Emerging markets firm up; tone reluctantly positive; Swire prices upsized $400 million

By Aaron Hochman-Zimmerman

New York, April 14 - Spreads on emerging markets debt tightened as the sector saw stronger pricing through thin volumes on Monday.

Many market watchers felt as though the market is used to bad news and may be ready to turn around.

The market is "set to see Merrill Lynch and Citigroup roll out new damage to their balance sheets," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"It's a bit of a mixed picture," a trader said.

"The market opened up weak" with the major credits pulling wider, he said.

However, "if you look at the details in the primary and the credit stories beneath it it's not really in tandem with that," he said.

The primary market was able to add to the year's still trifling new issuance total.

China's Swire Pacific Ltd. priced a $400 million 10-year bond at mid-swaps plus 230 basis points. The deal was upsized from $300 million.

"Deals getting done is good," a trader said.

In trading, Argentina led the winners by adding 0.75 point to its discount bonds due 2033 as government negotiators prepared to meet with representatives of the farmers.

Meanwhile, the World Bank announced it will begin an offensive of emergency loans and diplomacy to combat soaring food and energy prices around the world.

Riots over the price of food have recently been seen in Haiti, the Philippines and Egypt.

"Emerging market and developing countries have so far continued to grow strongly and show resilience in the face of the ongoing financial crisis, though their growth prospects have moderated and inflation risks have increased," the bank's report said.

"Commodity-exporting countries, exposed to the risk of significant swings in commodity prices, should maintain progress toward economic diversification ... developing countries, especially low-income countries, face a sharp rise in food and energy prices," the report continued.

During the session volatility whipped around with stocks but ended just 0.36 higher at 23.82, according to the VIX index. The index is a frequently used measure of market volatility.

As a sector, emerging markets tightened by 3 bps to a spread of 285 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will require to keep assets in emerging markets debt.

Asia better on slow trading

Prices were higher and spreads a bit tighter in Asia, but volumes were too thin to be more than slightly encouraging to investors, a trader said.

"It's got the 'summer Monday' feel to it already and we're not even close," he said.

The only sector that did see activity was sovereign cash, which was slightly stronger, he said.

"We're just coming off a massive short squeeze," he said.

"We've gone from pricing at Armageddon to having Armageddon pass ... The market's going to take some time to consolidate," he said.

In the Philippines, Monday's Treasury auction results sent the benchmark rate out 28 bps to 5.99% due to a lack of demand spurred on by high commodity prices, the Manila Times reported.

"Most of the bidders were at the 6% rate, so I guess that's really the market rate," finance undersecretary Gil Beltran said after the auction.

The government raised PHP 1.7 billion, the report said.

The government is depending more heavily on domestic borrowing during 2008 as the global credit crisis has hurt remittances from the country's overseas workers.

Elsewhere in the Philippines, two bombs were detonated in front of a Catholic church and a cafe in Zamboanga City, according to the BBC. No injuries were reported.

No one has claimed responsibility for the attacks, but the police suspect the radical Islamist group Abu Sayyaf.

The Philippines' government bonds due 2030 slipped 0.5 point to 132.25 bid, 132.75 offered.

Meanwhile in Indonesia, the central bank's strong first-quarter performance signals a slower, but still healthy 2008, the bank said, according to the Jakarta Post.

"From observing the banking sector's performance in the first quarter of the year, we are optimistic it will grow as expected," Bank Indonesia director of banking research and regulation Halim Alamsyah told the Post.

Since February, Indonesia's banks have distributed 1 quadrillion rupiah and have taken in 1.4 quadrillion rupiah in third-party funds, the report said.

Most of the loans were to retail consumers, but loans to businesses have been increasing.

The Indonesian sovereign bonds due 2017 added 0.75 point to 104.5 bid.

Elsewhere, Pakistan's sovereigns due 2017 were spotted at 85 bid, 89 offered.

China to take smog break

Also in China, the government will enforce a two-month suspension on construction projects, force coal plants to cut emissions by 30%, shut down quarries and cement production and ban the use of chemical solvents ahead of the Beijing Olympic Games.

The measures are designed to reduce the infamous pollution in Beijing while the world's eyes are on the city, the New York Times reports.

The first events are scheduled for Aug. 6.

Swire prices upsized $400 million deal

The primary opened the week by pricing $400 million and introducing a new dollar-based deal from two corporate issuers.

Still, investors should not be too excited about the health of the primary, a syndicate desk official said.

"I think the market is still very much case by case," the syndicate source said. "I don't think people are especially bullish."

Swire Pacific Ltd. (A3/A-/A) priced $400 million 10-year senior unsecured bonds at 99.101 with a coupon of 6¼% to yield mid-swaps plus 230 bps.

The deal, upsized from $300 million, came at the tight end of the talk of mid-swaps plus 230 bps to 240 bps.

HSBC and JPMorgan acted as bookrunners for the deal.

Swire is a Hong Kong-based holding company located in the Cayman Islands.

"There was definitely the demand for it," a syndicate official said about the reason the deal was upsized.

