Emerging markets lower again; new supply expected; spreads dragged wider; Colombia weak

By Aaron Hochman-Zimmerman

New York, May 13 - Emerging markets remained weak in sympathy with other markets around the world.

Still, despite a recent correction, emerging markets have been up sharply during the recent rally and investors continued to take the pause in stride.

Many feel that there are still many difficult months ahead before the world is able to itself from the grip of the recession, but there is money on the sidelines anxious to be put into the game.

"Curiously, short-term interest rates are getting tighter," which has eased liquidity concerns, a syndicate official said.

In Wednesday's trading, levels slipped lower across the board, but the highly watched credits managed to ease lower without any major damage.

Colombia was one of the underperformers as its bonds due 2019 suffered a drop of 1¼ points.

Meanwhile, the primary market syndicate desks anticipated new sovereign issues from Croatia and South Africa as well as a number of corporate deals in Asia.

Equities sank and volatility added 1.85 to close at 33.65, according to the VIX index, but is still drastically off of its highs. The index is a frequently used yardstick of market volatility.

As a sector, emerging markets tumbled wider by 16 basis points to a spread of 506 bps, according to the EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

LatAm slides on profit taking

In Latin America, "everything's down," a syndicate official said, but rather than a lack of confidence in the market, "it's a profit-taking trade."

"People are just taking some money off the table; personally I think we have turned the corner," he said.

"Are we out of the woods? No," he added. "We're going to have a pretty tough 2009."

Still, especially on the equity side, emerging markets are "on a tear," he said.

Peru's stock market is up 72%, he said, "explain that to me."

In trading Wednesday, the 7 1/8% Peruvian bonds due 2019 slipped ½ point to 106 bid, 107¼ offered.

The closely watched high-beta credits in Argentina and Venezuela were each lower by 1 point.

The 8.28% Argentine discount bonds due 2033 were seen at 33.85 bid, while the 9¼% Venezuelan government bonds due 2027 were seen at 63 bid.

Meanwhile in Brazil, there has been talk of a new 30-year issue, the official said.

Nothing has solidified, he said, but if the deal came, "I wouldn't be surprised."

The 7 1/8% Brazilian sovereigns due 2019 fell by 0.65 point to 99¼ bid, 99½ offered.

Colombia's 7 3/8% bonds due 2019 saw a big drop of 1¼ points to 105 bid, 105.6 offered.

Emerging Europe eases lower

Emerging Europe saw a mild drop in levels as credits followed equities lower.

In Ukraine, the national energy firm NJSC Naftogaz Ukrainy may run a 6.1 billion hrvynia operating deficit in 2009, according to the Kyiv Post.

The national budget only approves 1.6 billion hrvynia to cover Naftogaz's estimated 7.7 billion hrvynia in expenses.

In Turkey, the government spent into a deficit of $12.9 billion in the first quarter, the finance ministry said, according to the Hurriyet Daily News.

The government paid out $56.4 billion while in negotiations with the International Monetary Fund for support for its stimulus plan.

The Turkish government bonds due 2030 gave back ¼ point to 101½ bid, 101¾ offered.

Russia's sovereign bonds due 2030 lost 3/8 point to 99 5/8 bid, 100¼ offered.

Elsewhere in the region, investors waited for news on new issues from Croatia and South Africa.

Croatia is expected to price €750 million of sovereign bonds this week via joint bookrunners BNP Paribas, Deutsche Bank and Unicredit.

South Africa began a roadshow Wednesday for a dollar-denominated offering of benchmark-sized bonds (Baa1/BBB+/BBB+). Barclays and JPMorgan are joint bookrunners.

Psalm leads Asia primary

In emerging markets, Asia's primary was the most active although there was competition for attention with emerging Europe.

The Philippines' Power Sector Assets and Liabilities Management Corp. (Psalm) will be on the road beginning on Thursday to promote a dollar-denominated benchmark-sized 10-year bond (B1/BB-/).

The bonds will price on behalf of the public utility Napocor.

Deutsche Bank, HSBC and Morgan Stanley are bookrunners for the deal.

The roadshow will be held in Manila on May 14, in London on May 15, in New York on May 18 and will end in Boston on May 19.

Power Sector Assets and Liabilities Management Corp. is a Manila-based power company.

Elsewhere, Korea Gas Corp. announced plans to offer $500 million of bonds (A2/A/A+), a market source said.

Deutsche Bank, JPMorgan and Merrill Lynch will act as bookrunners for the deal.

Korea Gas Corp. is a Bundang, South Korea-based energy firm.

Meanwhile, India's "Tata Motors is going to be looking for money," a syndicate official said, noting that it needs finance some of its recent acquisitions.

Korea Electric Power Corp. is also holding a non-deal roadshow via RBS.

© 2015 Prospect News.
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