Emerging market debt pushed higher again; five corporates price deals

By Reshmi Basu and Paul A. Harris

New York, Dec. 2 - Emerging market debt pushed higher Friday as investors continued to put cash to work.

In the primary market, three Russian corporates, including two banks, priced Regulation S deals. And two Asian corporates tapped the capital markets.

Natural gas company OAO Gaprom sold €1 billion of seven-year bonds (Baa1/BB/BB+) at par to yield mid-swaps plus 125 basis points.

ABN Amro and Credit Suisse First Boston managed the Regulation S transaction, which was sold through the company's special-purpose vehicle Gaz Capital SA.

Also out of Russia, Alfa Bank, via its financial subsidiary Alfa Bond Issuance plc, sold an upsized offering of $225 million of 10-year bonds (Ba3/B/B-) at par to yield 8 5/8%.

There was $305 million in the books with 71 accounts participating. Additionally, this is the first private bank in Russia to issue lower tier II bonds, a source told Prospect News.

Barclays Capital and UBS ran the Regulation S transaction.

And Finansbank Russia Capital SA priced $150 million of three-year eurobonds (Ba2) at par to yield 7.9% via Merrill Lynch.

From Hong Kong, the Bank of East Asia Ltd. sold an upsized offering of $500 million of 10-year notes (Baa1/BBB) at 99.725 to yield 72 basis points more than mid-swaps.

Goldman Sachs and Citigroup ran the Regulation S deal.

And Chinese Future Corp. priced $225 million in 10-year notes at par to yield 12% via Morgan Stanley.

Separately, the Republic of Peru announced Friday that it would issue $832 million of bonds in local and external markets to repay debt owed to Japan Peru Oil Corp.

EM up again

Emerging market debt pushed higher once more, even as U.S. Treasuries closed the session flat.

The 10-year Treasury yield remained at the same level before and after the release of Friday's non-farm payroll numbers in the United States.

The Labor Department reported the creation of 215,000 new jobs in November, coming in less than expected, but the jobs number was still viewed as strong.

And mimicking Thursday's session, emerging market debt continued to trade with a positive tone as it fed into the typical year-end rally, remarked sources.

During the session, the Brazil bond due 2040 added half a point to 124.60 bid, 126.65 offered. The Turkish bond due 2030 moved up 0.63 to 149½ bid, 149¾ offered. The Russia bond due 2030 inched up 0.31 to 111.938 bid, 112.183 offered. The Venezuela bond due 2027 gained 0.10 to 116.35 bid, 116.60 offered.

Meanwhile Philippine bonds lost traction. The Philippines bond due 2015 shed a quarter of a point to 109.62 bid, 110¼ offered while the bond due 2025 was unchanged at 122.60 bid, 123.37 offered.

One of the reasons why the market has continued to grind tighter is because investors have a lot of cash to put to work, observed a sellside source.

Local markets to pick up, says strategist

The tone among buyside and sellside participants at Thursday's EMTA annual meeting was "cautious optimism", according to a debt strategist, who added that local markets were capturing more of the attention as opposed to the traditional dollar-denominated market.

The strategist predicted that local markets, which have already seen substantial demand, would gain more popularity.

In terms of trading volume, local market turnover accounted for almost 50% of total activity in emerging market debt, according to the third quarter EMTA survey, noted the strategist, who said he anticipates that the local market turnover figure will go even higher.

"I think the market continues to be driven by a search for yield and that's where the yields are," he added.

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