Emerging market debt moves higher; Gazprom to issue more in 2005

By Reshmi Basu and Paul A. Harris

New York, Feb. 24 - Emerging market debt made gains Thursday in an otherwise uneventful and quiet session.

"Things are pretty well bid today [Thursday]," said a buyside source.

"I can't really tell if it's just because [U.S.] Treasuries sold off. In general, prices are pretty flat. It's been pretty quiet," said the source.

Latin American paper was stronger in response to the release of the minutes of last week's meeting of the Brazilian Central Bank's Monetary Policy Committee (Copom) along with the stabilization of the 10-year Treasury yield, according to Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

While the Brazilian central bank said it was not done with its tightening cycle, there were signs that inflation is slowing after six months of monetary policy tightening. Last week, the bank raised its benchmark Selic rate by half a percentage point to 18¾%.

According to the minutes, "Although this decision has brought the base interest rate to levels which, in Copom's evaluation, will lead inflation to converge to inflation targets, the committee understands that it still hasn't concluded its cycle of interest-rate hikes."

"There's a little bit of interest now that rates have stabilized at least on the 10-year end in the U.S. at 4.28%," said Alvarez.

"We may see 19¼% [on the Selic] and may pause and re-evaluate what they have been doing."

Alvarez said the minutes relieved some of the fears that the Copom would move beyond 19¼%.

The Brazil bond due 2040 was up 0.45 to 116.60 bid.

Other Latin American paper was slightly better. The Ecuador bond due 2030 gained a quarter of a point to 93½ bid. The Venezuela bond due 2027 added 0.10 to 103.40 bid.

"We're data dependent. When the U.S. tends to move laterally, people are taking a little bit better approach to Latin America," noted Alvarez.

Gazprom's deal to lead way

Meanwhile the market is expecting that the upcoming deal from Russian gas giant Gazprom will be the first of a number of borrowings the company will carry out this year.

Gazprom is expected to bring to market a $1.3 billion equivalent three-year eurobond. ABN Amro and Credit Suisse First Boston have the bookrunning mandate.

"Gazprom is expected to take on a load of additional debt in 2005," said a market source.

"In addition to the $1.3 billion three-year eurobond that it announced earlier in the week [expected to be issued in dollars and/or euros] which is expected to come during the first half of the year, Gazprom is exprected to issue as much as $3 billion during the remainder of the year.

"Gazprom is also expected to take on additional $1.7 billion in bank debt to acquire securities in oil and gas companies that are related to Rosneft, and Rosneft will apparently use the funds in its acquisition of Yuganskneftegaz," said the source.

In separate news, a Brazilian government official said that the country was looking into recalling the C bonds.

"You are talking about $7 billion if you do that," said the buyside source.

"That's a lot of money. I would be shocked if they bought it outright. But in a swap basis, it would make sense," he said.

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