Primary dominates emerging markets; Peru finalizes deal; Poland, Kexim price; VTB expected

By Aaron Hochman-Zimmerman

New York, July 7 - Emerging markets traded slowly on Tuesday but were not left wanting for action as the primary pipeline continued flowing.

Tuesday's session saw final numbers on new paper from Peru, which priced $1 billion, Poland, which priced $2 billion, and on the corporate side, the Export-Import Bank of Korea, which priced $1.5 billion.

Risk appetite clearly returned in the early stages of the second half, even as trading lagged and equities provided limp support.

The flood of new supply is likely to persist, at least in the near term, a trader said.

"I guess so; you've got to expect it," the trader said when asked if more paper is coming.

Russia's VTB Capital SA announced that it will seek buyers for a bond worth CHF 150 million or more.

Meanwhile, Korea Gas Corp. planned to finish a roadshow for a dollar-denominated benchmark-sized bond offering on Wednesday.

From the major markets, equities faced another difficult day while volatility walked back over 30.00 as the VIX index increased by 1.85 to close at 30.85. The index is a common measure of market volatility.

The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

Peru, Kexim price

Peru finalized its $1 billion reopening of the 7.35% bonds (Ba1/BBB-/BBB-) due 2025 late Monday evening with a spread of Treasuries plus 343.6 basis points.

The deal finished with a yield of 6.95% and a price of 103.837.

Near the day's close, the yield was expected at 6.95% and the price near 103.3.

JPMorgan and UBS acted as bookrunners for the registered deal.

Proceeds from the sale will be used to repay Paris Club debt.

The bonds were originally issued on July 19, 2005 at $500 million and later tapped for another $750 million on Dec. 15, 2005.

Also in the primary, the Export-Import Bank of Korea priced $1.5 billion of notes due January 2015 (A2/A/A+) at 99.462 with a coupon of 5 7/8%.

Barclays, Credit Suisse, Deutsche Bank, Merrill Lynch and Morgan Stanley acted as bookrunners for the off-the-shelf deal. Samsung Securities Co., Ltd. was joint lead manager.

Proceeds will be used for general operations, including extending foreign currency loans and repayment of maturing debt and other obligations.

Kexim is a Seoul-based commercial lender.

Emerging Europe waits on Poland

"It's all Poland," a London-based trader said.

All of the energy was devoted to waiting for final numbers from Poland's new issue, which had been open since Monday.

In the meantime, the bonds traded ½ to 1 point better in the gray market, he said.

Poland priced $2 billion 10-year senior unsecured bonds (A2/A-/A-) at Treasuries plus 290 bps. The bonds priced at 99.788 with a 6 3/8% coupon to yield 6.404%.

The bonds were initially expected at $1.5 billion with a spread in the Treasuries plus 300 bps area.

Barclays, Citigroup and HSBC acted as bookrunners for the deal.

Proceeds from the sale will be used for general budgetary purposes.

On Jan. 22, Poland priced a €1 billion five-year bond at mid-swaps plus 300 bps.

In Russia, VTB Capital will issue at minimum a CHF 150 million two-year bond (Baa1/BBB/BBB) talked at a 7½% coupon and spread of mid-swaps plus 675 bps.

BNP Paribas and VTB Capital will act as bookrunners for the deal.

VTB is a Moscow-based government-run commercial and retail lender.

'Still summer' in emerging Europe

Elsewhere, "across the board, it's still poor... it's still summer," a trader said about the light volumes.

Russia's OAO Gazprom saw mild trading early, but "oil and equities are slipping now; it's the end of the day," he said.

A Gazprom spokesman confirmed that payment for June's deliveries has been received from Ukraine's national energy firm NJSC Naftogaz Ukrainy, according to reports.

Consumption was low, Gazprom said, at 33 million cubic meters per day.

However, beginning in the first week of July, consumption jumped four-fold to 120 cubic meters per day, Gazprom said.

Asia preoccupied

Asian traders were caught up in a wave of new supply from South Korea, a trader said, as Kexim priced and the Korea gas roadshow passed through New York and Hong Kong.

In the Philippines, inflation fell to 1.5% year on year in June from 3.3% in May, which is the lowest rate in 22 years, the central bank said in a statement.

The new figure lowers the year-to-date average to 5.0%, down from 5.7% in May.

The bank pointed to lower commodity and food and fuel costs for the drop.

The peso was seen trading at 48.415 to the dollar.

In China, violence continued as the minority ethnic group of Muslim Uighurs continued protests against the Han majority.

Paramilitary police forces have made arrests, fired tear gas and enforced a curfew in many areas to prevent clashes between the groups.

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