ECB-inspired confidence checked by U.S., Europe economic woes; Sberbank, Berau Capital price

By Christine Van Dusen

Atlanta, June 30 - Dreary economic data from the United States - along with worries of a ratings downgrade for Spain and continued concern about the European economic crisis - kept volumes light and activity slow in emerging markets debt Wednesday. But positive news about the European Central Bank's recent round of loans did manage to hearten investors somewhat, and helped inspire two issuers to bring deals to market.

The U.S. economy added just 13,000 jobs in June, according to an ADP report released Wednesday. And Moody's Investors Service announced it will review Spain's ratings and could downgrade the sovereign by two levels. But word that the ECB doled out about €132 billion in three-month funds, short of the expected €250 billion, sent yields on 10-year Treasuries up about 2 basis points by mid-day.

"Banks are not as reliant on the ECB as we'd thought, so that's a risk that's not entirely laid to rest but has been addressed," an emerging markets strategist said. "So that's a positive. And other issues are being laid to rest: the U.S. banking regulation reform is behind us and stress tests among European banks are underway."

Investor confidence ticks up

That inspired some confidence in emerging-market investors and issuers, but only enough to draw out mostly higher-grade names.

"It's very clear that the speculative grade credits have taken a big hit over the past week. There are still too many clouds on the horizon," the strategist said. "A lot of the issues that are coming in the near term are all high grade stuff,

So it was that Moscow-based lender Sberbank priced $1 billion of 5.499% notes due 2015 at par to yield 5.499% or mid-swaps plus 345 basis points, according to a market source. That was at the tight end of talk for mid-swaps plus 350 bps.

DZ Bank, JPMorgan and RBS were the bookrunners for the Regulation S notes, which were rated A3 by Moody's and BBB by Fitch.

Berau Coal sells notes

At the same time, though, a lower-rated issue did manage to print on Wednesday.

Indonesia's Berau Capital Resources Pte Ltd, a subsidiary of Kalimantan Timur-based coal producer and exporter PT Berau Coal Energy, priced $350 million of 12½% notes due 2015 - rated B2 by Moody's and B+ by Standard & Poor's - at par to yield 12½%, according to an informed market source.

Credit Suisse and Deutsche Bank were the bookrunners for the Rule 144A and Regulation S deal, which is non-callable for three years and guaranteed by PT Berau Coal Energy and all of its active subsidiaries. Proceeds will be used to refinance existing indebtedness and help fund the acquisition of Maple Marketing Co.

Issuers set guidance

Also on Wednesday, several issuers set price talk for planned deals.

Moscow-based financial services company Promsvyazbank set guidance for its planned dollar-denominated issue of Tier 2 loan participation notes - possibly totaling $100 million - at 11¼%, according to a market source.

Citigroup, PSB and RBS are the bookrunners for the Regulation S deal, which is expected to price this week.

Another Russian company, Moscow-based Bank for Development and Foreign Economic Affairs Vnesheconombank, set initial price talk for its planned eurobonds due 2020 at mid-swaps plus a spread in the high 300 bps, a source said.

Barclays, Citigroup, HSBC, Societe Generale, ING, Troika Dialog and VTB Capital are the bookrunners for the deal.

And Sao Paulo, Brazil-based lender Banco Cruzeiro do Sul talked its planned $100 million issue of notes due 2013 at 7% to 7¼%.

BCP Securities is the sole lead for the deal, which is expected to price the week of July 5.

But other than that, the day was "very quiet," a New York-based trader said.

Cash piles up

Venezuela and Argentina were "down quite a bit" on Wednesday, the strategist said.

The New York trader noted the same trend. The Venezuela 2027 bond closed at "67.25 from 68.5 yesterday," he said.

Ukraine was also down on Wednesday, the strategist said. "So why would you want to issue in this market, especially if you think things might turn around a bit?"

Investors are sitting on a lot of cash right now, he said. "Their cash positions are increasing," he said. "With every maturity and without any redemptions, their cash has got to grow unless there's somewhere to put it. Given that dynamic, I think the high-grade EM bonds will be snapped up."

Lower-grade EM issuers will likely wait a bit longer before bringing deals to market, he said. "But they won't have to wait that long. Investors' cash positions are growing, so a demand-driven recovery is inevitable unless there's a reason for investors to pull out, en masse. I just don't see that."

But at the moment, there are "too many reasons to stay on the sidelines," the New York trader said.

The market will be "really cheap if it continues in the direction it's going," he said. "And then we'll see a nice big rally, and the other issues will be able to come to market. But in the near term it seems as though that's not entirely the case for speculative-grade guys."

There are too many reasons to "stay on the sidelines,"

Risk appetite down

Corporates, in general, performed "fairly well" on Wednesday but sold off a bit as the close neared, the New York trader said. Meanwhile sovereign EM bonds lost some ground in the last hour of trading.

The higher-beta credits were mostly unchanged on the day after being 4 to 5 bps tighter at mid-morning.

"The late sell-off in the equity market takes prices back down and through last night's closes, in the higher-beta credits," he said. "The weaker close in equity markets again has put risk appetite on the back burner and the higher-beta credits took the worst of it."

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