Pemex prices CHF 150 million tap; Alliance Oil plans dollar deal; EM funds lose $700 million

By Paul A. Harris

St. Louis, Feb. 11 - With the major U.S. stock indexes all posting healthy gains on Thursday, emerging markets debt was slightly better at the close of the New York day, according a syndicate banker.

United Mexican States' 5 1/8% global notes due 2020 (Baa1/BBB/BBB) went out at 100.15 bid, after having lagged below par for days, the banker said.

Mexico priced $1 billion of that 10-year paper at 99.037 to yield 5¼% on Jan. 11.

And cash continues to flow into the asset class.

Investors committed nearly $700 million to emerging markets bond funds during the most recent week, according to fund-tracking service EPFR Global.

Pemex adds on CHF 150 million

In the primary market, Petroleos Mexicanos (Pemex) priced a CHF 150 million add-on to its 3.5% notes due Oct. 13, 2014 (Baa1/BBB/BBB) at 102.151 to yield 2.993%, on Thursday.

Credit Suisse ran the books.

The add-on increases the size of the issue to CHF 500 million.

Alliance Oil lines up dollar deal

Meanwhile, Russia's Alliance Oil Co. Ltd. (/B+/B) mandated BNP Paribas, Credit Suisse and JPMorgan to lead a benchmark-sized dollar-denominated offering of Rule 144A and Regulation S global bonds.

An international roadshow starts Tuesday in London.

Asia quiet but firm

At the close of the Asian session, the market there was quiet but firm, according to a Singapore-based trader.

The overwhelming driver is the reduction of hedges in the market, so there has been a relief rally of sorts, the trader said. But he added that the gains have been primarily technically driven as short covering, rather than the result of new risk being put into the market.

Investors remain warily focused on the European Union, the source added. There is some expectation that a near-term fix is on the way, however the chance for disappointment remains high.

E.U. finance ministers and central bankers appear poised to "kick the can down the road," the trader remarked.

Market improvement hinges on that can getting a good kick, as well as some capitulation on the part of the hedges before investors start putting on risk in a meaningful way.

One factor that could come to bear is that presently the dealer community in Asia is fairly light.

"Any positive change in sentiment would probably help to push credit into an overbought territory," the source asserted.

In any event, the Chinese New Year will be celebrated next Monday and Tuesday, so activity will likely dry up early on Friday.

Europe a bit dodgy

Later, after the European close, a senior capital markets banker conceded that all the noise in the European sovereign market was making things a bit dodgy in many of the credit classes.

Nevertheless, the debt capital markets remain open, even if they don't presently favor issuers.

There are companies that need to raise cash, said the banker.

"They're just going to have to suck it up."

Getting a deal done, against the backdrop of euro-squeamishness, is a delicate process, the banker said.

"Last year getting a deal done was like shooting fish in a barrel," the source recalled, adding that more finesse is now required, given the current circumstances in Europe.

The two most important factors are resisting the temptation to jack up deal size when the order book seems to dictate that you could do so, and pricing a deal with an eye to its performance in the secondary market.

A case in point was the late January deal from Russia's TNK-BP Finance, the banker said.

To recap, TNK priced a combined $1 billion of fixed-rate notes (Baa2/BBB-/) in a two-part transaction: a $500 million tranche of 6.25% five-year notes at 99.157 to yield 6.45%, and a $500 million tranche of 7.25% 10-year notes at 98.263 to yield 7.5%.

Barclays Capital, Calyon Securities and RBS managed the deal.

The new TNK 6.25% notes were at 100.36 bid, 100.51 offered, up a point, at the Thursday close in Europe.

The 7.25% notes were at 99.2 mid, up a point.

"There were 700 accounts in the book," said the banker, adding that the underwriters could have easily pushed both the size of the deal and the price.

"The bonds are hanging in there because they were well placed among a global, diversified investor base, and no fast money," the source asserted.

"If the underwriter tries to get cute, and brings the deal too tight, the market pukes it out.

"And in this market, once that happens, the deal just doesn't seem to recover."

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