CAF, State Bank of India sell notes as investors worry about global economy; PDVSA eyed

By Christine Van Dusen

Atlanta, Nov. 22 - Venezuela's Corporacion Andina de Fomento and State Bank of India were among the few emerging markets issuers to bring new bond deals on a quiet Monday, which was marked by thin volumes as investors weighed the implications of Ireland's expected aid package and possible ratings downgrade.

"We're watching the Irish situation and most traders are not very sure if it's good news or bad," a London-based trader said. "Plus the proximity of year-end means that market makers want to stay flat."

The new issue pipeline is mostly empty. "Money continues to arrive in the sector," he said. "But really the market isn't better bid yet. The Ireland crisis is stopping the rally."

The JPMorgan Emerging Markets Bond Index Plus started the day just 1 basis point tighter. By mid-afternoon another index, the JPMorgan Emerging Markets Bond Index Global, was wider by 2 bps.

Argentina's discount bond, for one, was down 70 cents from Friday's close. And Venezuela was down by about 1/4, the strategist said. "Mexico's prices are also down by about 1/4."

All of this showed a general lack of conviction, an emerging markets strategist said.

"And the holidays are coming up, so there are no big moves going on and things are a bit quiet," he said. "The screens aren't really lit up at all with prices. There may be some profit-taking going around, but I suspect that most of it is probably dealer driven."

SBI, CAF print notes

Despite the day's slow pace, two issuers priced notes.

Mumbai, India-based lender State Bank of India priced €750 million 4½% notes due Nov. 30, 2015 at 99.558 to yield 4.6%, or mid-swaps plus 230 bps, a market source said.

Barclays Capital, BNP Paribas, Credit Agricole CIB, Deutsche Bank, Standard Chartered and UBS were the bookrunners for the Regulation S deal, which was talked at a spread of mid-swaps plus 235 bps.

And Venezuela-based lender CAF priced €400 million 4 5/8% notes due March 29, 2018 at 99.603 to yield 4.694%, a market source said.

BNP Paribas and HSBC were the bookrunners for the Regulation S deal.

This came as the mood in Venezuela was less upbeat than elsewhere in Latin America, according to a report from RBC Capital Markets.

"But there is a sense that 2011 will be a better year than 2010," the report said. "Relatively cheap valuations and some upside to the political outlook suggest Venezuelan bond longs should be considered, though tactically."

Given the sovereign's strong currency policy and need to attract foreign investment in the oil sector, Venezuela is likely to remain "current on its external debt obligations," RBC said.

PDVSA in focus

There's still talk of a possible multibillion-dollar bond offering from state-owned oil company Petroleos de Venezuela SA (PDVSA) through a reopening of its 2017 8½% bond.

The original issue priced Oct. 18 at par alongside a debt exchange of $3 billion 2011 local-law bonds for new 8% semiannual 2013 Luxembourg law bonds. The swap, which closed this month, was seen as unsuccessful with a meager $550 million exchanged.

"After PDVSA's possible new bond issue in the next one to two months, sovereign and PDVSA debt issuance may be relatively light in the first three to six months of 2011," RBC said.

Issuance is likely to total between $5 billion and $7 billion during the new year, the report said.

"It may be prudent to avoid getting long until the possible PDVSA new bond is confirmed, especially given lingering risks that risk assets globally may be prone to further profit-taking," the report said.

Portugal a concern

Meanwhile, the market continued to keep an eye on Portugal, which has been facing some debt-related troubles and has investors worried it may be the next to take a big hit from the global credit crisis.

On Monday, the European Commission said the country is not in the same kind of financial straits as Ireland and tried to assure the market that Portugal's recent austerity measures will likely do the trick.

"Everyone is waiting to see whether the European concerns spread to Portugal or not," the strategist said. "If they don't, then I guess the rally can continue, and if they do, then we might see better buying opportunities in the near future."

In other news on Monday, market sources were whispering about Russia-based gas producer Novatek, which could be planning an offering of up to $1.5 billion 10-year notes via RBS, BNP Paribas and Citigroup.

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