More new issues from emerging markets; Gazprom, Medellin, Arauco price; spreads tighter

By Aaron Hochman-Zimmerman

New York, July 22 - Emerging markets continued to drink from the primary pipeline at the expense of trading volumes.

The trades that did occur were mostly positive, but investors were more interested to see results for the day's new deals from Russia's OAO Gazprom, Colombia's Empresas Publica de Medellin and Chile's Celulosa Arauco y Constitucion SA.

The new offerings were well received and there seemed to be nothing to discourage issuers still waiting to price.

On the secondary side, Argentina was again the focus as eager market followers wanted to hear more about what the country might do to improve its CPI reporting as well as a possible debt buyback.

The discount bonds due 2033 added 1½ points.

From the major markets, volatile and mostly lower equities left volatility down by 0.40 at 23.47, according to the VIX index. The index is a frequently used yardstick of market volatility.

As a sector, emerging markets tightened by 6 basis points to a spread of 408 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 corporates price

Empresas Publica de Medellin priced a $500 million offering of 10-year senior bonds (Baa3//BB+) at Treasuries plus 432.5 bps.

The deal came at 98.292 with a coupon of 7 5/8% to yield 7 7/8%.

Bank of America Merrill Lynch and JPMorgan acted as bookrunners for the deal.

Empresas Publica de Medellin is a Medellin, Colombia-based energy firm.

Medellin's book was $6.4 billion or 12.8 times oversubscribed, a source familiar with the deal said.

U.S. investors accounted for $2.4 billion of the orders, followed by $1.8 billion in Colombia, $1.25 billion in Europe and $100 million in Asia, with the remainder across Latin America, the source said.

The company's fundamentals are "excellent," the source added, and noted that it went through the proper paces before pricing.

The company secured its ratings and brought its chief executive and chief financial officer on a five-day roadshow.

From the roadshow, the company achieved a "90% hit ratio with investors putting in orders," the source said.

Also in Latin America's primary, Celulosa Arauco y Constitucion SA priced a $500 million 10-year bond (Baa2/BBB/BBB+) at a spread of Treasuries plus 378.5 bps.

The bonds priced at 98.91 with a coupon of 7¼% to yield 7.4%.

JPMorgan had the active books, while BBVA and Santander Investments had the passive books.

Celulosa Arauco y Constitucion is a Santiago, Chile-based logging company.

The bonds were later seen trading up at 101¼ bid.

Elsewhere in the region, Brazil's Centrais Eletricas Brasileiras SA is expected to tap the markets Thursday with a possible $1 billion 10-year senior unsecured fixed-rate bullet offer.

"I'm hearing four or five times over," a buysider said about the order book.

"It's not as cheap as Medellin," the buysider said, but it is "higher quality."

Gazprom prices dollars, euros

In emerging Europe, Gazprom priced $1.25 billion and €850 million of loan participation notes (Baa1/BBB/BBB).

A $1.25 billion five-year tranche priced at par to yield 8 1/8% with a spread of Treasuries plus 573.6 bps.

The bonds priced on the tight end of talk for a yield of 8¼%, which had been revised down from the original 8½%.

JPMorgan and Morgan Stanley acted as bookrunners for the Rule 144A and Regulation S dollar portion.

A €850 million five-year six-month tranche also priced at par to yield 8 1/8% with spreads of mid-swaps plus 518.2 bps and Bunds plus 548.8 bps.

The bonds priced tighter than talk of 8¼% to 8½%. The talk had been revised tighter from 8¾%.

BNP Paribas and Societe Generale acted as bookrunners for the Regulation S only euro piece.

Proceeds from the sale will be used to refinance existing debt and for general corporate purposes.

Both tranches were issued via Gaz Capital SA.

Gazprom is a Moscow-based government run energy firm.

Some investors "kind of had mixed feelings about it," a buysider said, but both issues traded up on the break.

The euro-denominated bonds priced at par and ended Wednesday at 100¾ bid, while the dollar-denominated bonds ended at 100.65 bid.

Europe trading 'very well'

The rest of emerging Europe and particularly Russia was trading "very well indeed," a London-based trader said on Wednesday.

