Emerging market spreads widen on stock sell-off; Romania's RCS & RDS offers $200 million

By Paul A. Harris

St. Louis, Feb. 5 - With stock prices falling through most of the U.S. session, trailing a rout in European stocks, foreboding took hold on Friday in emerging markets during the New York session, sources said.

Brazil's 5 7/8% global bonds due January 2019 finished at 104.35 bid, 20 cents lower on the day.

Brazilian corporates traded lower with the rest of the market, a syndicate banker said, adding that high grades were down by 10 bps, while high-yield names were down 50 to 75 cents.

Although liquidity was not great, it was sufficient to create two-way flow, especially in bonds from the banking sector, the source added.

Meanwhile Mexico's 5.95% global bonds due March 2019 were 105.85 bid, flat on the session.

Mexican high-grades were 5 to 10 bps wider, the banker said, adding that long duration bonds were only 3 bps wider.

Mexican high-yield issues were down 25 to 50 cents.

Risk aversion

Earlier Friday, amid volatility in the European stock markets, a market source there saw a flight to quality taking place.

Sovereigns were under pressure amid general widening.

Brazil five-year credit default swaps were 143.50 bps mid in the European afternoon on Friday, 11.75 bps wider on the day and 9.625 bps wider on the week.

Russia five-year CDS were 198.75 bps mid, 11.75 bps wider on the day and 9.625 bps wider on the week.

Among high-yield sovereigns, Venezuela five-year CDS were 1,044 bps mid Friday afternoon in Europe, 35 bps wider on the day and 40.50 bps wider on the week.

Russia sets mandate

The Russian Federation mandated Barclays Capital, Citigroup, Credit Suisse and VTB Capital as lead managers for its first sovereign eurobond issue in over a decade, according to a press release issued by the finance ministry on Friday.

"The placement will mark Russia's return to the international capital markets for the first time since 1998," the ministry said.

It also said its choice of banks had been determined by their "vision" and experience on the Russian market.

Barclays and Citigroup were lead managers, and VTB Capital was co-lead, when Russia's national development bank, Vnesheconombank, made an earlier placement of sovereign eurobonds, the ministry noted.

The Russian budget for 2010 stipulates $17.8 billion of foreign borrowing, the release noted. However deputy finance minister Dmitry Pankin said earlier the country would borrow less this year. He also said the Finance Ministry was considering issuing ruble-denominated eurobonds and bonds with a 30-year maturity.

Romania's RCS & RDS

In the primary market, Romanian telecommunications company RCS & RDS will market a $200 million offering of seven-year senior unsecured notes (/B+/) on U.S. and European roadshows during the Feb. 8 week.

Pricing is expected late in the week.

Citigroup has the books.

Proceeds will be used to repay bank debt, to fund acquisitions, to fund capital expenditures and for general corporate purposes.

The Bucharest-based company provides satellite television, cable television and internet services.

Bank deals pulled

India's Bank of Baroda postponed a benchmark-sized dollar-denominated offering of senior notes (//BBB-), a market source said on Friday.

Citigroup, Deutsche Bank, HSBC and Standard Chartered had been leading the deal.

Another casualty of the present volatility was Banco Espirito Santo, which had been expected to bring a dollar-denominated five-year note offering, according to a syndicate banker in New York.

Meanwhile, Songa Offshore SE, a Cyprus-based drilling services company, moved its $200 million offering of seven-year senior notes (Caa1/B+) into the Feb. 8 week. It had previously been expected to price Friday.

The deal, via Citigroup, it talked at the 10¼% area.

The week ahead

The week ahead could see activity in the primary market, sources said.

In addition to Songa, Korea's Hyundai Card Corp.'s global bond offering via Barclays Capital is in the market.

Indonesia's Star Energy Geothermal (Wayang Windu) Ltd. is in the market with a benchmark dollar-denominated offering of five-year notes (B2) via Barclays Capital, Standard Chartered Bank and Nomura.

Vanguarda do Brasil SA has been marking a $200 million offering of five-year senior unsecured notes (B3/B-/B-) via Morgan Stanley.

However as the Friday session came to a close, a wait-and-see attitude had taken shape among the dealers.

"Face it - No one is going to bring a deal into a market like this," a syndicate banker said.

"You're going to have to first see the stock market regain its footing," the source added.

Sovereign spreads have shot out in Europe. First it was Greece, but now it's Spain and Italy.

A couple of weeks ago high-grade names were struggling because investors weren't getting enough return. But now it's high-yield paper that is getting hit because people are fleeing from risk, the source said.

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