Pemex prices oversubscribed $1.5 billion six-year notes; Peru gains after S&P ugprade

By Reshmi Basu and Paul A. Harris

New York, June 8 - Mexico's Pemex priced an upsized $1.5 billion offering of six-year notes Monday while in trading emerging market debt was stable Tuesday.

Pemex's six-year floating-rate notes (Baa1/BBB) priced at 99.888 to yield three-month Libor plus 132 basis points.

The Mexican state oil monopoly's deal was increased from an announced size of $1 billion and came at the middle of talk of Libor plus 130 to 135 basis points.

"There was a lot of demand for this issue," said a trader. "Demand was high because of the run in oil prices."

HSBC and Lehman Brothers ran the books for the Rule 144A/Regulation S (without registration rights) bond offering.

Away from the Pemex deal, trading was quite.

The market was "not too exciting," said a buy-side source.

"There's some short-covering going on as this morning. But generally things are flat," he added.

However one name moving was Peru. Its bonds gained about two points after Standard & Poor's upgraded the country's foreign-currency sovereign rating to BB from BB-. The outlook is stable.

Peru's component of the EMBI Index tightened by 35 basis points.

The upgrade reflected the recent strengthening of Peru's economic fundamentals and the expectation that the economic policies will be sustained in the future despite the continuing political problems, S&P sovereign analyst Sebastian Briozzo said.

"Implementation of a fiscal consolidation strategy has gradually stabilized Peru's debt burden," Briozzo said. "The country's successful fiscal strategy is essential in providing flexibility to an economy that is still severely constrained by a high external indebtedness, an only limited margin for implementing monetary policy due to dollarization and significant social needs."

But S&P said Peru's rating will continue to be limited by a weak political environment.

"Relatively high economic growth rates since 2002, averaging 4.4% (including the expected 4% growth for 2004), have not improved the political and social climate in Peru," the rating agency commented.

Peru's long-term local currency rating was left at BB+ and its short-term rating at B.

VimeplCom set to price

However, despite the lackluster secondary, there was more news in the primary beyond Pemex.

Russia's second largest cellular operator VimpelCom is expected to price a $300 million five-year note offering (B1/BB) on Wednesday. Price talk of 10% surfaced Tuesday.

"Lousy covenants but a decent company," said the buy-side source of the deal.

JP Morgan and UBS Investment Bank are the bookrunners for the Rule 144A/Regulation S offering.

VimpelCom's offering comes at a time when Russia is performing poorly.

"The Russians are really struggling here," said the buy-side source.

Last week Deputy Prime Minister Alexander Zhukov said that Russia would not issue eurobonds in 2004. And while this may be a boost to Russian corporates, they still may fall victim to market jitters.

"The corporates have definitely been underperforming the sovereigns lately. I don't think that's supply as much as that people are nervous," said the buyside source.

"As long as people are nervous, they will probably stick closer to sovereigns than to corporates," he added.

"The problem is that everybody else is issuing whether you're Gazprombank or VimpelCom."

The source anticipates Russian mobile provider Mobile TeleSystems will revive its bond offering.

"They have to," said the buy-side source. "They have an August and December maturity. It's a question of when."

In May, MTS delayed its $600 million 10-year notes because of unfavorable market conditions.

Czech Republic talk

Also in the primary, orders are being taken for the Czech Republic's planned €1 billion offering of 10-year notes (A1/A-). Price guidance is set at a spread of mid-swaps plus 12 to 14 basis points.

Pricing is expected to take place on June 14 for the Regulation S deal.

Deutsche Bank and Morgan Stanley are the joint bookrunners.

Timing emerged on Malaysian Public Bank Bhd's planned offering of $250 million to $350 million of 10-year notes.

A roadshow will begin in Singapore on Thursday, move to Hong Kong on Friday and finish off in London on Monday.

Pricing will take place next week, subject to market conditions.

Barclays Capital and Citigroup are running the Regulation S deal.

"Reg S is easier in terms of filing requirements than 144A," said the buy-side source.

But, he added: "You cut out a big chunk of your market."

One advantage of Regulation S deals is that it allows issuers to price their bonds before a likely interest rate hike.

"It's a faster and dirtier way of getting a deal done," he said.

Little reaction to Greenspan

Federal Reserve chairman Alan Greenspan's comments Tuesday that "the FOMC is prepared to do what is required to fulfill our obligations to achieve the maintenance of price stability so as to ensure maximum sustainable economic growth" seemed to cause little negative bond market reaction even though the remarks were interpreted to mean that the central bank could move more aggressively than previously expected to increase the short term interest rate, according to a sell-side official.

"One of our Treasury traders said that the recent numbers raise more questions about what the Fed is going to do in three months, more than what it will do at the end of this month.

"You still also have on the same day [June 30] the Iraq handover. We could have things moving in lots of different directions.

"It could be a very interesting end of the month," noted the sell-side official.

Russia, Venezuela lower

Generally emerging market debt traded flat to lower. In late trading Tuesday, the JP Morgan EMBI Index was two basis points wider at 481 basis points.

Russia and Venezuela were down the most during Tuesday's session.

Russian debt was softer as the government's battle with OAO Yukos Oil tycoon Mikhail Khodorkovsky, Russia's richest man and Yukos's biggest owner, intensified.

Russian courts are looking at the possibility that Yukos owes back taxes. Meanwhile a negative decision against Yukos could send it into bankruptcy, the company has warned.

And in spite of surging oil prices that are prompting the government to consider taking out a chunk of up to $1 billion of debt, Venezuela bonds were lower in Tuesday trading.

Argentina flat

Meanwhile Argentina's bondholders failed to show up at a scheduled meeting on Tuesday over the government's proposal. However, the market showed little response - the bonds were unchanged.

"Overall the market was expecting that type of reaction," said a Latin American debt strategist at Refco EM. "It's first rejection by the bondholders.

"Going forward, we will see more pressure from the bondholders. It could be see some legal action against Argentina as we've seen in the past.

"Eventually, the conversation between the two parties will have to ignite some type of solutions that involves the best interest of the two parties," he added.

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