Emerging market debt firmer on eve of Fed meeting; Alto Palermo sells $170 million notes

By Reshmi Basu and Paul Deckelman

New York, May 8 - Emerging market debt posted gains Tuesday on the eve of the Federal Reserve's meeting on monetary policy. Higher crude oil prices also added support to names such as Ecuador and Venezuela.

Among benchmark names, the bellwether Brazilian bond due 2040 gained 0.05 to 135.85 bid, 135.90 offered. The Ecuadorian bond due 2030 moved up 1.25 to 91.25 bid, 92.25 offered. And the Venezuelan bond due 2027 added 0.80 to 120.80 bid, 121.05 offered.

Alto Palermo prices

Meanwhile in the primary market, Alto Palermo SA sold a two-part offering of $120 million in senior unsecured notes due 2017 and $50 million of Argentine peso-linked senior unsecured notes due 2012 (/raAA-/AA-(arg)) on Tuesday.

The 2017 notes priced at par to yield 7 7/8%, which came at the low end of revised guidance of 8%. Meanwhile the 2012 notes priced at par to yield 11%, which came at of revised guidance for a yield of 11% to 11¼%.

Citigroup Global and Standard Bank were lead managers for the Rule 144A and Regulation S sale.

The Buenos Aires-based issuer is a developer and operator of commercial centers.

Rosselkhozbank deal talk emerges

In other primary news developments, state-owned OJSC Russian Agricultural Bank (Rosselkhozbank) set initial price guidance for a dollar-denominated offering of seven-year loan participation notes in the area of mid-swaps plus 110 basis points.

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

Citic hits the road

Adding to the pipeline, Hong Kong-listed base metals producer CITIC Resources Holdings Ltd. plans to start a roadshow for a dollar-denominated offering of seven-year senior unsecured notes (Ba2) this week.

A roadshow is scheduled to take place in Hong Kong and Singapore on Wednesday, on the U.S. West Coast and again in Singapore on Thursday, in New York and London on Friday, and once more in New York and Boston on the following Monday.

Bear Stearns and Morgan Stanley are lead managers for the Rule 144A and Regulation S deal, which will be issued via Citic Resources Finance (2007) Ltd.

Proceeds from the sale will be used to finance Citic Resource's acquisition of 50% interests in Nations Energy Co. Ltd. from its parent Citic Group and for working capital purposes.

South Africa shops 15-year deal

And on the sovereign side, the Republic of South Africa plans to sell a minimum $750 million offering of 15-year global bonds as part of the country's efforts to retire shorter-dated dollar-denominated debt.

Holders of the bonds due 2009, 2012, 2014 and 2017 can exchange for the new dollar-denominated bond due May 30, 2022.

The objective of the transaction is to "set a new U.S.dollar benchmark for South Africa, which will provide a liquid reference point in the coming years," according to a press release filed Tuesday by the South African government.

Barclays Capital and Citigroup have been mandated as joint deal managers of the transaction.

The invitation to take part in the exchange will expire on May 15.

EM secondary firm, quiet ahead of Fed

In secondary trading, levels were seen generally firmer, continuing the recent strengthening trend, although activity levels remained generally restrained as market participants awaited the outcome of Wednesday's scheduled meeting of the Federal Reserve's policy-making Federal Open Market Committee.

The committee is widely expected to leave the key overnight loan rate unchanged at 5¼% - but participants in both the United States and in overseas markets will be carefully scrutinizing the language of the mid-afternoon (ET) announcement reporting the U.S. central bank's action - or lack of same - for clues as to what the Fed may do in the coming months. A "hawkish" emphasis on maintaining an inflation vigilance is taken to likely mean that there will be no interest rate reductions on the horizon - while a "dovish" message that inflation appears to be under control and the economy is progressing could be a harbinger of further rate cuts.

U.S. Treasury issues, against which emerging market yields are usually compared, were seen little moved ahead of the Fed meeting, with the yield on the benchmark 10-year bonds seen steady at 4.63%.

With Treasuries steady, emerging market spreads were generally tighter. J.P. Morgan & Co.'s widely followed EMBI+ index was at 164 bps over Treasuries at mid-afternoon, 2 bps tighter on the session. Total returns were up 0.22%.

Venezuela, Ecuador gain on oil price hike

Venezuela's bonds, and those of Ecuador as well, were seen firmer, helped by a rise in world crude oil prices, since the black gold underpins the economies of both nations. Light, sweet crude for June delivery rose for the first time in seven days amid continued violence in Nigeria, Africa's largest producer, which forced the closing of three pipelines. It finished trading on the New York Mercantile Exchange at $62.26 a barrel, up 79 cents on the day.

Those firmer oil prices caused Venezuela's average spread on the EMBI+ to tighten by 10 bps to 236 bps over Treasuries, while Ecuador's spread narrowed even more, by 17 bps, to 618 bps over.

Besides the oil price rise, Venezuela's bonds have been buoyed over the past two sessions by market sentiment that last week's sell-off - which saw the 2027s lose 4 points on the week - may have been overdone.

Those bonds had plunged in response to President Hugo Chavez' threat to pull his nation out of the International Monetary Fund - a step which would put many of the country's issues into a technical state of default. Sentiment in the market grew that Chavez had probably made his threat to withdraw from the IMF without even realizing the dire consequences such a step might have on his country' standing in the international community, and that when all was said and done, Venezuela would be unlikely to pull out of the international lending body, Chavez' bellicose rhetoric aside.

Those feelings, expressed by analysts, plus reassurances by Venezuelan officials that the country would not default and would continue making its interest payments in any event, seemed to mitigate the fears that had initially dropped the bonds.

Along the shorter end of the curve, Venezuela's 5¾% bonds due 2016 were seen having pushed up to 93.73, better by 0.11 on the session, while the yield tightened 2 bps to 6.68%.

Philippines up on ratings boost talk

In earlier Asian trading, Philippines bonds firmed to record high levels, given a boost by market speculation that the island nation could be in for a ratings upgrade in the near future.

That helped to firm the peso, and the bonds as well, with its sovereign bonds due 2031 rising to 114.125, a 3/8 point pickup, while its 2032 bonds were up about the same amount, at 98.25.

Five-year CDS swaps on Philippine paper tightened 2 bps to around the 103 bps level.

Talk of a ratings boost - particularly by Standard & Poor's - comes as the Gloria Arroyo government continues to rein in spending and reduce debt. Manila last week unveiled its 2008 borrowing plans, which includes a sharp reduction from currently projected levels.

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