BicBanco, Ceagro Agricola sell notes as China-related weakness fades; Latin America active

By Christine Van Dusen

Atlanta, Oct. 20 - New deal flow in emerging market bonds was slow Wednesday - with pricing from the Brazil sovereign and the country's BicBanco and Ceagro Agricola.

The soft primary market persisted even as risk aversion waned and as emerging market assets recovered most of the losses sustained after Tuesday's news of an interest rate hike in China.

Meanwhile, secondary trading activity improved.

"We're seeing a fairly active day following the excitement yesterday in China," said Nick Chamie, global head of emerging market research for RBC Capital Markets. "I think we've had a bit of a reversal of yesterday's weakness and we're seeing EM assets snap back nicely today."

The JPMorgan Emerging Markets Bond Index Plus spread ended the day down 3 basis points, with Argentina up 8 bps, Venezuela up 6 bps, Hungary down 10 bps and Brazil down between 4 bps and 8 bps.

While most other spreads remained generally flat, currencies across the board were "stronger on the day" against the dollar and the euro anywhere from "half a percent to 1% today," Chamie said. "They're retracing some of yesterday's losses, if not all. EM equities are up in the 1% to 2% range, on average. And of course we're seeing gains across U.S. equities, commodities and in the euro."

Secondary market activity, meanwhile, was "reasonably good," he said, with volumes "maybe slightly above average. We've seen bonds tack on anywhere from a quarter to ¾ of a point along various curves. That's again in keeping with the generally buoyant EM mood."

Brazil in focus

Though "Latin America has been slowing down a bit," the region saw a slight uptick in activity with the pricing of $400 million senior notes due Oct. 25, 2015 from lender Banco Industrial e Comercial SA (BicBanco) at 99.458 to yield 5 3/8%, a market source said.

Citigroup, Itau and JPMorgan were the bookrunners for the Rule 144A and Regulation S transaction, which was whispered to yield in the high 5% area.

Also from Brazil, soft-commodities trading company Ceagro Agricola Ltda. priced $100 million 10¾% notes due May 16, 2016 at 98.965 to yield 11%, a source said.

Jefferies was the bookrunner for the Rule 144A and Regulation S deal, which was talked to yield in the 11% area.

Proceeds will be used to repay existing debt, for working capital and for general corporate purposes.

And the Brazil sovereign priced a R$1 billion add-on to the 10¼% bonds due Jan. 10, 2028 at 112.226 to yield 8.85%, according to a filing with the Securities and Exchange Commission.

Barclays Capital and Deutsche Bank were the bookrunners for the SEC-registered deal.

The notes are payable in dollars and will be consolidated to form a single series with the R$3.79 billion notes issued in February, March, May and June of 2007.

This comes just after Brazil raised its tax on foreign investment in fixed income securities, a move that some market-watchers say could eventually lead investors to rethink their Brazil allocations as a percentage of their overall Latin American fixed income portfolio exposure.

These notes, however, are part of a global offering and therefore are not subject to the increased tax.

LatAm gets busier

Also from Latin America, Chile-based copper company Corporacion Nacional del Cobre de Chile (Codelco) mandated Deutsche Bank and HSBC as bookrunners for an offering of notes, a market source said.

The Rule 144A and Regulation S transaction is expected to launch following a roadshow from Oct. 21 to Oct. 27. The marketing trip will travel from Los Angeles to London and Boston before wrapping up in New York.

Codelco first floated the idea of the bond issue in August. At that time, the company set the size at about $1 billion.

Sources say other Latin American issuers could bring deals soon, including Mexico-based oil and gas company Petroleos Mexicanos SAB de CV (Pemex), Mexico-based building materials company Cemex and Brazil's Petroleo Brasileiro SA (Petrobras).

It's also possible that Brazil-based steel producer CSN and Brazil-based petrochemical company Braskem SA could look to tap their recent issues of perpetual notes.

"They not only have growing capital expenditure requirements but in many cases are looking to lock in a tight yield level," a market source said. "In the case of CSN or Braskem, I believe they will come to market with a number of deals to try to buy back the old perpetuals."

Doha Bank plans notes

In other new deal news on Wednesday, Qatar-based lender Doha Bank is planning an issue of $500 million in bonds, a market source said.

Issuance is expected to occur in January 2011 with JPMorgan and Morgan Stanley as the bookrunners.

"Obviously there are quite a few deals in the pipeline," Chamie said. "Nothing's necessarily imminent."

Most market-watchers are instead thinking about the upcoming round of earnings reports, a source said.

"We're focusing more on idiosyncratic issues within companies and getting ramped up for earnings season," he said.

In particular he was keeping an eye on companies like Brazilian beef producer Independencia, which failed to make a scheduled bond payment in September, halted production in October and now is planning to meet with creditors to change its debt restructuring plan.

The company's 2015 bond declined about 3.5 cents on the news, a market source said.

"With companies like this going into bankruptcy, it's not overly conducive to bond issuance," a source said. "It all depends on the case."

Still, the pipeline is filling up, and in this climate, "almost anybody can come to market," he said.

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