Brazil leads late-session LatAm rally, Pemex prices $750 million floater, corporate pipeline builds

By Paul A. Harris

St. Louis, Nov. 22 - After an early morning pullback, it was off to the races once again for the debt securities of Brazil, and by extension Latin America, and by extension most emerging markets sovereign debt, a trader said Tuesday.

And late in the day corporates seemed to follow, the source added.

Meanwhile Mexico's Pemex priced a quick-to-market $750 million, while terms emerged earlier in the day on a $300 million issue from Brazil's Eletrobras.

Palocci stays

Although rumors circulated early Tuesday that Brazilian finance minister Antonio Palocci, under investigation for alleged corruption by the Brazilian legislature, might resign his post, an aide to Brazilian president Luiz Inacio Lula da Silva later strongly denied that rumor.

Brazilian debt eased on the rumor and strengthened on the denial, sources said.

A trader said that Brazil opened much weaker in the morning and started creeping up a little throughout the day.

"When Treasuries traded up in the afternoon, after the FOMC minutes were released, Brazil shot up like a rocket, closed at the highs of the day," the trader said.

The trader said that Brazil's benchmark dollar-denominated 11% bond due 2040, said to be the most liquid bond in the emerging markets asset class, had eased to 122.15 bid after closing the Monday session at a historical high of just under 123.0 bid.

But the ensuing rally, driven by the Palocci news and the gains in U.S. Treasuries sent the benchmark up to 123.25 bid, 123.40 offered, a gain of a quarter on the day, and 0.80 better than the morning's lows.

Argentina, Venezuela and Colombia also were higher, the trader added.

The source spotted Venezuela's bonds maturing 2027 at 117.50 bid, 117.75 offered, "up about a quarter."

Meanwhile Colombia's bonds maturing in 2014 were 110.25 bid, 110.50 offered, also "up about a quarter."

The trader added that the rally among Latin American sovereign bonds seemed notably uniform, with nothing outperforming.

Pemex, Eletrobras price deals

Pemex Project Funding Master Trust, a trust controlled by Mexican oil company Petroleos Mexicanos, priced a $750 million issue of seven-year senior floating-rate notes (Baa1/BBB-/BBB-) at par on Tuesday to yield three-month Libor plus 60 basis points.

Morgan Stanley and HSBC ran the books for the quick-to-market deal.

Late in the day a trader spotted those par-pricing notes at 100.10 bid, 100.20 offered on "not too much action."

Also on Tuesday terms emerged on a deal from Brazil's Eletrobras.

The publicly traded government holding company for Brazil's electric companies priced a $300 million issue of 7¾% 10-year notes (BB-) at 99.146 on Monday night to yield 7 7/8%, on top of price talk.

Dresdner Kleinwort Wasserstein ran the books.

A source close to the deal told Prospect News that the book was very strong with over $700 million of orders. However the company chose not to upsize the deal.

The source spotted the notes, which priced at 99.146, trading up at 99.20 bid, 99.25 offered before mid-day.

Late in the afternoon a trader said that the new Eletrobras notes had dipped to as low as 99.0 bid, 99.25 offered, but then moved higher with the late-day rally in the broader market to close 99.50 bid, 100.0 offered.

A look down the pipe

With terms emerging Tuesday on a pair of Latin American corporate deals, news circulated on prospective corporate issues from Asia and Russia.

From the higher-beta Asian category comes Indonesian coal producer PT Adaro which will begin a roadshow Thursday in Singapore for its $300 million offering of five-year senior secured notes (Ba3).

The debt refinancing deal, which will be marketed in Europe and the United States after Asia, is being led by Goldman Sachs and JP Morgan.

Meanwhile from high grade, Asia Woori Bank, Korea's second-largest commercial bank, is expected to start a roadshow next week for a $300 million offering of five-year senior unsecured floating-rate notes (Baa1/A-), via Deutsche Bank Securities, JP Morgan and Merrill Lynch.

And from the Russian finance sector Alfa-Bank, Russia's largest privately owned bank, will begin a roadshow Wednesday in Asia for its debut offering of lower tier II subordinated bonds (Ba3/B/B-).

A European roadshow will follow.

The size and maturity of the issue remain to be determined.

Barclays Capital and UBS are joint bookrunners.

Bits and pieces

Elsewhere Tuesday a trader who focuses on Asian fixed-income securities said that the market had been "quiet-ish.

"There are bits and pieces going on," the source added. "It's not a wasted week but it's a thin week."

The trader speculated that the market's liquidity would start to dry up on Tuesday afternoon, paving the way for a very quiet Wednesday.

Latin American has been the dominant factor in emerging markets, the trader said, adding that Asia has been quiet by comparison.

Trading has been much more directed by interest rates than by what is going on in the high-grade market which has been under some pressure during the last few sessions, the trader said.

"Emerging markets have been shrugging off that weakness pretty well, and taking our cue from what is going on in the Treasury market," said the trader, adding that there has not a lot of selling interest or profit-taking interest.

As with the Lat America-focused trader quoted above, this source also saw the broad emerging markets pull back early in the session on the headlines out of Brazil.

"But the market has filled in pretty quickly," the trader added around mid-day.

The trader reported seeing a similar headline-driven move in Philippines sovereign debt.

"The news flow has generally been good," the source said. "There were IMF comments today that the 2006 budget deficit goals could be achieved. But there has been a little heightening of political risk. There is supposed to be an anti-Arroyo protest on Nov. 30. That was causing some of the weakness toward the end of the Asian session.

"But the U.S. market has more or less ignored it."

The trader spotted Philippines sovereign maturing in 2030 at 111.0 bid, 111.3125 offered at mid-day, after having opened 110.625 bid, 111.0 offered.

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