Emerging markets weaker; sovereigns struggle; Latvia, Senegal, Dominican Republic consider deals

By Christine Van Dusen and Paul A. Harris

Atlanta, Dec. 9 - Emerging markets debt was a bit weaker Wednesday as sovereigns struggled with credit quality and investors watched Dubai in particular to see whether its planned restructuring of $26 billion in debt would indeed have wide repercussions, market sources said.

"The market remains heavy and defensive on the back of the Dubai stories and concerns about sovereign debt," a London-based market source said.

Overall, emerging markets bonds were "swinging to the beat of U.S. equities" on Wednesday, according to a market strategist. "They're kind of flat today after a sell-off yesterday. So emerging markets are moving sideways to slightly lower. There seems to be a little bit of retracement."

And it's not just investors who are showing caution, he said. Sovereign issuers are treading lightly. Latvia and the Republic of Senegal are both planning issues of notes and the Dominican Republic is expected to bring to market an offering of benchmark dollar-denominated sovereign global bonds, but that all "depends on if we see additional fallout from the Middle East and the Dubai debacle.

"So far, the coast is clear for Senegal and Latvia this week, but all three could be put on hold depending on how things go with the Dubai situation."

Also contributing to the sense of investor and issuer caution is the time of year. "We're heading into an early wind-down ahead of the holiday season, when volumes are typically fairly low," he said.

Even so, some issues did price on Wednesday.

Russian finance company Nomos Capital OJSC priced $200 million of 9¼% notes due 2012 at par.

And two Mexican issues came to market: Nuevo Leon-based food products company Sigma Alimentos SA de CV priced $250 million 6.875% notes due 2019 at 98.059 to yield 7.15% and Monterrey-based building materials company Cemex Finance priced its two-tranche benchmark offering.

"Cemex had substantial, substantial demand," a New York-based market source said. "That's a very good sign. It doesn't necessarily mean we're going to see a lot more, if any, coming out this year. But it does mean we're ending the year pretty strong."

Cemex prices $1.25 billion

Mexico's Cemex Finance priced $1.25 billion of 9½% notes due December 2016 at par and €350 million 9 5/8% notes due December 2017, also at par in a two-part benchmark offering (/B/B+), according to an informed market source.

Both parts beat talk. Price talk for the dollar tranche was the 9¾% area while the euro tranche was talked at the 9 7/8% area.

The bookrunners for the Rule 144A and Regulation S offering were Citigroup, Bank of America Merrill Lynch and JP Morgan.

"The proceeds will mainly be used to pay back bank debt and their refinancing agreement," a strategist said. "So Cemex seems to be a lot closer to achieving its milestone of $7.6 billion of amortizations through December 2011. They're heading in the right direction."

Cemex is a Monterrey-based building materials company.

Sigma Alimentos prices

Mexico's Sigma Alimentos SA de CV priced $250 million 6.875% notes due Dec. 16, 2019 (/BBB-/BBB-) at 98.059 to yield 7.15% or Treasuries plus 374.5 basis points, according to a market source.

Price talk for the Rule 144A and Regulation S deal was Treasuries plus 350 bps.

Deutsche Bank and Santander were the bookrunners for the notes.

Proceeds will be used to refinance existing indebtedness.

Sigma Alimentos is a Nuevo Leon, Mexico-based producer and distributor of refrigerated and frozen food products.

Nomos prices

Russia's Nomos Capital OJSC priced $200 million 9¼% loan participation notes (Ba3//B+) due 2012 at par, according to a market source.

Price talk for the Regulation S deal was 9¼%.

Deutsche Bank and JP Morgan were the bookrunners.

Nomos Capital is a finance unit of Moscow-based Nomos Bank.

Senegal plans dollar deal

The Republic of Senegal is planning a dollar-denominated offering of notes (/B+/) via bookrunner Citigroup, according to market sources.

The deal, Senegal's first dollar bond, is expected to be benchmark-sized.

"I would expect it to be at least $500 million," the strategist said. "It could be a smaller issue but it is a sovereign deal, and usually those are benchmark-sized."

The deal should come to market this week or next, the source said, barring any additional queasiness related to Dubai's plan to freeze $26 billion of its debt.

Latvia plans sovereign deal

Latvia plans to issue notes via Citigroup and Credit Suisse, according to market sources.

The sovereign deal is expected to be euro-denominated and could come to market by Monday.

Nakheel down again

A trader said that Dubai development company Nakheel PJSC's paper continued to fall on Wednesday, seeing its 3.172% notes slated to come due on Dec. 14 down "another point or so" to 45 bid, 47 offered, versus a 47-49 context Tuesday and a closing level of 52 on Monday.

He saw its 2¾% notes due 2011 dropping a point to a 35-38 context as the bonds were "drifting lower."

A market source at another desk also saw the Dec. 14 bonds at 45, noting that it was a record low for the bonds, which had been trading as high as 110 bid before the Persian Gulf emirate's Nov. 25 announcement that Nakheel's parent, the giant development conglomerate Dubai World, wanted its creditors to agree to a six-month "standstill" of its debt obligations - a warning which threw world financial markets into an uproar for several days immediately afterward, and which continues to loom as a major negative, even though many banks and other financial entities do not have significant exposure to Dubai and its problems.

After its initial announcement, Dubai said that Dubai World was only looking to restructure about $26 billion of its $59 million total debt load, calming the markets somewhat.

The trustee for the 3.172% sukuk Islamic bond due on the 14th, Deutsche Bank AG, held a conference call with Dubai investors on Wednesday, on which bank executives declared that they were seeking some clarity from Nakheel about the restructuring plans. The call reportedly concluded without any discussion of adopting specific recommendations for further action.

Complicating Dubai World's efforts to restructure Nakheel's debt and other company obligations was the news earlier in the week that a group of more than 25% of the holders of the Dec. 14 bonds has informed Dubai that they would not go along with the emirate's request for a standstill in Dubai World's debt and that of subsidiaries like Nakheel; the 25%-plus gives them enough votes to block any plan they do not like. The dissident debtholders warned that they expect to be paid in full when the $3.5 billion sukuk bond matures less than a week from now.

Paul Deckelman contributed to this report

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