African Development Bank prices $1 billion; Venezuela active in otherwise illiquid market

By Paul A. Harris

Portland, Ore., Aug. 24 - Emerging markets debt traded flat on Wednesday, except for Venezuelan issues, according to a trader on the East Coast of the United States.

In an otherwise quiet and illiquid market, with syndicate desks, trading desks and sales desks thinly staffed, Venezuela's paper remained on the move, as has been the case throughout the week.

Persistent rumors about a possible renegade faction in the Venezuelan army caused issues to trade down as much as 2 points, the trader said. Once those rumors had been run to ground, Venezuelan paper retraced a considerable amount of the lost ground and generally ended the session ½ point lower.

In the primary market, among entities which retain their triple-A credit ratings, African Development Bank priced a $1 billion issue of 1¼% five-year bonds.

Borrowing a page from Stalin

Venezuela's benchmark dollar-denominated 9¼% bonds due in 2027 were 68¼ bid, 68¾ offered early in the New York afternoon, down half a point.

However the Venezuela 2027 paper was much improved from lows hit earlier in the session when they were down as much as 2 points on persistent rumors that a renegade faction of the Venezuelan army might attempt to take the country's confused political situation into its own hands.

As with the sovereigns, so it was with Venezuelan corporates, the trader said.

Petroleos de Venezuela SA (PDVSA)'s 8½% notes due 2017 were 69¾ bid, 70¼ offered, down half a point but much improved from the session's lows of 68¼ bid.

The rumor appeared to be traceable to a website ultimately based in Iran, the trader said.

It even appeared possible that operators inside the Venezuelan government had a hand in the story, the source added.

Perhaps stealing a page from the infamous 20th Century Soviet autocrat Josef Stalin, the government may have put the rumor out there to see if anyone in its army would warm to the bait, the trader suggested.

Notwithstanding the possibility that the government of Venezuela's stricken president Hugo Chavez was indulging in a bit of Stalinism, once the market was satisfied that rumors of possible anti-government action on the part of the Venezuelan military were without merit, Venezuela's debt staged a substantial recovery, although it still ended the day lower than where it began.

"In general there is extremely poor liquidity right now in this market," the trader said.

"Yesterday, just after the earthquake news, some dealers were no longer answering their phones. They seem to have no desire whatsoever to be in this market right now."

New supply emerges

In the primary market, African Development Bank priced a $1 billion issue of 1¼% five-year bonds (Aaa/AAA/AAA) at 99.942 on Wednesday.

Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS managed the sale.

Meanwhile, from the corporate space, Argentina's Tarjeta Naranja SA plans to price a $100 million tap of its 9% senior notes due Feb. 1, 2017 (//B) early in the week ahead.

Bank of America Merrill Lynch and Deutsche Bank Securities Inc. are the bookrunners.

The original $200 million issue priced at par on Jan. 25, 2011.

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