Emerging market inflows hit $569 million for week; Lukoil, Croatia, Mexichem among issuers

By Christine Van Dusen and Paul A. Harris

Atlanta, Oct. 30 - Though investors are still a bit gun-shy as a result of the high volume of paper, emerging markets seemed to stabilize somewhat Friday, according to a market source.

"We're seeing it hold steady today," the source said. "But I think it's too early to judge whether investors are becoming less risk-averse."

Five-year credit-default swap spreads seemed to say that risk aversion remains. Some continued to widen Friday, with Argentina closing at 1,017.20 bps mid, 14.92 bps wider.

But others tightened. Russia closed at 189.66 bps mid, 6.56 bps tighter on the session. Brazil closed at 133.75 bps mid, 7.43 bps tighter. Mexico closed at 168.86 bps mid, 8.25 bps tighter. And Veneshtorgbank closed at 348.91, 3.48 bps tighter.

This mixed bag suggests that investors aren't running away; they're just focusing on safer, more solid issues, another source said.

"What we see at the moment is that people are going into quality more. They're avoiding the dangerous-looking issues," the source said. "That's probably most important."

The high level of issuance has "no doubt put a damper on things," another source said. "The amount of paper that has been issued is significant, even though we are saying that there are still inflows into the emerging-markets world."

Cash inflows totaled $569 million for the week, down from the record-setting $1 billion infusion during the week of Oct. 14, according to data service EPFR.

Several issuers set prices Friday

Pricing came through on Friday for a number of deals, including Banco de Credito del Peru's $250 million fixed-rate to floating-rate step-up junior subordinated notes pricing at par to yield 9¾% and PLN's $1.25 billion 7¾% notes pricing at 99.152 to yield 7 7/8%.

Other issuance included OAO Lukoil's two-part $1.5 billion offering of five- and 10-year notes pricing in line with initial whispers, the Republic of Croatia's $1.5 billion of 6¾% 10-year bonds pricing at 98.16 to yield 7% and Mexichem's $350 million 8¾% notes due 2019 pricing at par.

Banco de Credito del Peru prices

Banco de Credito del Peru priced $250 million of fixed-rate to floating-rate step-up junior subordinated notes (/BB/BB+) due Nov. 6, 2069 at par to yield 9¾%, according to a market source.

Bank of America Merrill Lynch and JPMorgan were the bookrunners for the Rule 144A and Regulation S offering, which was upsized from $225 million.

The notes will initially bear interest at 9¾% for the first 10 years. After that, the coupon will float at 816.7 basis points over three-month Libor.

"The tenor, at some point, becomes almost irrelevant," a market source said. "What's important is the quality of the issuing entity, and BCP brings tremendous background and credit into the market. It will be very well absorbed."

Proceeds will be used to sustain capital ratios.

The issuer is a Peruvian banking company.

PLN prices $1.25 billion

Indonesia's PLN (Ba2/BB-/) priced its $1.25 billion 7¾% notes due 2019 at 99.152 to yield 7 7/8%, or 445 bps over Treasuries, according to a market source.

Barclays and UBS are the bookrunners for the Rule 144A and Regulation S offering.

Proceeds will be used to fund capital expenditures, for general corporate purposes and for transmission and distribution construction projects for the Jakarta-based, state-owned electricity utility.

PLN is a subsidiary of PT Perusahaan Listrik Negara.

Lukoil prices $1.5 billion notes

Russia's OAO Lukoil (Baa2/BBB-/BBB-) priced a $1.5 billion offering of five- and 10-year notes in line with initial whispers, according to a market source.

The $900 million tranche of 6 3/8% global notes due May 11, 2014 priced at 99.474 to yield 6½%, or Treasuries plus 406 bps.

The $600 million tranche of 7¼% global notes due May 11, 2019 was priced at 99.127 to yield 7 3/8%, or Treasuries plus 388 bps.

Barclays Capital, ING and Royal Bank of Scotland were the bookrunners for both tranches, which include a make-whole call at Treasuries plus 50 bps.

"It was oversubscribed and went up, then came in a bit," a market source said, citing prices of 101.125 to 101.25 at midday and 100.30 to 100.40 later for the five-year issue. The 10-year issue saw prices of 100.4375 to 100.625 at midday and 99 to 99.50 later.

Lukoil is a Moscow-based oil and energy company.

Croatia prices $1.5 billion

The Republic of Croatia priced its $1.5 billion of 6¾% 10-year bonds (Baa3/BBB/BBB-) at 98.16 to yield 7%, according to a market source.

"It's looking very good," a market source said, citing prices of 100.05 to 100.50 later in the day.

The spread to Treasuries was 350 bps, in line with previous guidance.

Barclays, Citibank and JPMorgan were the bookrunners for the Rule 144A and Regulation S deal.

Mexichem prices $350 million

Mexichem priced its $350 million 8¾% notes (Ba1) due 2019 at par, according to a market source.

Bank of America Merrill Lynch was the bookrunner for the Rule 144A and Regulation S deal, which includes a change-of-control put at 101%.

Proceeds will be used for general corporate purposes, including capital expenditures and potential acquisitions.

Price guidance was in the 8½% area.

Mexichem is a Tlalnepantla, Mexico-based producer of PVC resins, pipes and related products.

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