Emerging market debt flat on softer U.S. equities; Woori talks hybrid bonds at T+160 bps area

By Reshmi Basu and Paul Deckelman

New York, April 23 - Emerging market debt edged lower Monday amid light trading volumes as the category moved in sympathy with softer U.S. stocks.

In the primary market, Seoul-based Woori Bank set price guidance for a benchmark-sized offering of dollar-denominated hybrid bonds (Baa2/BBB/BBB+) at the Treasuries plus 160 basis points area.

The bonds will carry a 30-year tenor and will be non-callable for 10 years. If the bonds are not called, the coupon steps up by 100 basis points.

Credit Suisse, Merrill Lynch, HSBC, ABN Amro, Deutsche Bank and Woori Investment and Securities are managers for the Rule 144A and Regulation S deal.

The roadshow is scheduled to wrap up in New York on Tuesday.

Adding to the pipeline, Petroleum Company of Trinidad & Tobago Ltd. (Petrotrin) plans to sell a $750 million offering of 15-year amortizing notes (/BBB+/).

Proceeds from the sale will be used to finance a large portion of the $800 million estimated cost for the Gasoline Optimization Project, which is a refinery upgrade program.

Citigroup is the bookrunner for the deal.

From Indonesia, shipping company PT Berlian Laju Tanker plans to start a roadshow for a $200 million offering of seven-year senior fixed-rate notes (/B+/BB-).

The roadshow will hit Singapore from Tuesday to Wednesday, next Hong Kong on Thursday, then London on Friday and will wrap up in New York on the following Monday.

The notes will be non-callable for five years.

Proceeds from the sale will be used for refinancing and for vessel acquisitions.

Deutsche Bank and JP Morgan are joint lead managers for the Rule 144A and Regulation S deal, which will be issued via BLT Finance BV.

EM wider amid light flows

Back to secondary trading, emerging market debt nudged lower Monday amid light trading

During the overnight Asian session, credits were a tad tighter on the back of firmer regional equity performances. In the absence of any credit-specific news, the market posted light flows, which were mainly dealer-driven, according to a market source.

Furthermore, the plump new issue pipeline in Asia has not weighed on secondary trading as investors are not moving out other issues to make space for the incoming supply.

Returning to the New York session, sovereign names traded with a softer tone amid a quiet session as investors are in a wait-and-see mode ahead of a busy week for economic releases. This week will see reports on new and existing home sales, durable goods and gross domestic product.

EM stable

A New York-based trader in Latin American debt issues said that the benchmark EMBI+ index measuring emerging market bond performance seemed to be flat on the day, and the market "does not appear to have moved much."

The index was quoted at around 160 bps, just a little above its all-time tight levels in the upper 150s seen last week. Treasuries were seen firmer on the session as a rally in European government bonds boosted the appeal of higher-yielding U.S. debt.

"It seemed pretty stable on the [EM] external debt side," he continued, adding that "more of the focus was on the equity side, which was a little lower - but none of that was going on on the emerging markets [debt] side."

Brazil edges down

He said that it did look like Brazilian bonds "were a little lower, even after the big rally of the previous few days," which had been sparked by market expectations that the South American country's central bank will continue to reduce interest rates there, as inflation remains under control.

At another desk, Brazil's benchmark 11% global bonds due 2040, after having risen all of last week, were seen to have eased 0.062 to 136.063 from 136.125 on Friday.

The price of Brazil's dollar-denominated 7 1/8% bonds due 2037 likewise were seen to have retreated to around the 114.3 level from 114.5 previously, and their yield widened slightly to 6.07% versus 6.06% on Friday. At the shorter end of the curve the 10% notes due 2011 dipped to slightly below the 118 level from prior levels around 118.125, as yields firmed about 5 bps to 5.23%.

Even with that slight pullback from Friday's tight levels, prices on Brazil's debt remain near all-time highs and yields near their all-time tights, following last week's big moves sparked by investor optimism that the next round of central bank rate cuts might exceed the 25 bps reduction the bank announced on Wednesday, since three of the seven central bank governors had actually wanted a 50 bps cut, arguing that inflation was well under control.

As it was, the key Selic lending rate was lowered to 12.5%, a record low more than 7 percentage points below the peak of 19.75% at which that rate stood as recently as September 2005.

Inflation, as measured by the consumer price index, fell to just 3% in March - its lowest level since 1999, and well below prior federal forecasts of a 4.5% rate this year.

On Monday, the central bank released a poll of about 100 analysts - and their consensus is that consumer prices are likely to rise by 3.59% over the next 12 months - lower than their recent projection of a 3.64% inflation rate.

ABN liquidates Argentina, Venezuela

Elsewhere, ABN-Amro Asset Management confirmed Monday what many in the market had already suspected - that the big fixed income fund, which manages over $8 billion of total assets, slashed its holdings of Argentinean and Venezuelan debt to less than half of its previous weightings following the recent departure of respected fund manager Raphael Kassin.

Market suspicions that the weightings would be cut caused some $1.6 billion of redemptions from the fund in the week ended Wednesday.

The trader said that the speculation that ABN-Amro's fund would cut its Venezuelan and Argentine holdings "had a huge impact on Argentine and Venezuelan assets" over the previous several sessions.

He saw Argentina's widely traded discount bonds as having fallen to about 109 bid from 117 "in the last few days on the back of that." However, he saw little additional movement Monday, saying "the market knew about that for over a week now, and the reaction basically came last week on that. Now, it's starting to recover a little bit."

Venezuelan issues, he said, had all seen considerable movement last week.

"Everyone knew about the big position [change] last week. Today [Monday], they came out with the confirmation."

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