Emerging market debt rides high on FOMC statement; Advance Agro sells $250 million

By Reshmi Basu and Paul A. Harris

New York, Dec. 13 - Emerging market debt rallied Tuesday in response to the Federal Reserve's statement accompanying its decision to raise interest rates by a quarter point.

In the primary market, Bangkok-based paper and pulp producer Advance Agro PCL sold $250 million of seven-year bonds at 98.81 to yield 11¼%.

A market source said the deal had a hard time pricing, given the turbulence in the high-yield market. The deal was originally expected to price last week.

He added that this would be the last high-yield offering out of Asia for the deal. And it was a "tough" deal for the syndicate.

"Everyone is a little wary about adding HY paper to their positions," noted the source.

"The demand isn't quite there. We've seen HY issuers pull the plug for the year."

ABN Amro and Deutsche Bank were lead managers for the Rule 144A/Regulation S transaction.

Also pricing, Russian Standard Bank sold a $200 million issue of 10-year lower tier II subordinated notes at par on Tuesday to yield 8 7/8% via Barclays Capital.

Meanwhile several corporates added price talk for upcoming sales.

Russia's Vneshtorgbank, issuing via VTB Capital SA, tweaked price guidance for a $1 billion offering of floating rate notes due September 2007 (A2/BBB-) to Libor plus 75 basis points.

Initial guidance had been set in the area of Libor plus 75 basis points.

ABN Amro, BNP Paribas, Citigroup and JP Morgan are joint bookrunners for the transaction.

Out of Brazil, Ultrapar Participaçoes SA set initial price guidance for a $250 million offering of 10-year senior unsecured notes (/BB+ expected) at 7½% to 7¾%. The deal is coming via Morgan Stanley and Banco Santander.

Over to Argentina, Telecom Personal SA set price talk for $200 million of five-year bonds (/B-/B-) at 9¼% to 9 3/8%.

JP Morgan is the lead manager for the Rule 144A/Regulation S deal.

Market looks at Fed statement

As expected, the Federal Open Market Committee raised short-term rates for the 13th straight time. But the market focused on it accompanying statement. The Fed removed "accommodative" in characterizing its stance, signaling that rate hikes may end sooner than later.

"The market took that and went with it," said a trader, noting that Brazil took the lead.

"Brazil is tightening to another record low spread," he said, adding that the market was looking for a catalyst to lift it from its recent slow grinding.

"It just keeps on popping up and Brazil keeps going higher."

Another source said the session saw thin trading as liquidity continued to dry up.

During the session, the Brazil bond due 2040 added 0.80 to 126.15 bid, 125.25 offered. The Russia bond due 2030 added 0.19 to 111.375 bid, 111.688 offered. The Venezuela bond due 2027 gained 0.30 to 116.55 bid, 116.80 offered.

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