Emerging markets prepare for wave of deals; Stats ChipPAC, Cordoba, ENAP, VTB plan notes

By Christine Van Dusen

Atlanta, Aug. 2 - Risk sentiment continued to improve on Monday amid solid earnings reports and better-than-expected manufacturing growth in July, and that's paving the way for a week of potentially heavy new issuance from emerging markets - even though there's already a heaping amount of supply.

Investors are not having indigestion, sources say, so issuers remain on track to do deals during what is viewed as the last week or two to get work done before the summer slowdown.

"So far, investors are just gobbling it up. Risk sentiment is up," an emerging markets strategist said. "You typically don't see it quiet down until the second week of August. The first week is the last week in which issuance gets brought to market."

At least one market source believes issuance will continue into the second week of August. "I think you'll have next week too, given the strong performance of the market," he said. "I think we'll remain open for business later than some people expect."

New issues coming

Yet even as investors embraced risk and issuers geared up to come to market, no pricings were seen on radar screens on Monday.

But the pace is expected to quicken again, and several new deals should print by Friday. On that list are the $600 million senior notes due 2015 from Singapore-based semiconductor company Stats ChipPAC Ltd. in a Rule 144A and Regulation S transaction with Credit Suisse and Deutsche Bank.

Also coming soon, sources say, are the Province of Cordoba's planned bonds totaling as much as $350 million via Citigroup and UBS.

And Chile-based oil and gas company La Empresa Nacional del Petroleo (ENAP) has mandated Bank of America Merrill Lynch, BBVA, BNP Paribas and Scotia Capital for a planned issue of $500 million in bonds, a market source said. That deal, which is on a roadshow this week, could price by Friday.

"It's probably a 10-year," a source said.

Another deal that's expected to price this week is Russia-based lender VTB's planned add-on of at least CHF 100 million to its CHF 300 million 4% notes due 2013. The original notes priced at par to yield Treasuries plus 315.5 basis points.

VTB Capital and BNP Paribas are the bookrunners for the deal.

Market sources also were whispering about a potential offering from recent issuer Belarus, possibly to be placed in the Russian market.

Good backdrop for deals

Helping to set the stage for these deals and others on the near-term horizon was Monday's report from the Institute for Supply Management, which showed that national factory activity slowed less than expected in July.

"The data is pointing to a softer recovery in the second half, globally," the strategist said. "The market is currently enjoying being backward-looking and enjoying all the earnings results, which are based on last quarter's performance."

He cautioned that things might change once the next quarter's results are taken into account. "We'll have to see at what point the market decides to parse that in," he said.

Sources are now keeping an eye out for non-farm payroll numbers, which are reported this Friday. "That's the real critical direction-pointer for risk sentiment and growth," a market source said.

Regardless of the numbers that come out at the end of the week, market-watchers still expect activity will grind to a halt later this month.

"After this week it becomes difficult for anyone but the sovereigns to come because second-quarter numbers go stale toward the middle of next week," a New York-based market source said. "Corporates will need to wait until they incorporate new numbers to come to market."

Trading thinner, stronger

Volumes were lighter, as they often are on summer Mondays, but trading was solid as the market tracked U.S. equities, a source said.

"The U.S. stock market is doing awfully well, and that's lifting sentiment for EM," he said. "Everything is just following U.S. equities."

Emerging market bonds were, in general, "tighter by 4 to 8 bps" on the higher-rated credits, a trader said.

"The increase in risk appetite and search for yield have helped the higher-beta assets in the last few weeks," he said.

Venezuela was an outperformer, up by 1 to 1½ points, he said, to "make up some of the underperformance of the last month" that stemmed from tensions between the sovereign and Colombia, which alleged Venezuela is harboring terrorists.

And "Argentina is the next big performer, with the spread down about 22 bps," the strategist said.

EM bonds are expected to continue down this "path of tighter spreads and higher prices," the trader said.

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