Venezuela firms on debt-buyback buzz; new SK Telecom paper trades tighter; Peru unveils 30-year deal

By Paul Deckelman and Aaron Hochman-Zimmerman

New York, July 16 - Despite recent volatility in the emerging markets, Russia's Bank of St. Petersburg and South Africa's SABMiller plc were able to complete bond sales on Monday.

However two prospective issuers, Romania's Telemobil SA and Russia's Rosneft, postponed offerings of bonds they had been attempting to place with investors.

"People are fed up with too many issues," one emerging markets source asserted on Monday, adding that the market appears to be slowing down.

In the secondary, most prices were seen firmer, although spreads over U.S. Treasuries widened out as the latter bonds rose in price and their yields declined.

Venezuela's bonds firmed smartly after the country's finance minister said that Caracas may repurchase some of its global bonds during the fourth quarter using Venezuela's plentiful oil revenues.

Sector bellwether Brazil's bonds were also up.

Argentina's bond yields rose amid widespread speculation - later borne out - that the country's finance minister would resign.

Spreads on Philippine debt were seen mixed in Asian dealings, as the government rejected some bids on government paper put forward by banks last week when it auctioned new debt, saying the interest rates the market was asking on those bonds was unreasonable.

Philippine bonds and other Asian issues were seen little changed during the New York day, although SK Telecom Co. Ltd.'s new bonds saw some marked spread tightening from their issue levels.

Spreads wider

With Treasuries gaining solidly on market buzz that mounting losses in securities backed by subprime mortgage loans will fuel "flight-to-safety" demand for U.S. government debt, the 10 year note's yield narrowed by 5 basis points to the 5.05% mark. In turn, spreads between emerging debt and comparable U.S. Treasury issues widened out.

The widely watched EMBI+ index compiled by JP Morgan & Co. was quoted by market participants as widening about 3 bps from Friday's levels to 168 bps.

A key mover was Venezuela, whose benchmark 9¼% dollar-denominated benchmark bonds due 2027 firmed by about ½ point on the day to 110.5 bid, while the bonds' yield tightened by 4 bps to 8.17%.

That move followed the announcement by finance minister Rodrigo Cabezas that the government may decide to repurchase some of its international debt to reduce its dependence on foreign financial markets.

The purchases, should they occur, would take place in the fourth quarter and would be fueled by Venezuela's bountiful oil money.

Venezuela last year cut its foreign debt load by about $4 billion, using oil money to fund repurchases and redemptions.

Elsewhere, the news after the close that Argentine economics minister Felisa Miceli had resigned amid an investigation into a mysterious bagful of money found in her office came as something of an anticlimax, with speculation about the minister's imminent ouster having roiled the financial markets all day.

The yield on the government's 5.83% inflation-linked bonds maturing in December 2033 rose 2 bps to 6.48%.

Also in that region, Brazil's 11% benchmark bonds due 2040 - the most liquid and widely traded issue - improved by ¼ point to 131.45.

SK Telecom seen tighter

A New York-based trader in Asian bonds meantime said that he had seen not much going on, opining: "I don't think we had anything much traded in the Street today" outside of Japanese bank capital.

The overall tone - insofar as there was such a thing - was "marginally softer" and a little wider, "given the strength of the Treasury market."

One name which he did see moving around was SK Telecom's new 6 5/8% 20-year bonds, which had priced Friday to yield 155 basis points over Treasuries in a $400 million issue.

"That's done better," he said, noting that the spread had tightened by about 8 bps or 9 bps from the issue level.

He said it looked like the deal "was quite heavily placed" with U.S. investors.

"There was good reverse inquiry-type demand."

According to published reports, some 82% of the $400 million issue was placed with investors in the Americas, 13% with non-Japanese investors in Asia, and the remainder with European investors.

Among other new deals, he said that Neo-China Group (Holding) Ltd.'s new 2014 fixed-rate paper met with only tepid demand, opining that this may be because "it was a single-lead [deal] and it's not really trading much at all."

Earlier on Monday an investment banker in Asia told Prospect New that the Neo-China deal had commanded considerable attention.

The source added that the Neo-China deal featured a notes-with-warrants structure, and was essentially a "synthetic convert."

The source also noted that the deal had been saddled with "the less than desirable property credit story."

Meanwhile the New York trader said that Korea Exchange Bank's new $350 million of bonds, which priced Friday to yield 33 bps over Libor, "tightened a basis point or so on the break," demand perhaps intensified because its size was a little smaller than expected.

