China Glass prices, new deals join pipeline; EM outperforms Treasuries, Ecuador weak

By Paul Deckelman and Aaron Hochman-Zimmerman

New York, July 5 - The holiday week showed some life in the primary market as terms emerged on three deals and five planned transactions came into play.

Brazil's Lupatech SA, China Glass Holdings Ltd., and Argentina's Hidroelectrica Piedra del Aguila SA were able to price.

Others jumped in with planned new offerings as "we saw the market stabilizing," according to a market source.

Meanwhile in trading emerging markets was lower in dollar terms but outperformed a Treasury market that was sinking faster.

Ecuador was notably lower after president Rafael Correa yet again threatened that the country might default on its foreign debt.

Prices from South America, China

Brazil's Lupatech Finance priced $200 million five-year perpetual notes (Ba3/BB-) at par to yield 9 7/8%.

The deal priced at the tight end of the initial 10% guidance, and had a spread of 472.9 basis points over U.S. Treasuries.

Citigroup and Merrill Lynch were the bookrunners for the deal.

"[There was] great demand. It was two and a half times over subscribed," said a source close to the deal.

"It's a great story for the company," the source added. "We were concerned about the market conditions - despite all that we got a very successful deal."

The book was split almost evenly between Asia, Europe and the United States.

China Glass priced its $100 million five-year senior bonds (B1/B+) at 9 5/8%.

The size of the deal had previously been cut to $100 million from $120 million, but priced according to talk for a yield in the mid to high 9% area.

Standard Chartered had the books.

Hidroelectrica Piedra del Aguila sold its $100 million 10-year bond (B) offering at 98.557 to yield 9¼%.

The yield matched the initial talk of 9¼% and the bonds sold with a coupon of 9% and spread of 420.9 basis points over U.S. Treasuries.

Merrill Lynch and Pierce, Fenner & Smith were the lead managers for the Rule 144A and Regulation S deal.

The bonds are noncallable for five years and mature on July 11, 2017.

Proceeds will be used to refinance the senior outstanding debt of the issuer and for working capital.

Both Lupatech and Hidroelectrica Piedra del Aguila priced Tuesday but full terms only emerged Thursday.

Benchmark deal expected from Rosneft

Adding to the calendar, Russian energy producer Rosneft announced plans to offer benchmark-sized unsecured loan participation notes (Baa1/BB+).

ABN Amro, BNP Paribas, Calyon, Citigroup, JP Morgan, and Morgan Stanley will act as joint lead managers and bookrunners.

The offer is the first to be issued from the company's new $15 billion loan participation note program.

The deal will be on the road beginning Friday.

European, Asian banks bring deals

Turkey's Global Yatirim Holding will offer five-year fixed-rate guaranteed loan participation notes (B) worth up to $100 million.

Deutsche Bank will handle the books.

Ukraine's Pivdennyi Bank announced plans for its inaugural dollar-dominated eurobond (B-) issuance.

BNP Paribas and Standard Chartered have been mandated as bookrunners for the deal.

Neo-China Group Ltd. announced plans to sell a dollar-dominated issue with detachable warrants.

The Bank of China and Deutsche Bank will bring the deal to market.

The exact terms of the sale are still under consideration, according to a press release.

EM outperforms

In the secondary market, a fall in U.S. Treasuries sparked by a report of stronger-than-expected job growth in June and another one showing rapid growth in the services industry had a dampening effect on emerging bonds, by making a Federal Reserve interest rate cut even less likely than it was before - which was not much. Bonds were also weighed down, market participants said, by lingering angst over the continued troubles of the U.S. subprime lending sector, and the ripple effect they have had throughout the financial markets, making investors more wary about potentially more risky asset classes, such as emerging markets.

However, while bonds were generally softer, the biggest one-day decline in Treasuries in almost a month and the accompanying sharp rise in yields on the U.S. paper produced a spread-tightening effect among emerging bonds, which did not fall as sharply.

The benchmark 10-year Treasury issue's yield ballooned out by 10 basis points to 5.14% - the biggest increase since June 12 - after ADP Employer Services, a private organization, reported that U.S. companies added 150,000 jobs in June, the most in seven months, following a revised gain of 98,000 in May; economists on average were looking for a gain of about 100,000 jobs in June. That report comes just before Friday's official government report of non-farm payroll growth in June, which will be closely watched by the debt markets looking for any signs of inflationary growth. Besides the ADP report, a second study, released by the Institute for Supply Management, showed that growth in non-manufacturing service industries unexpectedly accelerated to the fastest pace in 14 months in June.

With that double dose of potentially bad news from an inflationary standpoint pushing Treasury yields up sharply, spreads between the yields of emerging debt and Treasuries, as measured by the widely followed EMBI+ index compiled by JP Morgan & Co., were quoted as having narrowed by 11 bps on the day, the most since May 2006, to 163 bps.

