EM tightens in slow session; C&M Finance issue $650 million in two tranches

By Reshmi Basu and Paul A. Harris

New York, Jan. 23 - Emerging market debt tightened slightly Monday amid a slow trading session.

In the primary market, South Korean cable television company C&M Finance Ltd. issued an upsized $650 million issue of senior unsecured notes (Ba2/BB+) in two par-pricing tranches.

Both issues priced on top of price talk that had been tightened twice while the company was marketing the notes. The order book was 13-times oversubscribed from the original $550 million amount, with the issue generating intense demand both in Asia and the United States, according to a source.

C&M priced a $200 million issue of five-year floating-rate notes to yield six-month Libor plus 250 basis points.

The company also priced a $450 million issue of 10-year fixed-rate notes to yield 8.1%.

Citigroup and Goldman Sachs & Co. were bookrunners.

Meanwhile price guidance surfaced from three corporates. Out of Brazil, beef producer Grupo Friboi (B1/B+) set initial price guidance for its debut offering of $150 million in five-year eurobonds in the area of 9½% via JP Morgan and ING.

Over to Indonesia, cocoa producer P.T. Davomas Abadi Tbk is talking its $150 million offering of five-year senior unsecured notes at 10¼% to 10½%.

The notes (B2/B+) are expected to price in the middle of this week via Lehman Brothers.

Moving to Kazakhstan, Bank CenterCredit International BV is talking its $200 million to $300 million offering of five-year senior unsecured notes at 8 1/8% to 8 3/8%.

The roadshow is expected to conclude on Wednesday, with pricing expected thereafter.

Citigroup and ING are the underwriters for the Regulation S offering.

Asian activity to slow down

Activity in Asia is expected to wind down before the kick off of Chinese lunar new year celebrations at the end of this week, according to a source who focuses on Asian fixed-income credits.

Some participants are expecting quite a substantial pipeline on the other side of that holiday, but not too much has been announced and confirmed, he noted.

He added that there was a little bit of nervousness toward the middle of last week, mainly driven by Japanese equities.

"Stuff filled in very quickly. There just wasn't selling pressure, mostly because there has not been a large amount of supply yet in Asia," he remarked.

Furthermore, as long as U.S. Treasuries stay fairly well behaved, the high-yielding Asian credits should hold in, he predicted.

"The deals we've seen so far have been more or less your straightforward high-yield corporate-type names, which have not been too demanding for the market."

EM afloat on inflows

Emerging market debt has shown surprising resilience in the face of last week's equities meltdown. On Friday, both the Dow Jones Industrial Average and the Nasdaq saw their biggest one-day plunge since 2003. Nonetheless, emerging market debt saw positive returns for the day.

On Monday, equities put an end to the bleeding, moving higher on Ford Motor Co.'s restructuring plan and a markdown in oil prices.

During the session, emerging markets were able to tighten during a calm trading session, said a market source.

"We're closing pretty much where we opened," said a trader.

The JP Morgan EMBI+ Index tightened by one basis point, according to a market source. The Brazilian bond due 2040 was spotted at 130.8 bid, up 0.30.

Moreover, with spreads so tight, cash is still being put to work in the asset class, which is quite a remarkable feat, noted sources.

"It's been remarkably resilient to me," said the trader.

"Equities bouncing around. [U.S.] Treasuries bouncing around. We are just holding firm right here. Money keeps coming in," he noted, adding that paper from Latin America, Asia, and Eastern Europe are at or close to all-time tights.

And even the recent sell-off in equities was not enough to derail the market, said a second trader, who noted that the trigger for a correction would most likely need to be a combination of a few factors, such as weakness in both the equity and bond markets.

"The asset class is still at very tight levels but still has the ability to attract money," he added.

Philippines underperformed a little

Elsewhere, bonds from the Philippines have underperformed slightly, said the source, who focuses on Asian credits.

"It has pulled back off the tights more than Indonesia has, which is probably a function of where the relative amounts of supply have been," he noted, adding that there are ongoing political concerns in the country.

"It has still performed pretty well. The pullback has not been particularly deep."

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