Philippines paper mixed

The trader saw the widely traded 5-year credit default swap on Philippines debt "a touch wider than how we had it on Friday," but still within the same 114 bps-118 bps context at which the contract had traded during the Asian trading session.

He described the cash market for that Philippines debt as "very, very quiet. We're probably lagging a little bit on a spread basis - but that's because most of the issues have the same elasticity as Treasuries anyway - so we probably outperformed when Treasuries sold off last week."

In earlier Asian trading, the government's 2031 benchmark bonds were seen having firmed to 110.625 bid, while its 2032 bonds improved to 96.375, both up around ¼ on the day.

The yields on various maturities of Manila's debt were seen as mixed, after the government said it was rejecting bids which banks had submitted for six-month and one-year paper at auctions, contending that the market was seeking what one official called "very unreasonable rates."

Two new issues

Present market conditions notwithstanding, Russia's Bank of St. Petersburg priced $100 million 10-year subordinated notes (Ba3//B) at par to yield 10½% on Monday.

The yield was printed on top of price talk.

UBS and JP Morgan ran the books.

Meanwhile, South African brewer SABMiller sold 1.6 billion rand of five-year notes (Aa3.za/AA.za/) with a coupon of 9.935%.

The bonds are part of a 4 billion rand domestic medium-term note program.

Standard Chartered and Rand Merchant Bank brought the deal to market.

Proceeds from the issue will be used to repay the company's existing loan facilities.

"We are very pleased by the reception of bond investors to the return of the SABMiller Group to the capital markets in South Africa," chief financial officer Malcolm Wyman said in a press release.

"Investors' recognition of the strength of SABMiller's business mix and cash flow generation has enabled us to undertake this important refinancing at competitive pricing levels which have been improved further by hedging activities undertaken ahead of the issuance," Wyman said.

Peru plans sovereign offer

The Republic of Peru will roadshow a local-currency 30-year bond (Baa2/BBB-/BBB-) at the minimum amount of $1 billion this week in New York on Tuesday and Wednesday.

The deal which is expected to price Thursday, will constitute a new foray into such lengthy duration terrain for Latin American bonds denominated in the local currency and sold on the international markets, said an emerging markets analyst who specializes in Latin America.

"Notwithstanding this hurdle, given Peru's heavy reliance on metals prices for sustaining export income and the robust internal economic figures, the demand for such new instrument is likely to be high," the analyst added.

Elsewhere in the sovereign sector, another analyst mentioned the Republic of Azerbaijan's debut sovereign offering (Ba1//BB+), which is expected in September or October via Deutsche Bank and Citigroup, saying: "It's definitely a hot topic right now."

Corporates lining up deals

Brazil's Companhia de Bebidas das Americas (AmBev) issued talk in the area of 9½% for its benchmark-sized reais-dominated 10-year issue (BBB/BBB).

Credit Suisse and Citigroup are the bookrunners for the deal, expected to price early this week.

The bonds, to be sold issued via subsidiary AmBev International Finance Co. Ltd., will pay principal and interest in dollars.

Proceeds will be used to repay short-term debt and for general corporate purposes.

Indonesia's Cikarang Listrindo will bring to market a $425 million seven-year senior secured note issue (Ba3/BB-/).

The proceeds generated from the sale will be used to refinance debt, for capital expenditure and general corporate purposes.

Pivdennyi Bank price talk

Ukraine's Pivdennyi Bank issued talk in the 10¼% area for its inaugural dollar-dominated eurobond (B1/B-) issuance.

BNP Paribas and Standard Chartered will run the books.

But postponements too

Also on Monday two prospective issuers withdrew offerings due to present market conditions.

Romania's Telemobil SA withdrew its $125 million seven-year senior unsecured bonds (B3/B-), which it had earlier talked at 10½% area.

"Hearing Telemobil pulled its deal is a pretty good sign interest in some of the lesser-known corporates is still cool," said an emerging markets analyst, who added that Telemobil actually suffered a one-two punch: in addition to the volatile market, Standard & Poor's placed the Romanian telecom on CreditWatch negative.

Also on Monday, Russia's Rosneft announced the withdrawal of its proposed benchmark-sized issue of unsecured loan participation notes (Baa1/BB+).

ABN Amro, BNP Paribas, Calyon, Citigroup, JP Morgan, and Morgan Stanley had been mandated to act as joint lead managers and bookrunners.

The offer was part of a new $15 billion loan participation note program. The energy company now says it will take advantage of other financial opportunities.

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