Euro-denominated paper was generally 30 bps to 35 bps tighter, the trader said, with dollar-denominated debt "also doing well."

The dollar-denominated Russian sovereign bonds due 2030 performed solidly, but "not as well as Gazprom," the trader said.

The Russian bonds due 2030 were seen ¼ point better at 99 7/8 bid, 100 offered.

Also in the region, Turkey's government bonds due 2030 added ½ point to 155½ bid.

Golden Caspian shores

Also in the emerging European area, Azerbaijan will reportedly begin exporting gold, reports said.

The RV Investment Group signed agreements with government which allow for export beginning on July 21.

"The protocol envisages export of gold extracted in Azerbaijan for refining to Switzerland," said RV Investment Group president Reza Veziri.

Nearly 1,200 ounces of gold will be exported to Switzerland as a trial. In August exports are expected to jump to 2,000 ounces followed by as much as 4,500 ounces in September.

Gold was seen trading strong at $953.30 per ounce.

Argentina leads on possible reforms, buybacks

In Argentina, many investors were still optimistic about the prospect of a debt exchange or buyback along with rumored reforms of the mistrusted statistics reporting agency Indec.

Meanwhile, left-leaning Civic Coalition deputy Adrian Perez slammed the government for what he considered to be merely "cosmetic" changes to Indec, according to the Buenos Aires Herald.

The government placed Indec under the authority of the economy minister rather than the domestic trade secretary.

Still, "the Argentine economy is managed by one man only, and that's former president Nestor Kirchner, and his inside man in charge of modifying national statistics and distorting economy's reality is Guillermo Moreno," he said about the domestic trade secretary.

"It's a lot of rhetoric from the new finance minister," a buysider said about Amado Boudou.

"It's hard to know anything" for certain, the buysider said.

In trading Wednesday, the Argentine 8.28% discount bonds due 2033 improved by 1½ points to 55½ bid.

LatAm steps higher

In Latin America, trading was light but levels were mostly better.

In Venezuela, president Hugo Chavez blasted Colombia for considering construction of four new U.S. bases, reports said.

"They are surrounding Venezuela with military bases," Chavez said.

Caracas reacted by placing relations with Colombia under review, the reports said.

Colombia is one of the largest recipients of U.S. military aid, most of which is meant for counternarcotics operations.

On Tuesday, a U.S. Government Accountability Office report called Venezuela an impediment to the United States' counternarcotics fight in the region.

"Limited political support, particularly in Venezuela, and corruption have also hindered U.S. counternarcotics efforts," the report read.

Venezuela was singled out in the summary of findings, but the Dominican Republic, Ecuador, Jamaica Mexico and Panama were also noted as being plagued with drug traffickers, along with Mexico.

The 9¼% Venezuelan sovereign bonds due 2027 fell 1 point on the day to 65½ bid.

"It keeps selling off," the buysider said.

"It doesn't make a lot of sense to me ... oil is doing OK."

Light sweet crude was seen trading at $65 per barrel.

Quiet Asia holds still

Asia traded calmly and mixed as investors took some profits from the recently rallying Indonesia.

Meanwhile, investors waited to hear more news about yet another new deal.

China's Hong Kong Mortgage Corp. plans to offer a benchmark sized dollar-denominated bond (AA+) via HSBC and JP Morgan.

A roadshow will be held in Asia through Thursday.

Hong Kong Mortgage is as government-controlled buyer of home loans.

Meanwhile in Indonesia, tax revenues were 253.18 trillion rupiah or 2.83% lower in the first half of 2009, compared to 2008, the Jakarta Post reported.

The collection only represented 43.07% of the government's target.

Still, there was optimism.

"Looking ahead, we expect the economy to improve so that revenues in the coming months will be higher than that in the first half," said tax office chief Darmin Nasution.

In 2009, the country is budgeted for 587.83 trillion rupiah in tax revenues.

The Indonesian bonds due 2019 backtracked by 1 point to 130 bid.

In the Philippines, on Tuesday the government did not accept the high bids for PHP 8.5 billion of 10-year treasury bonds it offered at auction, according to the Manila Times.

Banks offered 8.007% which was rejected by the Treasury Department.

The Philippine global bonds due 2030 added ½ point to 123¾ bid.

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