Emerging market debt up on equities; Uruguay reopens 2022 bonds

By Reshmi Basu and Paul A. Harris

New York, July 24 - Emerging market debt moved higher Monday, following a rally in the U.S. equity market.

In the primary market, the Republic of Uruguay reopened its 8% bonds due 2022 (B3/B/B+) to add $500 million in a drive-by Monday via Citigroup and UBS Investment Bank.

The reopening, which was increased from $300 million, priced at 94.546 to yield 8.05%.

The deal came in tighter than price guidance, which was set in the area of 8.10%.

This marks the second time that Uruguay has reopened the 2022 bonds.

On Jan. 24, the country added $500 million in the retap, which priced at 104½ to yield 7.52%.

On Nov. 15, Uruguay priced the original $200 million issue at 98.237 to yield 8.20%.

The latest addition brings the total size of the issue to $1.2 billion.

A buyside source noted that the country is taking advantage of stability in the market.

"I expected more Latam issues to tap in the next week," he said.

Also announcing a deal Monday was the Argentinean branch of Pan American Energy LLC (Ba3/BB-), which plans to issue $250 million of 51/2-year amortizing bonds, according to a market source.

The oil and gas exploration production company will use proceeds for general corporate purposes.

Citigroup and JP Morgan are joint bookrunners for the Rule 144A and Regulation S transaction.

An investor roadshow is expected to take place in Argentina, Europe and the United States.

EM scores positive session

Emerging market debt fed off a rally in U.S. stocks Monday, which were buoyed by news that an investor group would purchase the HCA Inc., the largest hospital chain in the United States, for $21 billion. Stronger-than-expected earnings from major pharmaceutical companiess also helped the Dow Jones Industrial Average index post triple point gains.

The upswing in emerging markets comes after Friday's lukewarm trading session as U.S. stocks and Treasuries ended the session lower.

A trader described Monday's session as "quiet and upbeat."

Both external and local markets in Latin America saw support, he said, adding that the Brazilian and Mexican currency markets were higher on the day.

On the external side, the bellwether Brazilian bond due 2040 added 0.35 to 127.35 bid, 127.45 offered. The Argentinean discount bond due 2033 gained 0.80 to 93.10 bid, 93.75 offered. And the Venezuelan bond due 2027 was higher by 0.70 to 122.15 bid, 122.65 offered.

During Monday's session, the JP Morgan EMBI Global index narrowed two basis points to 202 basis points versus U.S. Treasuries. The asset class has since narrowed 14 basis points from a week ago, according to a market source.

Additionally, the market is now nearing the 200 basis point barrier, something it has not crossed since May 17.

Nonetheless, the trader warned that the market is still not in the clear and that many investors will continue to remain on the sidelines.

"There's still a lot of geopolitical risk out there. Oil [prices] are volatile," he said.

"And valuations are still tight."

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