Emerging market debt sees tepid trade amid illiquid session; Buenos Aires taps markets

By Reshmi Basu

New York, April 10 - Emerging market debt backed away from record low spreads Tuesday as liquidity continued to run thin.

In the primary market, the Province of Buenos Aires (B3/B+) sold a resurrected $400 million offering of amortizing notes due 2028 at par to yield 9 5/8%.

The deal priced in line with guidance for a yield of 9 5/8%.

On Feb. 28, 2006, the province shelved a planned $425 million notes offering due to market conditions.

Barclays Capital and Deutsche Bank were lead managers for the revived Rule 144A and Regulation S offering.

Adding to the Asian corporate pipeline, Hong Kong's Wing Hang Bank launched a roadshow Tuesday in Hong Kong for a dollar-denominated offering of perpetual bonds.

The roadshow will move to Singapore on Wednesday, April 11 and then wrap up in London on Thursday, April 12.

The bonds will be non-callable for 10 years.

Citigroup, HSBC, and UBS Investment Bank are lead managers for the Regulation S sale.

Coming out of Korea, GS Caltex Corp. plans to sell a dollar-denominated offering of 10-year bonds (Baa1).

Barclays Capital, Deutsche Bank, Citigroup, and Goldman Sachs are managers for the Regulation S transaction.

The Seoul, Korea-based issuer, formerly known as LG Caltex, is an oil refining company.

EM widens slightly

Emerging market debt turned in a humdrum session Tuesday as the category was unable to keep pace with the rally posted in U.S. Treasuries. Overall, the asset class traded in tight ranges on a price basis. Spreads on the JP Morgan EMBI Global index closed out at 163 basis points versus Treasuries, 2 basis points wider than Monday's record low.

"The market in general has been lackluster," said Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

Among benchmark names, the bellwether Brazilian bond due 2040 added 0.05 to 134.90 bid to yield 5.69%. The Mexico bond due 2026 gained 0.34 to 161.62 bid to yield 6.02%. The Turkish bond due 2030 gave up 0.38 to 154.19 bid to yield 7.06%.

Ecuador tops the market

However, Ecuador bucked the trend as it outperformed overall benchmarks.

The Andean credit is receiving support from two prongs: the current appetite for the high yield on its bonds as well as the potential calming of tension on the political landscape.

In a referendum on Sunday, voters are expected to strongly support president Rafael Correa's plans to set up an assembly to rewrite the nation's constitution, which will increase his powers.

For nearly a month, Ecuador's congress has been shut down on an impasse between Correa and 57 fired legislators, who attempted to block the president's attempts to rewrite the constitution.

"Ecuador is the only instrument out there left north of 200 to 220 basis points," noted Alvarez, who added those levels coupled with the easing of tension has made the credit an outperformer.

At the close, spreads for Ecuador narrowed by 18 basis points.

In trading, its bond due 2030 gained one point to 90.50 bid to yield 11.15%.

Ukraine weaker

Elsewhere, Ukraine posted losses over the political stalemate between president Viktor Yushchenko and parliament. The constitutional court has been asked to rule on the legality of the decree by the president to dissolve parliament and his call for early elections.

During the session, the country's portion of the EMBI lost 0.20%.

Latin America slow to issue

Meanwhile despite the relative stability following February's prolonged sell-off, new supply from the Latin American region has been scarce, an occurrence that it is puzzling to some sources.

"If you look at activity yesterday [Monday], we were at all-time tights for Brazil and Mexico," noted Alvarez. Furthermore, spreads for Colombia flirted with record lows.

With spreads so tight, indeed, it is surprising that more Latin America issuers have not taken advantage of the scarcity of supply, the hunger for yield and current spreads to tap the market.

"I suspect that they [issuers] understand the concerns that are out there for the U.S. side of the equation," noted Alvarez.

On the other hand, the pipeline for Asian credits has been become plumper on the current stability in the market. But as Alvarez noted, there is no competition or crossover contention between Asian names and Latin American issuers.

"They are different investor bases. But at this point in time, Asia also has a very large absorption and a very, very low cost basis because if you're borrowing in yen, which they basically do, anything you can capture basically puts you at a very advantageous point on a leveraged basis," he added.

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