U.S. tax plan pressures Treasuries, inspires selling; Latin American issuers plan deals

By Christine Van Dusen

Atlanta, Dec. 8 - Several Latin America issuers - including Aeropuertos Argentina 2000, Chile's Cencosud and Brazil's Sabesp - took steps toward new deals on Wednesday, a tough day for Treasuries as the market digested president Barack Obama's tax cut plan.

Ten-year Treasury yields finished the day up 11 basis points. And though the JPMorgan Emerging Markets Bond Index Plus started the day 1 bp wider and ended up by 3 bps, risk aversion wasn't particularly pronounced.

"Today's sell-off owes more to short U.S. dollar covering than to risk-off," according to an RBC Capital Markets report. "This euro and dollar move has been driven by the positive spin on president Obama's tax proposals - focusing for now on higher growth and yields rather than the deficit - instead of European credit worries."

By mid-afternoon, the JPMorgan Emerging Markets Bond Index Global was tighter by 1 bp.

"Spreads are tighter across the board," an emerging markets strategist said. "That mostly is reflective of the offsetting of negative Treasury effects. It's all about Treasuries today."

Investors on sidelines

Trading, meanwhile, was light.

"Everybody is waiting and seeing," the strategist said. "I don't see a lot of prices on the screen."

He pointed to the Brazil 2040 bonds. "They're dead," he said. "The Brazil discount is down 50 cents."

Argentina, he said, was doing a little bit better in light of its plan to exchange $335 million of defaulted Brady bonds in an effort to secure lower borrowing costs by ridding itself of the last debt from the sovereign's restructuring in the 1990s.

"The sovereign is down, of course," the strategist said. "Bonds are down nearly a point. The Buenos Aires 2018s are unchanged on the day but up almost 2 points from Monday. It's pretty remarkable that they're unchanged on a day when everything else is down. That's because of the Brady exchange."

The exchange is expected to spur Argentina to issue new debt, sources say.

"There seems to be a lot of appetite for Argentine debt anyway," a market source said. "But obviously the exchange is helpful on that. It's good news for Argentina."

LatAm heats up

Latin America, in general, perked up on Wednesday with the prospect of several new deals from the region.

Buenos Aires-based administration company Aeropuertos Argentina 2000 is on a roadshow for an offering of $250 million notes due 2020, a market source said.

Credit Suisse and Morgan Stanley are the bookrunners for the Rule 144A and Regulation S notes, which can be extended to up to $300 million, according to a company announcement.

The deal could price as soon as the Dec. 13 week, the market source said.

Also on a roadshow is Cencosud - the Chile-based retail company that in November mandated JPMorgan, Deutsche Bank and Santander - for an issue of up to $1 billion this week. Proceeds will be used to refinance debt.

And Mexico-based building materials company Cemex Finance LLC will embark on a non-deal roadshow starting Thursday, a market source said.

The marketing trip will end Tuesday. No other details were available Wednesday.

Sabesp sets size

Also from Latin America, Brazil-based water and sewage services provider Companhia de Saneamento Basico do Estado de Sao Paulo (Sabesp) set the size for its issue of notes due 2020 at $350 million, a market source said.

Itau and Santander are the bookrunners for the notes, which are non-callable for five years.

"It's kind of active this week, given the year we've had," a New York-based market source said. "It's been a busy year. I'm surprised people are still printing transactions."

He said that a lot of investors don't want to see any more new deals at this point in the year.

"They've had it," he said. "They're saying, 'we're done for the year.'

"They don't want to put any more capital at risk. They've done well so far. Why would they want to risk it at the end of the year? The upside is limited compared to the downside of closing a deal with a bad trade. So they're saying they'd rather wait until next year. Why push it?"

Other offerings advance

In other news on Wednesday, Development Bank of Kazakhstan whispered its planned benchmark-sized offering of five-year dollar-denominated notes at the mid-swaps plus 400 bps area, a market source said.

Citigroup, Deutsche Bank and JPMorgan are the bookrunners for the Rule 144A and Regulation S deal, which is expected to price on or before Friday.

And Hong Kong-based property development company Shui On Land is considering a renminbi-denominated offering of bonds in 2011, a market source said.

A roadshow via Deutsche Bank, Standard Chartered and UBS could take place prior to the transaction.

Also from Hong Kong: The final book for the $500 million 4¼% notes due Dec. 14, 2020 from Hong Kong Electric Co. - which priced at 99.268 to yield 4.341%, or Treasuries plus 137.5 bps via HSBC, RBS and Standard Chartered - was $1.8 billion with more than 150 accounts involved, a market source said.

About 65% came from Asia, while 35% came from Europe and the offshore United States. Fund and asset managers accounted for 65%, banks 18%, private banks 9% and central banks, insurers and pension funds were 8%.

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