All eyes on local debt amid lackluster trading session; several issuers tap capital markets

By Reshmi Basu and Paul Deckelman

New York, May 11 - Emerging market debt turned in a bland trading session Friday while local bonds grabbed center stage.

Meanwhile the primary market continued to hum along as issuers continued to take advantage of investors' appetite for risk. New debt came from across the emerging markets spectrum Friday.

From Mexico, BBVA Bancomer SA priced the second tranche of its two-part notes offering.

It sold €600 million of 10-year subordinated tier II notes (A1//BBB+) at par to yield a spread of mid-swaps plus 45 basis points.

The deal came in line with guidance of 45 basis points over mid-swaps.

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.

In the previous session, BBVA 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.

Proceeds from the two-part notes offering will be used for general corporate purposes.

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

TemirBank, Russian corporates sell deals

Out of Kazakhstan, full-service bank JSC Temirbank BV sold a $500 million offering of seven-year notes (Baa3) at 98.753 to yield 9¾%.

The deal came in line with guidance, which was set for a yield in the 9¾% area.

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

The notes were issued via financing subsidiary Temirbank Capital BV.

Also, Russian coal producer Raspadskaya OAO sold a $300 million offering of five-year loan participation notes (Ba3//B+) at par to yield a spread of Treasuries plus 297 basis point.

Citigroup and UBS were lead managers for the Regulation S deal.

Raspadskaya is 80% controlled by Cyprus-based Corber Enterprises Ltd., which is co-owned by Raspadskaya management and Evraz Group, a Russian steel and mining company

Also out of Russia, Novorossiysk Port Capital SA (NCSP) priced a $300 million offering of five-year notes (Ba2) at par to yield 7% via Morgan Stanley.

The issuer is the second-biggest port for Russian crude-oil exports.

Elsewhere, New World Resources BV sold a €300 million offering of eight-year senior notes (B3/B) at par to yield 7 3/8%.

The deal priced inside of initial guidance, which was set for a yield of 7½% to 7¾%.

Morgan Stanley, Barclays Capital and Citigroup were bookrunners for the Rule 144A and Regulation S offering of notes, which comes with four years of call protection.

Proceeds will be used to repay bank debt and to fund capital expenditures.

The issuer is a Netherlands-based holding company, whose activities include coal mining and coke production in the Czech Republic.

First Ukrainian, Brazil retap

Also on the primary front, JSC First Ukrainian International Bank reopened its 9¾% loan participation notes due 2010 to add $125 million. The retap priced at 100.25.

Standard Bank plc issued the bonds while First Ukrainian will borrow the proceeds.

HSBC and Standard Bank plc were joint bookrunners for the Regulation S transaction.

On Feb. 6, FUIB placed the original $150 million offering of notes at par to yield 9¾%.

With the additional notes, the size of the deal now stands at $275 million.

On the sovereign side, the Federative Republic of Brazil sold an additional R$37.5 million of its 10¼% local currency-denominated global bonds due 2028 (Ba2/BB/BB+) to investors in Asia.

On Thursday, the country reopened the 2028 bonds to add R$750 million in a drive-by.

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.

With the additional bonds, the total size of the deal stands at R$3.0375 billion.

In February, 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.

Local bonds in spotlight

Local-currency bonds took the spotlight in Latin American emerging market trading on Friday market watchers said, spurred by the relative strength of those currencies against the U.S. dollar.

At the same time, dollar-denominated bonds were seen taking a backseat, moving little, as market participants sought to figure out what the latest moves - or non-moves - by the Federal Reserve on interest rates may mean for emerging assets.

The most widely followed EM bond, the Brazilian 11% 2040 issue, for instance, was seen slightly easier at 135.625 versus its close Thursday at 135.875.

On the other hand, the country's real-denominated bonds firmed smartly, its 2028 globals quoted up 5/8 point at 112.938, following the sale of R$787.5 million of the security by the Brazilian Treasury in a reopening transaction.

The real, meantime, was firmer on world forex markets, buoyed by economic data which came in about where analysts had expected it, showing that inflation is under control, with consumer prices in Latin America's largest economy having risen 0.25% in April - down from the 0.37% rise in March.

That continued to push up the Brazilian currency, which is up more than 5½% so far this year.

That in turn is propping up the nation's real-denominated bonds, such as its zero-coupon bonds due 2008, whose yield tightened by 2 bps Friday to 11.54%.

Mexican, Colombian local debt firmer

Similar dynamics were seen in other Latin nations on Friday. In Mexico, the government's peso-denominated 7¼% bonds due 2016 firmed almost ¼ point to close just above 97 bid, as the bonds' yield came in by 3 bps to 7.68%.

That move came in tandem with a rise in the peso to its strongest levels since early January. The Mexican unit has been on the upside for the last four weeks. Relatively tame U.S. inflation data and continued softness in key sectors of the American economy, including retail sales - off 0.2% in April - are seen in some quarters as positive factors for the peso, since Mexico's interest rates, just raised by that country's central bank, make peso-denominated assets more attractive to investors on a relative basis.

Colombia's local-currency bonds were also seen stronger on Friday, its 11% securities due 2020 up slightly to levels above 106.5, although its yield held steady at 10.07%. The peso-denominated bonds have recently been firming as that currency unit pushes towards a seven-year high. The peso is being spurred by investor expectations of strong economic growth in the Andean nation, helped along by a recently signed free-trade pact with the United States, which is Colombia's largest export market.

Philippines stable

Apart from Latin American trading, Philippines bonds were seen unchanged to mixed in Asian dealings earlier in the day as local markets weakened after Wall Street's retreat on Thursday. While the benchmark 2031 bonds were about unchanged at 114.125 bid, its 2032 notes were off about 1/8 to 98 bid.

The five-year CDS contracts on Philippines sovereigns widened out marginally to 107-110 bps, while the similar contracts on Indonesia's debt were also about 1 bp wider at 106-110.

The impact of stronger currencies on their countries' locally-denominated bonds was also seen on South Africa's debt. Several series of rand-denominated paper were seen a little stronger, with the yield on its R153 bond narrowing to 7.96% from 7.97%, while its longer-term R157 bond was quoted yielding 7.59%, in marginally from 7.60% previously.

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