U.S. economic data suppress risk appetite; Coastal Road, PCCW set talk; Codelco eyes notes

By Christine Van Dusen

Atlanta, Aug. 19 - Emerging market issuers and investors mostly stuck to the sidelines on a slow summer Thursday amid fresh reports of economic difficulty in the United States, which raised the appeal of safer assets.

Jobless claims for the week ended Aug. 14 climbed to a higher-than-expected 500,000, according to the U.S. Labor Department. This knocked Treasury yields down, with 10-year yields at one point falling to their lowest in about 14 years and 30-year yields finishing the day at their lowest level in more than a year.

This, in addition to the usual seasonal sluggishness, slowed the primary market and dampened the secondary market on Thursday.

"It's generally pretty quiet," a London-based trader said.

A Connecticut-based trader echoed this sentiment. "In my world there's not a lot going on. It's been as quiet as it can be," he said. "Things are as expensive as they can be. At these levels there are not a lot of buyers. We saw some yesterday, but not today. We're not seeing much selling either."

Cash on sidelines

The London trader did see some buyers for Qatar and "the Middle East in general," he said. "Europe is languishing a little bit but again that's probably got a lot to do with the Treasury moves. Prices haven't changed."

There's a fair amount of cash out there "but they're not putting it to work," the Connecticut trader said. "Equities are down almost 2%, and we're not really lower. I don't know what will make the market move lower."

Investors "still lack very strong conviction," an emerging markets strategist said. "As much as you'll see pockets of risk appetite that has brought fresh buying, it typically has been very short-lived and very opportunistic. Generally speaking it's a reflection of a lack of conviction and poor visibility in terms of the broader global macro themes going into September."

Liquidity, he said, "has been somewhat poor in August."

Currency interventions possible

In Latin America, Colombia and Chile have been outperformers and are "to the point where now investors are much more sensitive to any shifts in terms of currency intervention," the strategist said.

Colombia is grappling with the possibility that the government will intervene in foreign exchange markets to limit currency gains that hobble local exporters. Chile also faces the possibility of an intervention designed to make the currency there more competitive.

"That will be the big topic over the next week or two," the strategist said.

Meanwhile, one Chilean issuer took a step toward the market on Thursday.

The Santiago-based, state-owned copper company Corporacion Nacional del Cobre de Chile (Codelco) is planning an issue of up to $1 billion in dollar bonds, a market source said.

Proceeds are expected to be used for general corporate purposes, as well as for copper projects.

No other details were available on Thursday.

Also from Latin America, Venezuela-based state-owned oil company Petroleos de Venezuela SA (PDVSA) is expected to bring to market a $2 billion bond. This would follow the sovereign's $3 billion 12¾% bonds due 2022, which priced last week at par via Credit Suisse and Deutsche Bank in a Regulation S deal.

Issuers set price talk

Also moving forward with plans for a new issue is Philippines-based Coastal Road Corp. The Manila-based toll operator set price talk for its planned issue of $165 million bonds due 2022 at 12%, a market source said.

Bank of America Merrill Lynch and Standard Bank are the bookrunners for the deal, which could price by day's end Friday. Proceeds will be used to fund the purchase of toll road revenue and rights.

Hong Kong-based telecommunications holding company PCCW Ltd. also set price guidance for a planned issue of notes. The 5.5-year bonds, to total $300 million to $500 million, were talked at Treasuries plus 295 bps to 300 bps, according to a market source.

Morgan Stanley, Standard Chartered, RBS and HSBC are the bookrunners for the deal.

Proceeds will be used for general corporate purposes, including debt refinancing, according to Moody's Investors Service.

KenGen, Philippines consider deals

Thursday also saw Nairobi, Kenya-based power producer Kenya Electricity Generating Co. Ltd. (KenGen) considering a $1 billion bond issue, a market source said.

Proceeds would be used to finance the company's $4.5 billion expansion plans.

No information on timing was available.

KenGen has recently made news for seeking to reduce the sovereign's stake in the company to 51% from 70%.

And the Philippines is looking at a possible issue of peso-denominated notes worth $500 million, a market source said. No other details were available Thursday.

Indonesia, meanwhile, is delaying its planned sukuk offering until 2011 for undisclosed reasons, according to a market source.

The sovereign had been expected to issue about $650 million by the end of the second quarter of 2010. Citigroup, HSBC and Standard Chartered were the bookrunners.

Market sources were also whispering about a possible sukuk issue from Philippines' state-owned Al Amanah Islamic Bank.

There's an "obvious lack of new issuance," a New York-based trader said. "But that should pick up substantially come early September."

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