Emerging market debt moves higher with U.S. markets; several upcoming new issues set talk

By Reshmi Basu and Paul A. Harris

New York, Oct. 4 - Emerging market debt bounced higher as U.S. core financial markets rallied on the back of data that showed a slowdown in the service industry and reassuring comments made by Federal Reserve chairman Ben Bernanke.

In the primary market, several issuers set price talk on upcoming deals.

The Institute for Supply Management's non-manufacturing index fell to 52.9 in September from August's 57, coming below market forecasts. That helped reinforce sentiment that the pause in U.S. monetary policy is still in play.

Also adding support, Fed chief Bernanke said that the housing market is demonstrating a "substantial correction" and that "inflation will come down over time."

On that, U.S. stocks posted their biggest rally in seven weeks while U.S. Treasury yields came down, providing a supportive backdrop for emerging market debt to push higher, according to market sources.

Brazil up on U.S. markets

Prior to Wednesday's action, investors had turned their attention to political developments in Brazil. On Tuesday, investors grappled with the reality of the results from Brazil's election on Sunday, which produced a divided congress and a presidential run-off.

President Luiz Inacio Lula da Silva will face off against business friendly opposition candidate Geraldo Alckmin in the second round election on Oct. 29.

There are worries that neither candidate will be able to muster enough support to push through ambitious tax and pensions reforms amid a torn Congress.

Those concerns sent Brazilian bond prices lower on Tuesday.

But on Wednesday "the market chose to ignore political noise and track U.S markets higher," according to a trader.

During the session, the Brazilian bellwether bond due 2040 added 0.80 to 131 bid, 131.15 offered.

Ecuador down on poll fears

Meanwhile Ecuador continued to stumble on election jitters as polls suggested an increased likelihood that radical leftist Rafael Correa will emerge as the outright winner in the first round of the presidential elections. Even more worrisome is that Correa looks set to have a clear mandate to preside, noted a market source.

In trading, the Ecuadorian bond due 2015 gave up 2.25 to 93 bid, 94 offered while the bond due 2030 gave up 0.90 to 90 bid, 91.25 offered.

Elsewhere, oil producer Venezuela halted Tuesday's sell-off as oil prices rebounded on violence in Nigeria. In trading, the Venezuelan bond due 2027 added 1.65 to 121.75 bid, 122.40 offered.

In Tuesday's session, the country had seen its component of the JP Morgan EMBI Global index kick out by 16 basis points, making it the session's loser.

Corporates set talk

In the primary market, several corporates set price talk for deals on their way to market.

Brazilian beef producer and exporter Bertin Ltda. set talk for its $150 million offering of 10-year senior notes (Ba3/B+) at a yield of 10¼% to 10 3/8%.

The offering is expected to price on Thursday.

Credit Suisse, Morgan Stanley and Standard Bank are joint bookrunners for the Rule 144A/Regulation S offering.

Moving to Kazakhstan, JSC Nurbank set price guidance for $150 million offering of five-year fixed rate notes (Ba3/B issuer's rating) at 9 ¾% area via HSBC and ING.

The roadshow ended on Wednesday while pricing is expected to take place on Friday.

Majapahit Holding BV, a financing subsidiary of Indonesia's state-owned electric utility, PT Perusahaan Listrik Negara (PLN), will begin marketing a benchmark-sized offering of 10-year notes (expected B1/confirmed BB-) on Thursday in Hong Kong.

UBS is leading the Rule 144A/Regulation S offering which will subsequently be presented to investors in Singapore on Friday, in London on Monday, and in New York from Oct. 10 to Oct. 12.

The notes, which are expected to price at a discount to the Indonesian sovereign, will come with a maintenance-of-sovereign-ownership covenant and a negative pledge covenant, as well as debt incurrence limitation covenants.

Meanwhile one corporate scrapped its plans to sell bonds while another is resurrecting its bond offer.

Mexican transport company Grupo Senda Autotransporte SA de CV has shelved an offering of $200 million in10-year senior notes (/B+/B).

The deal had been expected to price Wednesday. Guidance was set at 11% to 11½%.

In lieu of the bond deal, the issuer may seek a secured term loan or offer a new bond structured with warrants.

Citigroup was managing the Rule 144A/Regulation S offering.

Finally, Krung Thai Bank PCL plans to have another try at $200 million offering of perpetual securities that it originally priced on Sept. 20.

On Sept. 22, the issuer withdrew the securities due to market volatility. The deal priced on the same day that Thailand's military dislodged prime minister Thaksin Shinawatra.

Krung Thai sold the $200 million issue of 7.462% perpetual hybrid tier 1 securities (Ba1/BB+/BBB-) at a 210 basis point spread to mid-swaps.

Merrill Lynch & Co. led the sale of the securities, which were rated Ba1 by Moody's Investors Service, BB+ by Standard & Poor's and BBB- by Fitch Ratings.

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