Pipeline jam-packed as Kepco, Buenos Aires, Braskem price notes; Venezuela stays in focus

By Christine Van Dusen

Atlanta, Sept. 27 - Emerging market trading volumes remained light on Monday and new issuance continued to dribble out of an increasingly clogged pipeline - with pricing from Korea Electric Power Corp., Buenos Aires and Brazilian petrochemical company Braskem SA - as investors remained concerned about the global economy.

"Fiscal concerns in the euro zone set a gloomy tone," according to a report from RBC Capital Markets.

Still, emerging market debt made moderate gains on the day, with five-year credit default swaps "generally 3 to 10 basis points tighter," the report said.

At the same time, prices were "a little firmer," a market source said. "This is going to be a generalized trend, where there's some grinding to higher price levels and lower yields and compressed spreads simply as the market continues to watch for quantitative easing from the U.S."

Meanwhile, much of the market's attention was focused Venezuela, which saw its asset prices bump up in response to parliamentary elections that kept president Hugo Chavez in control but did not give the government a two-thirds majority, indicating growing strength for the opposition.

Kepco, Braskem do deals

Seoul-based electric utility Korea Electric Power priced $700 million 3% notes due Oct. 5, 2015 at 99.664 to yield Treasuries plus 180 bps, a market source said.

"They were in and out of the market in a single day," he said.

Bank of America Merrill Lynch, Barclays Capital, Credit Suisse, Goldman Sachs and Morgan Stanley were the bookrunners for Rule 144A and Regulation S transaction, which was talked at Treasuries plus 180 bps.

Proceeds from the notes, which are part of the company's $3 billion global medium-term note program, will be used for general corporate purposes.

The day also saw Brazil-based petrochemical company Braskem price $450 million perpetual notes at par to yield 7 3/8%, according to an informed market source.

Deutsche Bank, HSBC and Itau were the bookrunners for the Rule 144A and Regulation S notes, which are non-callable for five years and were whispered to yield in the mid-to-high 7% area.

Proceeds will be used for general corporate purposes and to redeem the company's outstanding 9¾% perpetual bonds and 9% perpetual bonds.

And Argentina's Buenos Aires priced $550 million 11¾% notes due 2015 at 99.076 to yield 12% via Bank of America Merrill Lynch and Deutsche Bank in a Rule 144A and Regulation S offering.

"New issues continue to print, taking advantage of demand for EM paper and low global rates," a trader said.

Pipeline crowded

Calling the day "incredibly busy on the EM front," a New York-based market source said "there are signs that there may be a little bit of overcrowding, particularly with some of the Latin American issuance out there right now. But so far the supply continues to get absorbed and there continues to be money to be put to work."

When the pipeline is this clogged, "you have to be more careful on execution windows and roadshow schedules and pricing," he said. "There are a lot of options for investors to choose from right now, and that could lead to a little bit of fatigue in certain names and sectors."

Given that fund flows hit $1 billion last week, "there's still money to be put to work, but there are a lot of options right now, with borrowers from across the ratings spectrum looking to get bond deals done," he said.

Among the deals in the pipeline is Sri Lanka's planned $1 billion bonds due 2020, which were launched Monday to yield 6¼% via HSBC, RBS and Bank of America Merrill Lynch, a market source said.

Perpetual notes popular

Also coming up is the $400 million 10-year bond issue from Banco Internacional del Peru SAA (Interbank) in a Rule 144A and Regulation S transaction with Bank of America Merrill Lynch and JPMorgan. A roadshow ends Wednesday.

And Santiago-based Banco de Chile is preparing its issue of dollar-denominated notes.

Additionally, several issuers are looking to do perpetual notes, the New York-based market source said.

On that list is Brazil-based property developer BR Properties SA with a $250 million offering via Credit Suisse and Itau Unibanco and Brazil-based cement manufacturer Votorantim Cimentos Ltda. with a $500 million offering.

"There's a huge number of borrowers in the market out of Latin America," the New York-based market source said.

Venezuela up after election

The situation in Venezuela also helped keep the region in focus on Monday. The election results showed "a strengthening of the opposition, which increases the possibility of it winning the 2012 presidential election," according to a Barclays Capital report.

This increases "the possibility of a democratic and peaceful transition - a scenario currently assigned a probability close to zero by the market," the report said. "We believe this change in view should translate into higher asset prices."

Indeed, already on Monday the sovereign's 2027 bonds were "bid up 2¾ to 72½ bid," said Enrique Alvarez, debt strategist with think tank IDEAglobal. "There's been a nice pop in Venezuela."

On total return performance, the sovereign was up "close to 2% last week and is now kicking off this week on a very positive note," he said.

Investors bid up the 2027 bonds by "2¾ to 72½ bid," he said.

And Venezuela's five-year credit default swaps tightened 40 bps.

Though it would have been reasonable to expect the Venezuela news to impact other Latin American countries like Argentina, that sovereign in particular "has its own dynamics," Alvarez said. "But this is another day where you sequentially see more risk-on trades. That reflects positively in Latin America."

Argentina's 2033 discount bond was up 2½ points at 82½ bid on the day, he said.

The sovereign's Boden 2015s closed nearly unchanged at 91.60, the trader said.

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