Emerging market debt up on higher equities; Brazil's GOL sells $200 million perpetual bonds

By Reshmi Basu and Paul A. Harris

New York, March 29 - Emerging market debt rebounded Wednesday on the back of higher equities.

In the primary market, Brazilian low-cost airline GOL Linhas Aereas Inteligentes, issuing via Gol Finance, sold a $200 million offering of perpetual senior unsecured bonds (Ba2) at par to yield 8¾%.

The deal, decreased from $250 million, priced in line with price guidance for a yield in the 8¾% area.

The fixed-rate bonds will be callable after five years at par in whole or in part with a minimum $150 million remaining after a partial call.

Morgan Stanley and JP Morgan were the bookrunners for the Rule 144A/Regulation S transaction.

Moving to South Africa, the country set price guidance on its upcoming benchmark-sized offering of euro-denominated 10-year global bonds at euro mid-swaps plus 60 to 65 basis points, or approximately the 4.55% area on Wednesday.

The issue could price as early as Thursday.

Deutsche Bank and Standard Bank are joint bookrunners.

And fertilizer and mining company Sociedad Quimica y Minera de Chile SA (SQM) plans to sell $200 million in 10-year bonds (Baa1/BBB+ expected) later this week.

Deutsche Bank is the bookrunner for the Rule 144A/Regulation S (no registration rights) transaction.

EM debt rebounds

Volatility in emerging markets subsided Wednesday as the asset class outperformed U.S. Treasuries.

Wednesday's session saw spreads tighten by two basis points, according to a trader, who added that emerging markets gained from a more supportive equities market.

During the session, the spread for the Brazilian bond due 2040 was tighter by four basis points. The Ecuadorian bond due 2030 gained 0.40 to 99.50 bid, 100.25 offered. The Venezuelan bond due 2027 added 0.65 to 126.80 bid, 127.40 offered.

Ukrainian bonds continued to slide on political worries after the recent election. At session's end, the Ukrainian bond due 2033 shed 0.50 to 103 bid, 104 offered.

And Peruvian bonds also fell on election jitters, in this case about the upcoming poll. The Peruvian bond due 2033 slipped 0.60 to 112.50 bid, 113.15 offered.

March sees carry trade sell-off

In March, political noise out of Brazil, Turkey, Ukraine and Peru shook up the market, causing the carry trade to unwind, according to a market source. The JP Morgan EMBI Global index has fallen by 1.8% this month through Tuesday while its spread over Treasuries remained in a tight range of 185 to 195 basis points for the month.

Another source added that the market had been "hanging in there" despite the volatility. He added that the market is showing maturity, something that the asset class lacked before.

"News like [the resignation of Brazilian finance minister Antonio] Palocci would have sent the market into crisis a few years ago," he noted, emphasizing that the departure came during an election year.

However, the source remarked that flows into the asset class are expected to be positive, which is helping the market remain resilient.

Nonetheless, trading is expected to be choppy this week on increased risk aversion, noted the trader.

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