"The main action was in Treasuries, more than in our market," said a New York-based trader in Asian issues. "We've had a good move - lower in price, higher in yield - on Treasuries, and so we have had some reaction to that in our market."

He said that "for the most part, prices on the various bonds in the [emerging debt] universe have outperformed Treasuries on the way down, so we have tightened in spread as Treasuries have come off, although we did see some interest-rate related selling."

Philippine, Indonesia debt weak

He said that this as particularly true, in his sector, in Philippine and Indonesian government bonds, "and in some of the high yield corporates."

He quoted Manila's benchmark 2032 sovereigns at 96.5, while Indonesia's 2037 bonds last traded at 95.75.

"There's been reasonable movement," he said. "Philippines is outperforming Indonesia on the long end of the curve" - although he said that right now this was more a function of the fact that "the PLN deal has added some supply to the back end of the Indonesian curve, and that's taking a little while to digest." Indonesian state-owned power utility Perusahaan Listrik Negara priced $1 billion of paper in a two-part deal on June 21.

He said that the market for credit default swaps contracts on the two countries' sovereign debt "hasn't moved a great deal from how we left things" prior to the U.S. Independence Day holiday on Wednesday. He saw the bid/asked spread on the Philippine 5-year CDS at 109-113 bps - about 3 bps tighter than the 112-116 seen late Tuesday in New York, although it was a little wider than the intra-day tight level of 197 bps seen earlier in Asian dealings.

In the corporate realm, he said that he had not seen any secondary activity in the new $100 million China Glass five-year deal.

"There weren't any inquiries in it today, unfortunately," he said.

Venezuela bonds firmer

Away from Asia, trading was mixed-to-mostly lower in Latin American issues.

On the upside, spreads on Venezuela's external debt, particularly its benchmark dollar-denominated 9¼% bonds due 2027, were seen having tightened by 18 bps down to about the 8.35% level, with the gains said to be due to the quietly growing market perception that despite Venezuelan chief Hugo Chavez' impetuous threat in April to pull his country out of the International Monetary Fund - which could trigger a technical default on many of its bonds - such a default is now not expected to occur, with the bombastic promise to quit the international organization now pretty much shelved.

Venezuela watchers were also reportedly optimistic that the country's recent takeover of several oil project joint ventures with foreign companies would not trigger default clauses in those projects' debt, or in the debt of state oil company Petroleos de Venezuela SA.

Ecuador default threat roils market

On the other hand, Ecuador's bonds were seen in retreat, after president Rafael Correa said in an interview Thursday that the country might default on its foreign debt - a theme Correa has played on several occasions since his election last fall, although so far, Quito has met its fiduciary obligations.

"We do not exclude at any moment - depending on the needs of the country - a unilateral moratorium and, of course, an aggressive renegotiation of that debt which is harmful for the country," Correa asserted in the interview with the EFE news agency.

He also said that his government - elected last fall with a widespread popular mandate by promising a radical improvement in the lives of the people and by attacking the $11 billion of debt racked up by his predecessors as "illegal and corrupt" - would put "social debt" before commitments to bondholders.

Correa - a friend and ally of fellow leftist Chavez - also seems to be following the latter's pattern of consolidating more power in his own hands and those of his appointed ministers, having already used the state's mechanism to oust his opponents from the national Congress; on Thursday he also called for a constitutional amendment that would eliminate the autonomy of Ecuador's central bank.

Correa's statements were seen as the catalyst behind Thursday's 6 bps rise in Ecuador's average debt spread versus Treasuries to 712 bps - one of the widest spreads on the continent, reflecting continued investor wariness about the safety of the country's debt.

Roiled by the president's remarks, the most widely traded Ecuadorian issue, the 10% benchmark bonds due 2030, was an even bigger loser than the average, plunging nearly 2 points on the day to a price just above 81, while its yield was seen widening out by 30 bps to 12.52%, and its spread over the comparable U.S. paper surged to 736 bps.

Profit taking in Argentine paper

Ecuador and Venezuela are considered two of the three riskiest debt investments in the region; the third is Argentina, whose bonds were seen lower by more than 1% on average for the session as investors took profits off recent gains.

The country's Boden 2014 bonds in pesos were quoted having fallen 1.8% in over-the-counter trade, and its Discount bonds in pesos were seen down 1.7% on the Buenos Aires Stock Exchange.

The most widely traded Argentine bond, the benchmark 8.28% dollar paper due 2033, fell 1½ points to 96 - its lowest level since last fall - while the yield widened by 14 basis points to 8.63%.

Brazil, Mexico also off

Among the bonds of more secure issuers, Brazil's benchmark dollar-denominated 11% bonds due 2040 - the most widely traded EM issue - were seen down ½ point to just over 131, while their yield rose by 7 bps, to 6.08%.

Mexico's 10-year peso-denominated bonds were quoted down 0.19 on the day, ending at 102.039, while their yield rose 4 bps to 7.68%. The yield on the 20-year peso bonds was also up 4 bps, also at 7.68%.

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