Emerging market debt softer on U.S. equities; Brazil retaps local currency global bonds

By Reshmi Basu and Paul Deckelman

New York, May 10 - Emerging market debt faltered Thursday, tracking U.S. equity markets lower as U.S. stocks took a licking from a bout of profit-taking and renewed worries over the U.S. growth story.

Higher beta credits such as Argentina and Ecuador spearheaded the downturn as spreads for the JP Morgan EMBI global index widened by 4 basis points to 167 basis points versus U.S Treasuries.

Meanwhile the primary market saw an active session. From the sovereign side, the Federative Republic of Brazil sold an additional R$750 million of local currency-denominated global bonds due 2028 (Ba2/BB/BB+) in a drive-by on Thursday.

The reopening priced at 112.25 to yield 8.938%

The deal is denominated in Brazilian reais while payments will be paid in dollars.

Deutsche Bank and HSBC were joint bookrunners for the offering, which was registered with the Securities and Exchange Commission. Banco Itau Europa SA and BB Securities were co-managers.

Furthermore, the country said it may sell up to R$37.5 million of the 2028 bonds to investors during Asian trading hours.

With the additional bonds already sold, the total size of the deal stands at R$3 billion.

In February 2007, the country sold R$1.5 billion of the original 21-year global bonds at 96.451 to yield 10.68%. On March 20, 2007, the country reopened the bonds to add R$750 million. The deal priced at 99.75.

New corporate deal

From Mexico, BBVA Bancomer SA placed a $500 million offering of 15-year subordinated notes (A1/BBB+) at par to yield Treasuries plus 135 basis points.

The deal priced inside of guidance, which was set at Treasuries plus 140 basis points.

The non-preferred, non-cumulative notes will be non-callable for 10 years. If the notes are not called, the fixed-rate coupon changes to a floating rate and the coupon steps up by 100 basis points to three-month Libor plus 181 basis points.

Proceeds will be used for general corporate purposes.

Credit Suisse, Deutsche Bank and BBVA are joint lead managers for the Rule 144A and Regulation S deal, which was issued via the bank's Grand Cayman branch.

Meanwhile the issuer is yet to price a tranche of euro-denominated 10-year tier II notes (A1//BBB+). Guidance has been set at mid-swaps plus 45 basis points.

The preferred, cumulative notes will be non-callable for five years. If the notes are not called, the fixed rate coupon changes to floating rate and the coupon steps up by 100 basis points.

Coming from Russia, state-owned OJSC Russian Agricultural Bank (Rosselkhozbank) sold a $1.25 billion offering of 10-year loan participation notes (A3//BBB+) at par to yield a spread of mid-swaps plus 110 basis points.

The deal came in line with initial guidance of 110 basis points more than mid-swaps.

Barclays Capital, Citigroup and JP Morgan were joint lead managers for the Rule 144A and Regulation S deal, which was issued via RSHB Capital SA.

Also from the Russia, Ursa Bank sold a €400 million offering of three-year bonds at par to yield 7%.

The deal priced at the tight end of revised guidance, which was lowered to 7% to 7¼% from the 7¼% area.

ABN Amro and Deutsche Bank were lead managers for the Regulation S deal, which was issued via Sibacademfinance plc

Elsewhere, Korea's credit card company Shinhan Card Co. Ltd sold a $400 million offering of five-year senior unsecured notes (/BBB+/BBB+) at par to yield three-month Libor plus 50 basis points.

ABN Amro, Bank of America, BNP Paribas and Goldman Sacks were lead managers for the Regulation S deal.

Coming up, JSC Temirbank BV is expected to sell a $500 million offering of dollar-denominated seven-year notes (Baa3/B+/BB-) early Friday.

Price guidance has been set in the area of 9¾%.

The book size is already well over $1.1 billion, according to a market source.

JP Morgan and Standard Bank plc are joint bookrunners for the Rule 144A and Regulation S offering.

The notes will be issued via financing subsidiary Temirbank Capital BV.

Temirbank is a joint stock company formed in 1992. The full-service bank has headquarters in Almaty, Kazakhstan.

Brazil up on Fitch upgrade

Brazil's bonds were seen higher, given a boost by Fitch Ratings upgrading the country's long-term currency rating to BB+ from BB previously. That pushed the country's global bonds due 2040 up to 135.875, while the bonds' yield was seen about 5 bps tighter at 5.526%.

Fitch cited the Brasilia government's conservative policies and an increased savings rate.

However, the gains in the bonds were seen as limited, some participants said, because a ratings upgrade had been pretty much expected.

Mexico eases, Philippines up

Elsewhere, Mexico's bonds - which had been firming over the last several sessions on expectations of benign inflation data - were seen easier now that the inflation data has come and gone.

The country's 7¼% notes due 2016 were down nearly ¼ point to 96.875.

In Asia, dollar-denominated Philippines global bonds were seen a little firmer following Wednesday's U.S. Fed meeting. The 2031 bonds traded at 114.125 bid, 114.25 offered, while its 2032 bonds edged up to 98.125 bid, 99.375 offered.

The widely traded five-year CDS contracts were quoted at 106-109 bps, about 1 bp wider.

However, Philippine peso-denominated bonds were seen in retreat, as the market wondered about the impact of new investment rules. The four-year bonds were seen down about 1¼ points to just under 120, their lowest level in two months.

Elsewhere on the Asian scene, MagnaChip Semiconductor Ltd.'s 8% notes due 2014 were seen continuing to firm, quoted up 1½ points on the session to 73.5 bid, 74.5 offered. A trader said there was no news out on the South Korean computer-chip manufacturer.

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