Emerging markets quiet as year-end nears; Dubai news encourages issuers; Brazil, Senegal price

By Christine Van Dusen and Paul A. Harris

Atlanta, Dec. 15 - Emerging markets looked quiet and choppy but stronger Tuesday as some sovereigns continued to struggle with credit quality and other issuers reacted favorably to the previous day's news that Abu Dhabi was acting to prevent a default on the sukuk of Dubai World's development arm, Nakheel PJSC.

"That's the big news," a New York-based market source said. "That was enough."

Still, the Middle East was "quiet today" near the European close, a London-based market source said. Levels on Dubai's five-year bond were "basically unchanged."

And trading didn't really pick up as the New York close approached.

"Yesterday was the maturity date" for the sukuk issue, a market source said, "so you won't see a lot of trading. If you're short, you're stopped out at par, 115. If long, you get paid 115."

On investors' minds instead were sovereigns and their credit quality issues, as well as the recent downgrade of Mexico's sovereign debt by Standard & Poor's to BBB from BBB+, a West Coast-based source said.

But "this was somewhat priced in and local rates are not reacting that much," he said. "That's one positive where most local market currencies are selling off."

Another positive, according to the source: the pricing of a $500 million add-on to an issue of 5.875% global bonds from The Federative Republic of Brazil, which sold at 108.2041 to yield 4.75%. That was in line with price talk, which was set at the 4.78% area.

"There's plenty of demand for Brazil," the New York-based source said. "That's a region that will remain quite hot for corporates as well, and a big push going into 2010."

Still, general "sovereign concerns remain," the London-based source said. "The market overall is choppy, with U.S. Treasuries falling."

Tuesday also saw the awaited pricing on The Republic of Senegal's $200 million five-year notes to yield 9¼% or Treasuries plus 691 bps, according to an informed market source.

Another sovereign remained on the sidelines: Latvia, which previously was expected to launch its euro-denominated offering of notes via Citigroup and Credit Suisse this month but may wait until 2010.

Otherwise, the scene was "kind of quiet" on Tuesday, the New York-based source said. "We're getting to that year-end period."

Brazil prices add-on

Brazil (Baa3/BBB-/BBB-) priced a $500 million add-on to its 5.875% global bonds due Jan. 15, 2019 at 108.2041 to yield 4.75% or Treasuries plus 113.9 bps, according to an informed market source.

The deal came in line with talk for a yield in the 4.78% area.

Goldman, Sachs & Co. and Morgan Stanley were the bookrunners for the Securities and Exchange Commission-registered deal.

Brazil has the option to exercise a greenshoe for up to 5% during Asia hours.

Brazil previously sold a total of $1.775 billion of the securities on Jan. 13, 2009 and May 14, 2009.

Proceeds will be used for general budgetary purposes.

Senegal prices $500 million

Senegal priced $200 million of 8¾% notes (/B+/) due Dec. 22, 2014 at 98.034 to yield 9¼% or Treasuries plus 691 bps, according to an informed market source.

Citigroup and Standard Bank were the bookrunners for the Regulation S deal, which was Senegal's first dollar bond.

Proceeds will be used to finance a portion of the Dakar-Diamniadio toll road and other projects.

Nakheel eases

A trader saw Dubai development company Nakheel PJSC's bonds "settling down" after having soared on Monday on news that oil-rich Abu Dhabi would front its troubled neighboring emirate $10 billion to pay off the 3.172% sukuk bonds that were maturing on Monday and have enough cash to run Nakheel parent Dubai World's operations for the coming months.

Its 2¾% notes due 2011 and floating-rate paper due 2010 had about doubled on Monday, rising into the mid-60s from prior levels in the 30s on the news, but on Tuesday the trader quoted them early on at 61-63, and said that by later in the day, they had come in to 59 bid, 60 offered.

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