Emerging markets mixed; High-betas drop; Turkey, Sberbank each price $500 million

By Aaron Hochman-Zimmerman

New York, June 19 - Emerging markets were mostly mixed but pockmarked by a few underperformers.

A hike in gasoline prices in China was blamed for falling oil prices, which helped to drag down Venezuela, bleeding 1.4 points from its bonds due 2027.

In the primary, Turkey initially hurt its own cause in the secondary as it looked to price a $500 million retap of its 7¼% bonds due 2015. After the pricing, the bonds were able to rebound and recover some loses.

In Russia, OJSC Sberbank brought its own $500 million five-year deal.

Despite what collectively may have been a busy day, many in the market agreed that the market took on a quiet feeling.

"It's been fairly peaceful," a trader said about the credit market.

Meanwhile, it was a hectic day in equities, which ended with stocks eventually ending higher and volatility lower by 0.66 to 21.58, according to the VIX index. The index is a commonly used measure of market volatility.

As a sector, emerging markets widened by 4 basis points to a spread of 255 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging markets debt.

Emerging Europe takes on new paper

In trading, emerging Europe "is very quiet," a trader said, but "there's a heck of a lot of new issuance taking place and about to take place."

Still, "it seems like it's going to be absorbed without too much fuss," he said.

In Russia, while the corporate issuers, primarily the banks, have been carrying the primary, their correspondence accounts with the central bank shrank by 4.8% during the week ended Wednesday, the RIA Novosti News Agency reported.

The accounts total 655 billion rubles, while their deposit accounts hold 240 billion rubles, up 31% for the week.

One of Russia's largest banks, VTB Bank priced €1 billion three-year bonds late on Wednesday.

The deal came at par with a coupon of 8¼% and a spread of mid-swaps plus 295 bps.

The deal priced tight of the talk at mid-swaps plus 300 bps.

A syndicate official called the deal "very cheap."

The bonds due 2011 were lower by just 0.05 point to 99.95 bid on Thursday.

Also, the Russian general staff warned Georgia that further detentions of Russian forces, similar to the arrest of four Russian troops on Tuesday, may end in violence, according to RIA Novosti.

"The consequences might be extremely serious, such as bloodshed," Lt. Gen. Alexander Burutin said in the report.

The four were charged with smuggling weapons out of Abkhazia but were later released.

The Russian bonds due 2030 added 0.45 point to 113.7 bid, 113.8 offered.

In Ukraine, the parliament gridlocked as allies from the Yulia Timoshenko bloc and president Viktor Yushchenko's Our Ukraine - People's Self Defense bloc are at odds with opposition parties.

Without the independent Litvin bloc voting on the draft laws before the parliament neither party has been able to pass their proposals.

Turkey slips on $500 million retap

In Turkey, bonds were dragged lower again as it priced a retap its 7¼% bonds due 2015 at 99.5 to yield 7.34%.

HSBC and JPMorgan acted as bookrunners for the registered deal.

The total amount of the issue stands at $2.75 billion.

Proceeds will be used general for financing purposes, which may include the repayment of debt.

The deal was oversubscribed by at least twice its value, a market source said.

The early drop in trading prices came from a market that was "pretty weak this morning," the source said.

"The traders all pulled their bids ... it's a normal knee jerk reaction," the source said.

The Turkish bonds due 2030 were hurt for another 1.75 points to 144.5 bid, 144.75 offered.

Also in Turkey, investors from the Middle East are still confident in the country's long-term value, said Amjad Ahmad, chief executive of NBK Capital Investment & Merchant Banking, according to the Turkish Daily News.

"No matter who is in the office and which political party rules, the Turkish economy has benefited a great deal due to the policies of the past few years," he said. "I think no matter who comes to power, they will continue that momentum."

Still, in the near term Turkey has taken a beating from political and inflationary risk.

Over the last two weeks, the bonds have dropped 5.625 points.

Sberbank prices $500 million

In the rest of the primary, things cooled compared to Wednesday, but deals still found the bright end of the pipeline.

OJSC Sberbank (A2//BBB+) priced $500 million five-year senior bullet bonds at par with a coupon of 6.468% to yield mid-swaps plus 200 bps.

The deal was talked at mid-swaps plus 200 bps to 210 bps.

Barclays and JPMorgan acted as bookrunners for the deal.

The bonds were issued from the bank's medium-term note program.

Sberbank is a Moscow-based commercial bank.

Also from Russia, OJSC Gazprombank (A3/BBB-/) issued talk in the mid-swaps plus 350 bps area for its $500 million five-year senior bonds.

Barclays and Citigroup will act as bookrunners for the issue.

Gazprombank is a Moscow-based joint-stock bank of the gas industry and a subsidiary of Russian energy giant Gazprom.

"All the Russians tend to come at once; they get their financials in at the same time," a syndicate desk official said.

Elsewhere, in Latin American corporates, a strategist expects deals in the pipeline, such as the $150 million offering from Brazil's Camil Alimentos, to do well.

"It's a good little company," the strategist said.

Brazil's Lupatech SA also has good prospects in Asia where it is talked in the 10% area.

"As long as it has double-digits," the strategist said, investors will be satisfied with the retap of the 9 7/8% perpetual notes.

