Asia pipeline grows more; Brazil, Argentina firm on better view about risky assets

By Reshmi Basu and Paul A. Harris

New York, March 17 - The Asian debt pipeline continued to grow Wednesday with planned offerings from Korean East West Power Co., Korean Midland Power and SK Telecom Co.

Among Asian issuers nearly ready to fix terms on their new bonds, Sun Sage Mando BV set the price guidance for its $200 million senior secured notes due 2009 (BB) at a yield of 8% to 8¼%.

The deal is expected to price Friday at the earliest.

JP Morgan and Deutsche Bank Securities are bookrunners on the Rule 144A/Regulation S offering.

SK Telecom, Korea's largest cell phone operator, is planning to unveil a $300 million seven-year note issue to refinance debt.

Credit Suisse First Boston and Citigroup Inc. are the bookrunners for the issue.

Power utility company Korean East West Power Co. is bringing a $200 to $250 million notes deal in April.

The proceeds will be used to help fund power plant construction and to refinance the company's debt.

Credit Suisse First Boston and Barclays Capital are the bookrunners for the issue

However one issuer from the same country is having second thoughts. The impeachment of South Korean president Roh Moo-Hyun may have pushed back Korean Midland Power's plan to issue $150 million notes, a market source said.

Credit Suisse First Boston and J.P. Morgan are running the books for the power utility company.

Brazil and Argentina firmer

In secondary action, that Brazil and Argentina had a solid day Wednesday, a market source told Prospect News.

However he said there was no specific driving force that gave a boost to the markets.

"This morning everyone felt a little better about risky assets, that kind of helped," said the source.

"When the bid on Treasuries faded a little bit in the afternoon, the emerging markets faded a little bit too.

"Risky assets did well today. Treasuries weakened up a little bit. All and all a solid session with a firm tone", he added.

As an indication of the firm session, the Brazilian benchmarks moved higher.

The Brazilian C bonds were quoted finishing at 97.375 bid, 97.625 offered, up 16 cents.

Brazil bonds due 2040 were at 107.50 bid, 107.90 offered, up 30 cents.

Time seen right for Russian issuance

With the calendar building, one source told Prospect News that market conditions are right for emerging market issuance.

"If I was a Russian corporate, I would be borrowing right now. Sovereigns are pretty tight. Treasuries are at an all-time low," the fund manager said.

"Part of the reason why we are seeing so many issues from Russia post the elections is because of issuers' reticence about issuing right before an election.

"It's less the case that people are really excited about Putin having won and his plans for his new term.

"It's more that the companies were thinking, 'Why bring in deals before the election in case there are jittery investors, let's just bring it after,'" said the manager.

"It's a great time to be bringing deals to the market. I'm surprised that we're not seeing a bigger corporate pipeline everywhere in the emerging markets right now, which is not to say that we aren't seeing a pretty good issuance.

"Isn't this when everybody should be issuing? If you plan to borrow money from the markets in the next three years, now seems like a good time to do it."

Fed rates and the Madrid tragedy.

Meanwhile, recent suggestions that the Federal Reserve's decision to hold interest rates unchanged will counterbalance the impact of the terrorist attacks in Madrid were dismissed by a source.

Linking Fed rates with Madrid "feels like apples and oranges," the source commented.

The Federal Open Market Committee kept its federal funds target rate unchanged at a 45-year-low of 1% Tuesday.

"The Fed leaving rates unchanged should not have surprised anybody and the Madrid bombing should have surprised everybody," the source said.

"You can tell the story of how the bombing in Madrid should affect markets, I don't think it's a very high probability scenario. If it's a low probability scenario, the fact that the emerging market debt may fall off 1% to 2% on the back of a news item like this seems disproportionate.

"If there is a 3% or 5 % chance that a bombing in Madrid is sign of a wave of terrorist activity in the next few months that will have a dramatic impact on the world economy, what's the right pricing for emerging market debt if that turns out to be the case? Down 20% - that seems a little severe.

"I feel like the punishment doesn't fit the crime in the sense that a tragedy that kills hundreds of people should not have an impact on world markets," he adds.

April boost but market seen cautious

Looking ahead, April is a key month for emerging market bond performance, according to Banc of America Securities analyst Callum Henderson.

More than $7.5 billion of coupon and amortization payments are due on benchmark dollar-denominated bonds during the month, he wrote in his firm's "Situation Room" report. For April through August the average is $1.8 billion a month.

"Needless to say, the significant natural demand in April that is generated by this is a widely anticipated event, which is giving a further lift to the asset class. Indeed, this is a key reason why we remain constructive on EM near term, and continue to expect full-year returns of around 6%," Henderson wrote.

However the fact that Poland, Mexico and South Africa have outperformed relative to Brazil, Ukraine and Venezuela recently suggests that emerging market dedicated and crossover investors remain cautious.

Looking forward, the three main drivers will be Brazil, the outlook for Fed action and oil prices, Henderson added.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.