By Christine Van Dusen

Atlanta, Aug. 6 - Disappointing jobs data out of the United States suppressed investors' risk appetite and led to a muted tone on Friday for emerging markets, though the impact of the numbers was not as pronounced for debt as it was for equities.

The news that private sector payrolls rose less than expected in July and total non-farm payrolls fell by 131,000 during the month sent the S&P 500 index down 9 points while yields on 10-year Treasuries dropped 4 basis points on Friday morning before falling another 4 bps by the end of the day.

"The payroll numbers came in weaker than expected, and in general there seems to be a little bit of pullback in the market," a source said.

Cordoba, Olam price notes

In response, very few issues came to market on Friday.

Cordoba priced $400 million seven-year notes at par to yield 12 3/8%, according to an informed market source.

Citigroup and UBS were the bookrunners for the Argentinean province's Rule 144A and Regulation S deal, which was talked at a 12½% yield.

"That was baked as of yesterday," a market source said.

Singapore-based Olam International Ltd., a supply chain manager and processor of agricultural products and food ingredients, priced $250 million 7½% notes due 2020 at par to yield Treasuries plus 458.9 bps, according to an informed market source.

HSBC and JPMorgan were the bookrunners for the Regulation S deal.

Meanwhile, Singapore's Jasper Explorer Ltd. announced the pricing of $75 million senior secured second-lien notes. The deal was upsized from $65 million "due to strong take-up by investors," the company announcement said. The notes, via DnB NOR Bank ASA and Pareto Securities, were "fully subscribed."

Other pricing data was not available on Friday.

Proceeds will be used to pay for costs associated with upgrading the Neptune Explorer and for working capital. Surplus proceeds will be used for acquisitions.

Venezuela in focus

"There's really not too much activity going on in EM today," a market source said.

Market-watchers were whispering about a possible $500 million eurobond issue from Ukraine's UkrSibbank and, from Venezuela, a potential local market issue of $3 billion bonds.

The Venezuela issue would come at a somewhat tumultuous time for the sovereign. Recently Venezuela cut off diplomatic ties with Colombia after that country claimed Venezuela was harboring guerilla groups. Then Venezuela president Hugo Chavez threatened to cut off oil supplies to the United States if Colombia attacked Venezuela.

Now, with a new president preparing to take office in Colombia, Chavez showed signs of warmth by saying his foreign minister might attend the inauguration. He also threatened to stand in the way of the U.S. nominee for ambassador in Caracas.

Venezuela also may reduce some restrictions on corporate access to the currency market after Chavez closed the unregulated market, a source said.

Deals wait in pipeline

Other deals in the pipeline include a $175 million issue of bonds from Philippines-based toll operator Coastal Road Corp. via Bank of America Merrill Lynch and Standard Bank, and senior notes from Chinese property developer KWG Property Holding Ltd. with Morgan Stanley and Standard Chartered.

"August tends to be a more quiet period for EM new issuance, so I would expect a little bit of a slower pace throughout the month," a source said. "I think we will see some stuff next week, but just not at the pace we saw in July."

If the backdrop remains "decent, I would think things will pick up again in September," he said. "We've got a few things, but nothing specifically that we can disclose."

Spreads widen slightly

Overall the ripple effect of the economic numbers was fairly well contained on Friday.

"It wasn't an absolute disaster," a market source said. "You don't get the sense that this is going to derail the markets or anything like that."

The effect on emerging market debt was "rather muted," he said. "Net-net we're probably a little bit wider, but it's not a very pronounced move."

Five-year credit default swaps, in general, were "slightly wider" on the payroll report, he said. "But credit has been rather resilient."

CDS for Brazil and Mexico were "basically unchanged on the day," he said. "So I think credit is probably outperforming equities a little bit here."

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