In Asia, India's Vedanta Resources plc (Ba1/BB/BB+) announced it will hold a roadshow for a dollar-denominated issue.

JPMorgan and Morgan Stanley will act as bookrunners for the deal.

Vedanta is a London-based mining firm with most of its operations in India.

High-betas softer in LatAm

Latin America saw a generally quiet session go by, but not without drawing some blood from the high-betas.

In Venezuela, where relations with the United States are already strained, the U.S. Treasury Department froze the assets of two Venezuelan citizens after discovering connections between the two and the Iranian-backed terrorist group Hizballah.

"It is extremely troubling to see the government of Venezuela employing and providing safe harbor to Hizballah facilitators and fundraisers. We will continue to expose the global nature of Hizballah's terrorist support network, and we call on responsible governments worldwide to disrupt and dismantle this activity," the director of the Office of Foreign Assets Control, Adam Szubin, said in a statement.

As oil was traded down below $132 per barrel, the 9¼% sovereigns due 2027 sank 1.4 points to 94.1 bid, 94.7 offered.

In Brazil, "cattle prices keep going up and it's definitely going to have a negative impact on their margins," a strategist said about the beef sector, especially since the ban on exports to Europe this February.

"Pretty much everything is down ... The whole sector is a lot softer," the strategist said.

The Independencia bonds due 2015 were down to 99.75 bid, 100.75 offered.

The Marfrig bonds due 2016 were unchanged at 100.5 bid, 101.5 offered.

More new issuance is expected from the sector, the strategist said.

Meanwhile, the 11% sovereigns due 2040 added 0.5 point to 132.9 bid, 133 offered.

Elsewhere in the Latin American sphere, the newly issued 8 3/8% Jamaica bonds due 2018, which were issued on Wednesday at 97.498, were quoted at 95.5 bid, 96 offered.

Argentina stuck on strike

In Argentina, the speech given by president Cristina Kirchner Wednesday night only fed the fires that divide the farmers and the government, a market source said.

The strike will continue, and the source could only guess that Kirchner intends to use the impending food shortages to scapegoat the farmers for the floundering economy.

Kirchner did send the tax package before the congress for approval, but it is far from assured to pass, the source said.

Still, by the figures the economy did grow at 8.4% in the first quarter, the source said, but noted that the 0.6% quarter-on-quarter growth is probably a more accurate indicator.

The 8.28% Argentine discount bonds due 2033 fell 0.4 point to 77.6 bid, 78.6 offered.

"From our perspective it's completely unchanged," the strategist said about the political situation.

Investors are frozen in their positions, the strategist said, there is little interest in selling at such low levels and new players consider Argentine credit "toxic."

"It doesn't look very rosy," the strategist added.

Central banks to meet in Mexico, Colombia

In Mexico, the central bank prepared for its meeting Friday where many market watchers expect a 25 bps rate hike, but there is "probably a little bit of uncertainty," a buyside source said.

Still, some believe that recent increases in consumer price controls were made in order to forego a rate hike, the buysider said, but added: "It would be good for them to raise it."

In Colombia, more can agree on a 25 bps hike from the central bank on Friday, but during Thursday's session Moody's Investors Service upgraded the country's sovereign credit rating to Ba1 from Ba2.

"The dramatic progress with respect to Colombia's once-precarious security situation has spurred a sustainable recovery in domestic demand and generated a virtuous cycle that has significantly improved debt dynamics," said Moody's vice president and senior analyst Alessandra Alecci in a statement.

The Colombian 7 3/8% bonds due 2017 were quoted at 109.5 bid, 110.5 offered, while the 7 1/8% bonds due 2024 were spotted at 118.5 bid, 119.5 offered.

Asia makes up from overnight

Asian trading was "hit overnight," but "then spreads came in so it doesn't feel like we're getting as badly affected," a trader said about equities.

"We've widened a bit generally," he said.

Equities were helped by falling oil, which came in part from an 18% hike in consumer gasoline and diesel prices in China, the trader said.

Meanwhile in the Philippines, bond prices were hurt on Thursday as the market favored Indonesia's credit.

The Philippine sovereign bonds due 2030 dropped 1 point to 125 bid, 126 offered.

Also, in the Philippines the May budget surplus registered PHP 7 billion, compared to PHP 1.7 billion during May 2007.

The jump was attributed to the difference in tax collections, according to the Manila Times. Collections were up 16.5% in May to PHP 77.7 billion.

Collections for the year are expected to hit PHP 1.2 trillion, but the government still expects a PHP 40 billion to PHP 75 billion yearly deficit.

In Indonesia, six telecoms were convicted of price fixing, which is estimated to have cost customers $302 million.

The six found guilty were Excelcomindo Pratama (XL), PT Telekomunikasi Seluler (Telkomsel), PT Telekomunikasi Indonesia (Telkom), Bakrie Telecom, Mobile-8 Telecom and Smart Telecom, the Jakarta Post reported.

Each will have to pay a fine according to the severity of their involvement. Smart Telecom will not be fined.

The Indonesian bonds due 2018 were quoted at 97 bid, 97.5 offered.

"Indonesia has outperformed Philly pretty hard now for the last two days," the trader said.

Elsewhere in Asia, Pakistan's bonds improved by 1 point to 75 bid, 78 offered.

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