Emerging markets stretched wider; Telemar, Gazprom begin roadshows; trading slow after break

By Aaron Hochman-Zimmerman

New York, April 13 - Emerging markets took a step backward as investors returned to their desks on Monday after the long holiday weekend.

U.S. equities began weak but finished flat even as emerging markets felt a minor spate of selling.

Peru performed well on the trading side, but the market's attention was on Brazil's Telemar Norte Leste SA and Russia's OAO Gazprom, both of which began roadshows on Monday for their respective benchmark bond offerings.

Also in the primary market, recent rumors of a new sovereign offering from South Africa were confirmed with scant detail.

"I just heard they're holding a beauty contest," a strategist said.

The sluggish start for emerging markets follows a week that a recent low, according to EPFR Global.

Emerging market bond funds, which the firm tracks, posted a net outflow of $594 million, an amount not seen since early December, a press release said.

"Funds geared to local currency debt again accounted for the bulk of the week's redemptions," the release said.

Elsewhere, volatility moved higher on Monday but remained below the 40.00 mark as it added 1.28 to close at 37.81, according to the VIX index. The index is a frequently used yardstick of market volatility.

As a sector, emerging markets was seen wider by 8 basis points to a spread of 569 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

LatAm returns to primary action

Latin America traded slowly as investors returned to their desks after the Easter holiday, but most were concerned with Telemar Norte Leste, which began its roadshow for a $500 million or greater 10-year senior unsecured note (Baa3//BBB-).

The issuer will likely price at least $750 million at yields from 8¾% to 10%, said a syndicate official not affiliated with one of the bookrunners.

"They have a lot to refinance," he said.

The interest looks "pretty healthy," he said. "Everyone's kind of lining up to meet them."

Citigroup has the left books, followed by Banco Itau, Banco Santander, BB Securities, Banco Bradesco BBI.

The top three helped arrange Telemar's ill-fated September 2008 $1.5 billion to $2 billion deal.

September's five-year notes due 2013 were talked in the 7¾% area, and the 10-year notes due 2018 were talked in the 8½% area.

"I think they were ready to pay up the last time," a strategist said.

"Provided they're willing to pay" this time, the deal should go well, the strategist said.

People have suggested that the upsized $200 million issue of 9 5/8% five-year guaranteed notes (/BB/BB+) from Brazil's Odebrecht Finance Ltd. priced on April 2 helped to open the market for the Latin American corporates.

"I'd say that's right," the strategist said, noting "new demand" in the market.

LatAm trades off slightly

The primary market consumed most of the attention in Latin America, while on the trading side Peru made the big gains as the other credits stepped lower.

The 8 3/8% Peruvian bonds due 2016 added 0.5 point to 113.35 bid, while the 7 1/8% bonds due 2019 added 1 point to 105.25 bid.

Argentina and Venezuela were flat even as oil was seen as low as $49 per barrel on Monday.

The 8.28% Argentine discount bonds due 2033 were seen at 29.5 bid, while the 9¼% Venezuelan sovereign bonds due 2027 were seen at 62.5 offered.

In Brazil, CDS traded slightly wider, and in cash terms the 11% Brazilian sovereigns due 2040 slipped to 130.1 bid.

Emerging Europe slips wider

Emerging Europe widened out as U.S. equities fell early and investors were ready to pick some profits.

In Russia, the government's oil giant, Gazprom, began its roadshow for its $2 billion bond (Baa1/BBB/BBB) offering via Credit Suisse.

Meanwhile, fellow state-run oil firms OAO Rosneft and OAO Transneft have contracted to sell 15 million tons of oil to China beginning in 2011, according to the Itar-Tass News Agency.

Rosneft will send 9 million tons to China, while Transneft will send the remaining 6 million tons through the Eastern Siberia - Pacific Ocean pipeline.

In return for the oil, China will offer $15 billion and $10 billion in loans to Rosneft and Transneft, the report said.

Elsewhere in Ukraine, Kiev was fined $530 million by Gazprom for failure to purchase all of the gas it was under contract to buy in March, reports said.

Prime minister Yulia Timoshenko asked that Russia wave the fine in order not to bankrupt its trading partner.

Ukraine is in continued talks to meet the International Monetary Fund's terms in order to receive further aid.

Also in emerging Europe, Turkey's economy will shrink by 3.6% in 2009, state minister Nazim Ekren said, according to reports.

However, according to the government's estimate, the GDP will turn toward the positive in the following years. Growth of 3.3% and 4.5% is expected in 2010 and 2011.

In the short term, Ankara has agreed in principle with the IMF to a three-year loan, with the possibility of more to follow, reports said.

Asia sells back from holiday

Asian credit was dragged wider as the markets reopened after the break, despite a bit of positive news from the Philippines.

The number of non-performing loans dropped by 0.09% by the end of March, compared to the end of February, according to a statement from the central bank.

The ratio of non-performing to performing loans stood at 3.73%, the report said.

The peso was seen trading 47.755 to the dollar.

© 2015 Prospect News.
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