Risk aversion returns, spreads widen as PDVSA, CAF, Glorious Property, TDB Mongolia price

By Christine Van Dusen

Atlanta, Oct. 18 - New deals dribbled out of the pipeline - including notes from Venezuela's Petroleos de Venezuela SA and Corporacion Andina de Fomento, as well as two issues from Asia - as investors worked to digest the recent spate of supply and became slightly cautious on concern about European credit.

Monday morning saw "a risk-off move in EM," according to a report from RBC Capital Markets. "A correction in EM seemed inevitable after the recent rally, but with (quantitative easing) still expected next month, the sell-off in risk is unlikely to be prolonged."

The resulting activity on Monday was "very slow," a New York-based trader said.

Another New York-based market source noted the same tone. "It's a little calmer. It's very quiet, with not much going on," he said.

"I would've expected the market in general to do better today, with the better tone in U.S. equities and bonds. But we've had a massive run in the last two or three weeks, with a significant amount of bonds sold at the end of last week, and there's still an overhang of supply so far right now."

So investors seem to be "in consolidation mode right now," he said. "It seems like we got a little bit ahead of ourselves."

Treasuries rallied on the day, which sent spreads wider across the board, an emerging markets strategist said.

"Prices are just not keeping up with the gains on the U.S. Treasuries side," he said.

Spreads rise

Ukraine's spreads were wider by 10 basis points while Venezuela's were wider by 13 bps. Brazil was also wider by 8 bps.

Argentina's 2015 bonds closed at 93 bid, 93.10 offer, while Venezuela's 2022s closed at 86.65 bid, 86.90 offer. The Brazil 2040s closed at 140 bid, 140.10 offer, and the Mexico 100-year bond closed at 97.20 bid, 97.50 offer.

The strategist didn't think any of this had much to do with Monday's report that industrial production in the United States declined 0.2% in September versus the prior month, given that such data likely raises the likelihood of further monetary easing.

"I think it's just maybe some indigestion in the market - that and the recognition on the equity side that the rally has gone an awfully long way," he said.

Given that there's more and more talk of a possible bubble "building on the emerging markets front, we might see some profit taking, which would be good," he said. "We need to deflate the bubble before it becomes unsustainable."

The fundamentals for EM assets haven't changed, he said. "There are more upgrades than downgrades. Growth in EM is outpacing that in developed nations," he said. "And there is not sufficient supply to accommodate demand, in general. So I think this will be a little blip and will be temporary.

"We might see a sell-off if other concerns come to the fore. But I don't imagine that any reversal will be sustained for a long time because the fundamental underpinnings for the market remain robust."

PDVSA, CAF price

Meanwhile, the long-awaited $3 billion bond issue from Caracas, Venezuela-based state-owned oil company Petroleos de Venezuela came to market with a coupon of 8½% and priced at par, a market source said.

Investors can buy the notes at a rate of 4.3 bolivars to the dollar and then trade the bonds in dollars in the secondary market.

The notes are offered concurrently with a debt swap of $3 billion 2011 local-law bonds for a new 8% semiannual 2013 Luxembourg law bond.

And Venezuela-based lender Corporacion Andina de Fomento priced CHF 250 million 2 5/8% notes due Oct. 5, 2015 at 99.884, a market source said.

Other details were not available Monday.

Asia picks up steam

Hong Kong-based property developer Glorious Property Holdings Ltd. priced $300 million notes due Oct. 25, 2015 at par to yield 13%, a market source said.

Standard Chartered Bank was the bookrunner for the Regulation S notes, which are callable on Oct. 25, 2013.

Proceeds will be used for general corporate purposes and to fund existing and new property projects.

This follows the company's April postponement of a dollar-denominated issue of global bonds. That delay was blamed on an abundance of competition in the market, as well as the contagion effect from the Greek debt crisis.

Also from Asia, the Trade Development Bank of Mongolia priced $150 million 8½% notes due Oct. 25, 2013 at 99.353 to yield 8¾%, a market source said.

ING was the bookrunner for the Regulation S-only transaction.

And China-based integrated coal company Hidili Industry International Development Ltd. announced plans for an offering of senior unsecured bullet notes via Citigroup, Bank of America Merrill Lynch, UBS and JPMorgan.

Proceeds will be used for general corporate purposes, to upgrade existing production capacity in the company's network of mines and facilities in Southwestern China, for existing machinery and infrastructure, and to repay existing debt.

"It still feels like there are plenty more new issues to come," a London-based trader said.

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