Adaro, Sri Lanka, Korea Expressway price; Philippines plans benchmark; funds add $878 million

By Paul A. Harris and Christine Van Dusen

St. Louis, Oct. 15 - In Thursday emerging markets bond action, the recently red hot market remained basically unchanged, according to a New York trader who focuses on Asian fixed income - but the primary remained very active.

Issues in the secondary market were "banging around their tights and their highs," the trader said.

For example, Indonesia's dollar-denominated 11 5/8% global bonds due in 2019, which priced at 99.276 early this year, were at 146¾ bid, 147¾ offered, up ½ point on the day.

"That's just the kind of market it is," the trader remarked.

As if to put an exclamation point on the technical bid that is driving up asset prices in the emerging markets, late in the day there was news of a formidable inflow to dedicated EM bond funds.

Funds in the category saw $877.8 million of net inflows, according to EPFR Global - the strongest weekly inflows since EPFR began tracking the data in 1995.

Adaro plays to $6 billion book

PT Adaro Indonesia/PT Adaro Energy Tbk priced an upsized $800 million issue of 7 5/8% 10-year senior guaranteed notes (Ba1/BB-) at 99.141 to yield 7¾% on Thursday, according to market sources.

The deal priced 12.5 basis points better than the original 8% area price talk.

Credit Suisse, Deutsche Bank and UBS AG were joint bookrunners.

Proceeds will be used for capital expenditures and general corporate purposes.

The issuer is a Jakarta, Indonesia, coal mining company.

The dealers built a book around 8%, and it got massive, so they increased the size to $800 million from $500 million, rather than tighten the talk, the New York trader said.

"It really hasn't traded that much in the secondary," said the source.

"It has popped ¾ point from reoffer. But you get the sense that there is actually pretty good selling interest, at these high levels."

The deal played to a $6 billion order book, an informed source told Prospect News.

Among the accounts that played, 40% were U.S.-based, 35% were European and 25% were Asian.

Korea Expressway's 'gimme' deal

Korea Expressway Corp. priced $700 million of 4½% global bonds (A2/A/A+) due March 23, 2015 at Treasuries plus 230 bps on Thursday.

Talk on the deal started out at 250 bps, then ratcheted down to 230 bps to 235 bps, sources said.

Bank of America Merrill Lynch, Deutsche Bank and HSBC were joint bookrunners.

The new bonds proceeded to trade to 215 bps bid, 210 bps offered in the secondary, the New York trader said.

"We've seen almost exclusively buyers," the source added.

The offering, when it was talked at 250 bps, looked like a "gimme" deal, the trader said, noting that every other Korean government-owned entity was trading in the context of 215 bps bid, 205 bps offered.

"The book was massive," said the trader.

"I think that even as guys were going in they realized it was going to get tightened sharply. So it eventually got tightened down to 230."

Sri Lanka brings $500 million

The Democratic Socialist Republic of Sri Lanka priced a $500 million issue of global bonds due Jan. 22, 2015 (expected ratings /B/B+) at par to yield 7.4% on Thursday.

The yield came at the tight end of the 7.4% to 7½% price talk.

HSBC, JP Morgan and RBS Securities were joint bookrunners.

The south Asian country's numerous domestic travails notwithstanding, investors seemed fearless, the New York trader said, adding that post-break the deal traded as high as 102 3/8 bid.

Philippines rolls out 25-year benchmark

Meanwhile, The Republic of the Philippines (Ba3/BB-/BB-) plans to price a benchmark dollar-denominated offering of global bonds due Oct. 23, 2034 on Friday morning, via Deutsche Bank, HSBC and UBS Investment Bank.

Initial guidance on the deal was 6½%, according to the New York trader who expects a $1 billion deal size.

However given the demand - "It was probably subscribed in two or three phone calls" - the trader expects talk to tighten to 6 3/8%

Despite the announcement of considerable new supply toward the longer end of the Philippines maturity curve, no negative impact was seen on existing Philippines global bonds.

The Philippines bonds due 2031 went home at 116½ bid, 117¼ offered, up almost a point on the day.

The deal would have to be $2 billion before you see the secondary market react to the supply in this market, the trader commented.

Biggest inflows since 1995

EM bond funds took in net inflows of $877.8 million this week, according to EPFR Global.

It was the strongest weekly inflow since EPFR Global began tracking this data in 1995.

The next closest week of inflows was the $850 million in the week of Feb. 8, 2006.

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