Korea National Housing plans benchmark dollar deal; Naftogaz flat as exchange faces headwinds

By Paul A. Harris

St. Louis, Aug. 27 - Emerging markets remained ultra-quiet, and were generally flat during the Thursday session, according to a buy-side source.

At the U.S. close, the EMBI Plus index was at 373 basis points bid, 4 bps tighter on the day, the investor said.

Meanwhile there was positive news regarding the cash flows of dedicated emerging markets funds. Those funds saw $303.2 million of inflows for week to Wednesday, according to Brad Durham of EPFR Global.

That left year-to-date flows at negative $371.9 million, he added.

However, since the end of the first quarter of 2009 the dedicated funds have plowed dramatically back toward the balk line: on April 8, 2009, year-to-date flows stood at negative $3.8 billion, Durham said.

Korea National Housing roadshow starts Monday

News in the form of a high-grade Asian quasi-sovereign surfaced in the primary market on Thursday.

Korea National Housing Corp. will begin a roadshow on Monday for a benchmark-sized dollar-denominated offering of senior unsecured notes (A2).

Marketing is expected to wrap up on Wednesday.

Even though the deal is dollar-denominated, it will be sold under Regulation S only, a U.S. based asset manager told Prospect News.

Since Korea National Housing will not be a Rule 144A deal, U.S.-based investors will be virtually shut out of it, the buy-sider added.

Bank of America Merrill Lynch, Citigroup, Goldman Sachs & Co., Morgan Stanley, Samsung Securities and UBS AG have been mandated to lead the deal.

Proceeds will be used for general corporate purposes.

No chasers

Meanwhile, although allocations for Wednesday's $500 million 10-year offering from South Africa were dire, investors who were cut back apparently declined to chase the deal higher in the secondary market, according to an asset manager on the U.S. West Coast.

To recap, South Africa priced a $500 million add-on to its 6 7/8% senior fixed-rate global bonds due May 27, 2019 (A3/BBB+/BBB+) at 107.511 to yield 5.85% on Wednesday.

Barclays Capital and JPMorgan led the deal.

Allocations were very bad, the West Coast-based investor told Prospect News on Thursday afternoon.

In trading the bonds were at 107¾ bid, 108 offered, versus the 107.511 issue price, the buy-sider said.

"It didn't come cheap," the investor remarked.

"They tightened the price talk to 107.50 from 106.75 when they saw how much demand there was."

The fact that it has not traded up more is probably a reflection of people resigning themselves to their allocations, as opposed to chasing the bonds higher in the secondary market, the buy-sider said.

Looming maturity for Naftogaz

Sources gave varying spots on the debt of Ukrainian state energy firm Naftogaz, as word spread that the its attempt to restructure $500 million of 8 1/8% eurobonds, which come due on Sept. 30 - 34 days from now - is facing headwinds.

Word circulated the market that 20% of the bondholders do not intend to go along with the restructuring, a trader in Europe related.

"Naftogaz is trying to speak to the holdouts," the trader said as the European session was drawing to a close.

"However everybody was expecting a full restructuring because Naftogaz got quite a lot of money from the government.

"Now it appears as though the [exchange] deal is not printed in stone, and Naftogaz traded incrementally lower."

However a fund manager in the U.S., heading into the New York close, saw the Naftogaz 8 1/8% notes due Sept. 30, 2009 at 83 bid, 86 offered, basically unchanged.

Nevertheless, there is very little time left before Sept. 30, the fund manager pointed out.

Showdown in Argentina

On Friday market watchers expect to learn whether Argentine farmers will follow through with a threatened seven-day strike to protest a presidential veto of legislation that would have provided tax relief to farmers in drought-stricken districts.

The threatened strike continued to cause Argentine debt to sell off on Thursday, sources said.

Near the close in Europe, a trader there saw the Argentina 8.28% discount bonds due in 2033 at 60½ bid, and added that they were at 64 bid on Tuesday.

The trader reckoned that since Tuesday they have fallen approximately 3½ points.

As trading carried over into North America, Argentina's 2033 paper apparently continued to slide.

The discount bonds were at 59¾ bid, 60¾ offered heading into the U.S. close, down a point, according to a buy-side source.

Dramatizing Argentina's mid-week tumble is the fact that Argentine debt rallied smartly early in the week as investors warmed to news of a debt exchange had been undertaken in order to address its near-term maturity inflation-linked notes

On Monday, when news of the debt exchange was fresh, Argentina's 2033 discount bonds were seen at 65 bid, 66½ offered.

That was approximately 6 points higher from 60 bid the previous week, a trader said.

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