Emerging markets unstoppable; PT PLN prices $750 million bonds; spreads narrow; prices climb

By Aaron Hochman-Zimmerman

New York, Aug. 3 - Emerging markets began another week at a rally pace with no foreseeable obstacles to success.

"It's go, go, go," a strategist said Monday.

Trading was strong, with Russia's benchmark sovereign outperforming many of its new corporate issues.

The bonds due 2030 tacked on 1 point.

Meanwhile, the primary market saw a $750 million issue from Indonesia's PT Perusahaan Listrik Negara price, and others from Latin America were expected to advance toward pricing.

Talk was released for both Mexico's Alestra SA and Brazil's Cosan Combustiveis e Lubrificantes.

From the major markets, volatility slipped lower by 0.36 to close the day at 25.56, according to the VIX index. The index is a frequently used gauge of market volatility.

As a sector, emerging markets wrapped tighter by 23 basis points to a spread of 366 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging market debt.

PLN prices, primary presses on

PT Perusahaan Listrik Negara priced a $750 million 10-year bond (Ba3/BB-/) at 99.155 with a coupon of 8% to yield 8 1/8%, according to a market source.

Barclays Capital Inc. and UBS acted as bookrunners for the deal.

PLN is a Jakarta-based state-owned electricity utility.

Alestra issued guidance at 12% for its upcoming five-year bond (B1/B+/BB-) offering.

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

Alestra is a San Pedro Garza Garcia, Mexico-based telecommunications firm.

Cosan Combustiveis e Lubrificantes talked its $300 million five-year senior bonds (BB-/BB-) at 10¼%.

Morgan Stanley, Bradesco BBI and Santander Investments were asked to act as bookrunners for the deal.

A roadshow was held from July 27 to Aug. 3.

Cosan is a Brazilian agroenergy firm.

Emerging Europe rallies on

The rally in emerging Europe continued on Monday, with the new paper from Russia out in front.

"Most of the Russian corporates are significantly tighter," a London-based trader said near the close.

OAO Gazprom's bonds, "depending on the bond," were 20 bps to 30 bps tighter, the trader said, with CDS spreads averaging 15 bps tighter.

Some of the strength was "because of Treasuries as well," the trader said.

Gazprom's euro-denominated bonds due 2015 were seen better by 0.85 point at 105.85 bid, 106¼ offered. The dollar-denominated bonds due 2014 added ¼ point to 102 bid, 102 3/8 offered.

Bonds in the Russian banking sector improved as well on Monday.

The VTB Bank euro-denominated bonds due 2011 were quoted at 102¾ bid, 103¼ offered.

Meanwhile, the sovereign due 2030 jumped 1 point to 101¼ bid, 101½ offered.

Also in Russia, president Dmitry Medvedev ordered local governments in the Arkhangelsk, Kaliningrad, Murmansk and Samara regions to guarantee employment with federal subsidies.

Federal employment programs have been well-implemented in many regions, the government said, according to the Itar-Tass News Agency; however, "let us say that our conversation is a direct instruction to the governors of the Murmansk, Arkhangelsk, Samara, and Kaliningrad regions to organize this process properly," Medvedev said.

Elsewhere in Ukraine, steel production fell by 34% from January to July 2009 compared to the same period in 2008, according to the Kyiv Post.

The country produced only 14.5 million tons of steel while pipe production was down 42% and scrap metal deliveries were down 43%.

South of Europe

In the Middle East, Investcorp Bank BSC announced that it will accept $500 million in investor commitments for its planned tier 1 preference share capital raise, according to a press release.

The goal for the cash raise was only $250 million, but all of the offers from retail institutional investors will be accepted.

Proceeds will be used to improve the firm's capital position and to help meet its deleveraging goals.

More details regarding the capital raise will be made available in "mid-August," according to the company's web site.

Investcorp is a Manama, Bahrain-based alternative investment management firm.

In South Africa, textile and clothing retailer Edcon's bond levels jumped on the news of a successful 1 billion rand securitizations deal, which "priced a little high," a strategist said.

Still, the deal answered many questions about the retailer's 2010 financing.

The Edcon secured bonds due 2014 were quoted at 71½ bid, 73½ offered, while the unsecured bonds due 2015 were seen at 56 bid, 58.15 offered.

LatAm waits for next wave

Latin America traded well as it waited for another batch of new deals to ripen.

Alestra announced talk at 12% for its five-year deal, while Cosan posted its guidance at 10¼%.

The Cosan deal looks "incredibly tight ... I wouldn't play in that," a strategist said.

"Cosan is a really tough credit" with a "tough story," the strategist said, but "it's tough to find yield in Brazil."

Among the deals which priced during Latin America's last flurry of primary activity, Chile's "Aruaco has a good bit of juice in it," the strategist said.

"That looks pretty attractive" and "is a pretty nice yield," the strategist said.

Celulosa Arauco y Constitucion SA priced $500 million in 7¼% bonds due 2019 on July 22 at 98.91.

The bonds were seen at 102.85 bid, 103½ offered on Monday.

Colombia's bonds have also fared well, the strategist said.

Empresas Publica de Medellin priced 7 5/8% bonds due 2019 at 98.292 also on July 22.

On Monday, the bonds were seen at 104.05 bid, 104¼ offered.

Ecopetrol SA sold 7 5/8% bonds due 2019 at 99.642 on July 16. They were seen trading at 105.15 bid, 105¼ offered.

Elsewhere, Brazil's Centrais Eletricas Brasileiras SA priced 6 7/8% bonds due 2019 at 99.112 on July 23.

The bonds were quoted at 102¼ bid, 103 offered on Monday.

Also in Venezuela, the government continues to assist FARC rebels in Colombia, despite repeated denials, reports said.

The government has provided the rebels with Venezuelan identity cards and western-built military material, the New York Times reported.

Colombia has drawn regional criticism for allowing a greater U.S. military presence in the country but shows no signs of reversing its decision.

Asia winds tighter

Asia continued to trade well with significant spread tightening as another deal from the sector priced in Indonesia.

Some also expected to see new paper from Sri Lanka in the coming session.

In the Philippines, the July inflation was almost negligible, according to the National Economic and Development Authority.

The preliminary numbers fall within the central bank's estimate of negative 0.3% to 0.6%, according to the Manila Times.

In June, inflation hit 1.5%.

The peso was seen trading 47.905 to the dollar.

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