Korail prices $200 million; Aruba sets talk for five-year bullet; Russia/CIS CDS wider on Georgia turmoil

By Paul A. Harris

St. Louis, Aug. 26 - The emerging markets flickered to life with sovereign and quasi-sovereign action in the primary market as Korea Railroad Corp. priced a $200 million add-on to its 5 3/8% notes due May 15, 2013, and Aruba set guidance on a $50 million to $60 million five-year bullet.

Late in the afternoon an investor spotted the EMBI Global Diversified index trading at a 340 basis points spread to Treasuries, 1 bp wider on the day.

This buy-sider also gave spots on some of the Latin American benchmarks.

The name that made the boldest play for the eye was that of Ecuador which, the buy-sider said, was down 1½ points across the curve on Tuesday.

Pressed for an explanation, however, the investor was unable to supply one.

Ecuador's 10% bonds maturing in August 2030 were at 87½ bid, 88½ offered, the source said.

Earlier in the day another market source also saw the Ecuador 2030 paper lower on the day at 87.55 bid.

Elsewhere, the investor said, Argentina was up a little on news concerning its debt buyback program.

Meanwhile the Venezuela 9¼% notes due September 2027, one of the more liquid high-beta bonds from Latin American, were unchanged at 91 bid, 91¾ offered, the investor said.

Moving up to the top of the region's quality spectrum, Brazil's 11% bonds maturing in August 2040, considered to be the most liquid instrument of the emerging markets asset class, were unchanged at 132 bid, 132.05 offered.

Korail prices $200 million

Korea Railroad Corp. priced a $200 million add-on to its 5 3/8% notes due May 15, 2013 (A2/A) at 97.813 to yield 5.9125% on Tuesday.

Citigroup Global Markets, HSBC Securities and Morgan Stanley were joint bookrunners for the Rule 144A/Regulation S add on.

Tuesday's $200 million tap takes the total issue size to $500 million.

Late Tuesday a trader who focuses on Asian fixed income names said that Korail's existing bonds were trading at a 155 bps spread to Libor.

This source added that there has recently been very little activity in Asian paper.

For example, the source said, reports - subsequently denied - that Korea Development Bank is considering a potential acquisition of troubled New York investment bank Lehman Brothers seem to have sparked no trading whatsoever in the existing securities of the Korean bank.

Aruba plans deal

Elsewhere in the primary market Aruba has plans to sell $50 million to $60 million of five-year non-callable notes (/A-/BBB) this week, according to a market source.

The deal is talked at a spread to Treasuries of 280 to 295 basis points.

The source was unable to identify the bookrunner.

Russia/CIS wider

Meanwhile on Tuesday, Prospect News continued to press its sources for color on how the political and military conflict surrounding the breakaway Georgia regions is impacting credit.

In terms of the headline news, Russian president Dmitry Medvedev reportedly signed decrees recognizing the independence of South Ossetia and Abkhazia on Tuesday - a move that Western governments tended to frame in "expansionist" terms and were quick to condemn.

Since the conflict began earlier this month the Russia/CIS five-year credit default swaps are probably about 25 to 30 basis points wider than other (non-CIS/Russia) countries, such as Turkey, according to an emerging markets syndicate official in London.

Before the conflict Russia's five-year CDS was around 100 to 102 bps, but is now at 137 to 140 bps, the official said.

Ukraine, which is perceived as the next potential Russian target, is also getting hit, the official added, noting that Ukraine CDS was at 390 bps before the conflict, then rocketed out to 480 bps before settling at their current level of 435 bps, according to the source.

By comparison, the official said, since that Georgia conflict Asia has been about flat, with only modest variation, and Latin America, excluding Argentina, has been about the same.

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