Weakness in emerging markets spreads; Bank of Georgia eyes deal; PDVSA, Baoxin shelf deals

By Aleesia Forni

Columbus, Ohio, May 16 - Weakness in emerging markets that was almost exclusive to lower-rated credit names is now evolving into weakness across the board, according to a market source.

What started off as a small sell-off with some higher beta names is spreading, as higher rated sovereign names in Africa and Latin America that had done very well previously are beginning to falter.

This risk-off trading could continue for weeks or until there is some resolution in other parts of the world, namely Greece.

The source believes the weakness in the market will continue for the duration of the week.

In the secondary market, Sistema's recent seven-year notes fell to 97½ bid, 98¼ offered near the end of New York's session, after hitting 99 3/8 on Tuesday.

The $500 million 6.95% notes priced at par on Friday.

In the Latin American space, Venezuela and Petroleos de Venezuela (PDVSA) were 1¼ to 1¾ points lower in the New York morning after opening a ½ point higher, a market source said.

Buyers stepped in on the way down, but heavy selling from real money accounts, hedge funds and the Street appeared to swamp that buying.

Latin high-yield corporates were off 1 to 4 points. High grades were 5 to 10 basis points wider with the 10-year part of the curve underperforming. However, high-grade trading was more orderly.

In the primary market, PDVSA and Baoxin Auto Group Ltd. have postponed their previously announced note issuances, while JSC Bank of Georgia is set to begin a roadshow in Europe and the United States.

Bank of Georgia roadshow

The primary market saw Bank of Georgia mandate Bank of America Merrill Lynch, Credit Suisse and JPMorgan as bookrunners ahead of a possible dollar-denominated offering of Regulation S and Rule 144A notes, according to a market source.

The largest bank in Georgia will hold a roadshow in Europe and the United States from May 17 to May 22.

Pricing is subject to market conditions.

Issuers postpone offerings

Due to the current market climate, PDVSA continues to push back its recently proposed issue of $3 billion 23-year bonds, according to one source.

Based on price action today, the source believes this deal will continue to be put on hold, adding that the current market could not absorb the bonds at the moment.

The long end of the PDVSA curve is now "conservatively" 12 points off its main second highs, as offshore buyers are now "running for cover."

Both Baoxin and China Zheng Tong Auto Services Holding Ltd. have also postponed their respective notes issuances, citing current market conditions in company releases.

The source believes these deals are going to hold until there is a more "accepting" climate.

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