EM spreads tighten on Friday; Banco do Brasil massively upsizes; TuranAlem hikes size, tightens talk

By Paul A. Harris

St. Louis, Jan. 13 - Friday's session saw emerging markets prices tighten trailing Thursday's sell-off.

In the primary market, information developed on a pair of perpetual deals that would seem to indicate a pronounced appetite for the paper, as Banco do Brasil SA upsized its offering to $500 million from $300 million and Kazakhstan's TuranAlem ramped up its deal to $200 million from $150 million while tightening the price talk.

And during the most recent week the emerging markets bond funds saw their biggest inflows since the last week of March 2005.

Banco do Brasil upsizes bigtime

Terms emerged Friday morning on a massively upsized $500 million perpetual deal from Banco do Brasil S.A.

The notes (Ba1) priced at par to yield 7.95%, on the tight end of the 7.95% to 8.10% price talk, which had been revised down from 8 1/8% to 8 3/8%.

Citigroup ran the books for the deal, which was upsized from $300 million.

Prices recover

One trader said Friday that trailing Thursday's sell-off emerging markets debt traded higher at the close of the week.

"The price action was a little better over the course of the morning," said the source, who focuses on Latin sovereigns.

The trader said that Brazil's dollar-denominated 11% global bonds due 2040 were seen at 130.30 bid, up from a 129.80 bid close on Thursday.

The source said that the broad market had traded up with U.S. Treasuries on Friday, but added that there were no big moves in the benchmark issues save for those of Peru, which continued to slide, the trader said, because of the rise in pre-election polls of Peruvian Nationalist Party candidate Ollanta Humala, who has been campaigning for tighter central control over Peru's energy assets.

Another source had Peru's dollar-denominated 8¾% bonds due 2033 spotted at 111 bid, 113 offered, down from the Thursday's close of 113.75 bid.

Moving in on the curve, the source had Peru's dollar-denominated 8 3/8% notes due 2016 trading in a 108 bid, 110 offered context, Friday, down from Thursday's close of 110.50 bid.

Only Peru's shortest-dated paper, the dollar-denominated 9 1/8% notes maturing in 2012 were unchanged on the session at 113.50 bid, the source added.

Positive technicals

One trader said Friday that overall emerging markets remain "pretty resilient," in part because cash is coming into the asset class.

EmergingPortfolio.com reported that for the week ending Jan. 11 emerging market bond funds had their best week since early March 2005, with $388.5 million of inflows.

That trails the previous week's $111.5 million of net inflows.

Perpetual deals

As mentioned above, a pronounced investor appetite for recent perpetual deals is suggested by information that turned up Friday on a couple of these offerings, including the upsized Banco do Brasil deal which priced at the tight end of inwardly revised price talk.

Also on Friday, BTA Finance Luxembourg SA, a special-purpose vehicle of Bank TuranAlem, Kazakhstan, upsized to $200 million from $150 million its offering of hybrid tier I perpetual preferred securities (Baa3/B-/B+) on Friday.

TuranAlem, the second-largest commercial bank in Kazakhstan, also revised the price talk, tightening it to 8¼% to 8½% from the 8½% area.

A source said that the deal is heavily oversubscribed but will not grow from the present $200 million amount.

Pricing is expected in the middle of the Jan. 16 week via Credit Suisse.

A market source told Prospect News that recently priced perpetual deals, most of them from Latin American corporate issuers, tend to be trading at significant premiums, and gave the following prices on issues which initially were priced at par:

• Braskem SA's 9¾% $150 million issue which priced in June 2005, recently seen at 107.15 bid, 108.15 offered;

• Gerdau SA's 8 7/8% which priced in a $600 million issue in September 2005, seen at 103.50 bid, 104.25 offered; and

• Banco do Estado de Sao Paulo (Banespa)'s 8.7% perpetual notes which priced in a $500 million issue in September 2005, seen at 103.375 bid, 104.25 offered.

The week ahead

In addition to the above-mentioned deal from Kazakhstan's Bank TuranAlem, at least three other dollar-denominated corporates are situated on the forward calendar as business expected to price during the Jan. 16 week:

• From Argentina, Banco Hipotecario SA's up to $100 million (upsized from $50 million) add on to its 9¾% senior secured notes due Nov. 16, 2010 (B-), via Deutsche Bank, with initial guidance of the 100.50 area;

• From South Korea, C&M Finance Ltd.'s $550 million two-part offering of senior unsecured notes (Ba2/BB+) via Goldman Sachs and Citigroup; and

• From South Africa, New Reclamation Group's €245 million offering of seven-year senior secured notes (B1/B+) via Citigroup.

A short list from Indonesia

Finally, on the sovereign front, the Republic of Indonesia (B2/B+) is expected to come to the international market with a global bond offering of at least $1 billion shortly after the Chinese Lunar New Year, which takes place Jan. 29. The deal will have a maturity of 10 years or greater.

The short list of underwriters includes Barclays Capital, JP Morgan, Morgan Stanley and UBS.

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