Emerging markets quiet but strong; recovery from Dubai news continues; Venezuelan bonds fall

By Christine Van Dusen

Atlanta, Dec. 2 - Emerging markets were quiet but strong on Wednesday as investors sorted through the manageable supply of new issuance and continued to get more comfortable with the debt-freeze plan for Dubai's development arm, market sources said.

Government-owned Dubai World said it is expecting to meet with its main lenders next week to discuss the planned delay of payment on about $26 billion of its debt instead of the full $59 billion. This was welcome news to investors who are "all recovering" from the initial shock of the debt freeze, a London-based trader said. "The market's generally better."

Another market source characterized the day's activity as "quite strong" as compared to the "weakness around the end of last week on the back of the Dubai business. Obviously that was exacerbated by the fact that the United States was out on holiday at the end of the week."

Now, investors are beginning to once again embrace risk.

"Risk appetite is continuing to gradually return and is normalizing after the Dubai blow up," the London-based source said.

Flows for the day were relatively light, but buying has picked up, according to a New York-based trader.

"Sovereign cash is trading well," the source said, pointing in particular to issues in Korea. "There, the strength is pretty broad-based."

One sovereign that was not trading well on Wednesday was Venezuela, where president Hugo Chavez threatened to privatize more banks following the country' seizure of four financial institutions. The government also closed a brokerage.

As of Wednesday afternoon, Venezuela's 9.25% bonds due 2027 were quoted down 2.75 points at 69.50.

"Those remarks definitely got into the market a little bit," a California-based investment banking source said.

"There's been a lack of buyers during the day, so the bonds were marked lower. Venezuela has been very weak the last few sessions."

Mexico was a different story on Wednesday. There, the central bank raised inflation forecasts for 2010.

"So local rates have backed up a little bit today," the source said. "The currency has been strong over the past few sessions. The peso against the dollar is the strongest it's been since April, where most currencies are flat to a little weaker."

This news shouldn't have much impact on the Mexico-based deals that are currently in the pipeline, including two issues now roadshowing: Monterrey-based Cemex SAB de CV's benchmark-sized offering of seven-year senior unsecured notes and Nuevo Leon-based Sigma Alimentos SA de CV's $250 million 10-year senior notes.

"Sigma is a reasonably good credit, a good story, a diversifier," the source said. "It just depends on the pricing whether it will generate interest or not. It seems reasonable enough."

This deal - along with Agrokor DD's €400 million 10% senior notes due 2016 that priced Tuesday and Lebanon's pricing Tuesday of a two-tranche $500 million notes offering - has perked up the primary but not overwhelmed it with as much supply as was weighing things down in October, the New York source said.

"There hasn't been a lot of new supply now for a good week or so, which is probably quite welcome," the source said. "The market is quite strong. Things are going to trade better as we head into the year end."

Lebanon prices $500 million

The Lebanese Republic priced a two-tranche, $500 million notes offering (B2/B-/B-), according to an informed market source.

The $250 million 5.875% notes due Jan. 15, 2015 were priced at 99.988 to yield 5.875% or Treasuries plus 387 bps. And the $250 million 7% notes due Dec. 3, 2024 were priced at par to yield 7% or Treasuries plus 380 bps.

The bookrunners for the Regulation S deal were Bank of Beirut, Citigroup and Societe Generale de Banque au Liban.

Nakheel rises

A trader said that the bonds of Dubai's Nakheel Development were active, as they have been all of this week.

He saw its 3.172% euro-denominated notes slated to come due on Dec. 14 going home at 60-61, which he described as up by a point or so from levels around 58-60 seen on Tuesday.

Those bonds had been trading as high as 110 bid last week before the Nov. 25 Dubai government announcement that its Dubai World development arm, of which Nakheel is a subsidiary, would ask creditors to agree to a standstill on billions of dollars of debt owed, including the $3.52 billion of Nakheel bonds maturing on the 14th.

After that, the paper slid to the 80s by the end of last week, and down into the 50s earlier this week, hitting an intraday low at 52 bid Tuesday before climbing back up to close that session around 58, on the news that Dubai World will only seek to restructure $26 billion of its approximately $59 billion of debt. The company plans to meet with its main creditors next week to discuss its request that it be allowed to delay payments.

The trader also saw Nakheel's 2¾% euro-denominated notes due 2011 trading around 45-46, which he said was up some 2 points on the day. Those bonds had been trading in the 80s last week before the debt payment-delay announcement, then dropped into the mid-50s by the end of last week and continued to slide before bottoming at around a 40-42 context by Monday.

He said that there had been a fair amount of trading in both issues, which were "quoted all day long. It seems like they've been pretty active."

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