Swire was willing to add on another $100 million, but "they're a pretty conservative issuer," the syndicate official said.

Because the deal was offered under Regulation S and held in Asian time, most of the interest came from Asia, the official said, with "a little bit of non-Asia, offshore money."

"Timing was great; it got done quickly," a trader said about the deal.

"It was pitched sufficiently wide ... It attracted plenty of interest," he said.

Also in the primary, Banco Cruzeiro do Sul SA (Ba1) announced talk of 7½% for its dollar-denominated two-year bonds.

Books open the week of April 21.

BCP Securities and UBS will act as bookrunners for the deal.

The bonds will be issued from the bank's short-term note program.

Banco Cruzeiro is a Sao Paulo-based retail and commercial bank.

LatAm firms on anxious market

Latin American trading was "firmer I would tend to think," said IDEAglobal's Alvarez.

"Is there any particular reason for that? I wouldn't tend to think so," he said.

Retail sales are "artificially rosy," he said, but added that the market has a lot of "cash on the sidelines" and many feel as though "there's a safety net in place" from the Federal Reserve.

Ecuador was a mild outperformer on Monday, Alvarez said.

The 9 3/8% bonds due 2015 were up 0.5 point to 104.5 and remain inside of 600 bps, "so that's pretty interesting," he said.

The 8% bonds due 2030 were unchanged at 100.5, "but that's the high [bid] of the year," he said.

Elsewhere in Latin America, Brazil's highly traded 11% bonds due 2040 were better by 0.2 point to 135.95 bid, 136 offered. The 7 1/8% bonds due 2037 gained 0.15 point to 111.85 bid, 112 offered.

In Venezuela, the 9¼% bonds due 2027 gained 0.7 point to 96.7 bid, 97.2 offered.

Farmers, government continue talks

In Argentina, cabinet chief Alberto Fernandez is scheduled to meet with representatives of the farmers who are currently working under a 30-day strike suspension.

Fernandez will ask the farmers to "increase production in such a way as to guarantee both price and quantity to the home market and in all cases to link up chains (of value)," he told Argentine radio, according to the Buenos Aires Herald.

"It's about doing what the president said last Friday and it's something we all share; to take advantage of the extraordinary opportunity Argentina has at the moment in a world where there is great demand for food and Argentina is a huge producer of it," he said.

The 8.28% Argentine bonds due 2033 were better by 0.75 point to 84.25 bid, 84.9 offered.

Emerging Europe strong below surface

"At a glance it's certainly weaker," a trader said about emerging Europe on Monday, although there was "very little going on."

The benchmarks widened by almost 30 bps in early trading, he said, but were able to come in slightly.

However, "corporates and credit stories are completely unchanged," he said.

"There's some bear fatigue around," he said.

"We're going to need something significantly worse than Wachovia or GE to make a significant dent," he said.

"It's kind of like a punch-drunk boxer; we've taken it and we'll take it again."

Meanwhile in Russia, the energy giant OAO Gazprom will be allowed by the government to develop the Chayanda oil field in the largely untouched northeast region of Yakutia, according to the Itar-Tass News Agency.

"While legislation requires fields to be assigned through auctions and bidding, the gas law has an exception saying that the fields included in the list of strategic fields may be assigned by the government to the owner of the unified gas supply system, i.e. to Gazprom, without competition," deputy industry and energy minister Andrei Dementyev said in the report.

"The decision to assign the Chayanda field to Gazprom was made within the framework of that provision," he said.

Gazprom will be required to pay 8 billion rubles to 10 billion rubles for a license to develop the land.

The Russian government bonds due 2030 fell 0.15 point to 115.45 bid, 115.55 offered.

Also in Ukraine, the foreign ministry formally asked Russia to remove itself from Ukrainian internal affairs, according to Itar-Tass.

"The Ukrainian foreign ministry demands from the Russian side to stop the practice of threats to Ukraine and to adhere to the provisions of the Friendship, Cooperation and Partnership Treaty between Ukraine and Russia," the statement said.

"Ukraine should as soon as possible integrate in NATO as a basis of the collective security system. Ukraine will take all necessary measures that are envisaged by international law for the defense of its sovereignty and independence," the statement continued.

In Turkey, foreign investors have put $7.2 billion into Turkish real estate in the five years since the law allowed outside interests to buy Turkish land, according to the Turkish Daily News.

In 2007, sales to foreigners increased 59% to $2.9 billion, the report said.

Elsewhere in Turkey, as the ruling AK Party is under scrutiny of the constitutional court for anti-secular activities, reports surfaced that the government attempted to shut down pork farms and butchers.

However, the reports have not been substantiated, according to the Turkish Daily News.

"I don't have much to say, nobody is trying to close our pig farm or butcher shop down. The news is manipulated," said Kozma Kozmaoglu, a Christian who owns a pork butcher shop.

Pork is forbidden by the Koran.

The Turkish sovereign bonds due 2030 added on 0.375 point to 151.375 bid, 151.625 offered.

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