Emerging market debt solid on equities; Ukraine's Azovstal sells $175 million notes at 9 1/8%

By Reshmi Basu and Paul A. Harris

New York, Feb. 16 - Emerging market debt continued to perform well Thursday on the back of a strong performance from U.S. equities and strong U.S. economic data.

In the primary market, Ukraine's Azovstal Iron & Steel Works sold a $175 million offering of five-year fixed-rate notes (B3/B-) at par to yield 9 1/8%.

The deal priced in the middle of price guidance, which had been set at 9% to 9¼%.

ING was the bookrunner for the Regulation S transaction. MNB Capital Markets was the joint lead manager.

In other news, Russia auctioned 3.5 billion rubles of 30-year bonds at an average yield of 6.99%, according to a market source.

The auction was 6.47 times oversubscribed. The treasury also sold 8 billion rubles of 10-year notes at an average yield of 6.73%.

The ministry of finance said it would continue to develop local markets and form a yield curve with a range of maturities.

Elsewhere, in Argentina the province of Neuquen received bids from competing banks over who will lead a $250 million bond offering. Proceeds will be used to finance a public works program, noted a source.

A commission will have 10 days to name a financial advisor. Among those competing are Citibank, Deutsche Bank, ABN Amro, Banco de Valores, and Banco Frances.

EM up on equities bounce

U.S. equities surged on upbeat earnings from Hewlett-Packard, thus giving support to emerging markets, according to a trader.

Economic data also gave assistance, said another source. The U.S. housing starts report provided a stronger than expected number, mitigating fears of a housing slowdown and also signaling that the U.S economy remains on track. The Philadelphia survey also surpassed market expectations.

In other news, Brazilian bonds moved higher on the announcement that foreign investors would get tax breaks on domestic government bonds

The trader described Brazil's performance as "spectacular."

Brazilian spreads tightened by two basis points, said an analyst.

During the session, the Brazilian bond due 2040 added 0.25 to 132.10 bid, 132.20 offered while the bond due 2027 gained 1.10 to 134.50 bid, 135.50 offered.

The trader said trading volume was very heavy as buyers came in on dips.

"EM has had a tremendous day," commented the trader, who focuses on Asian fixed income.

The trader noted that Asian credits have not sold off to the same extent as the rest of the asset class. Furthermore, the overall tone is firm, although the Philippines is working through specific issues.

He noted that the Philippines credit has come off a couple of times this week, mostly on the long end of the curve.

"The first time there was purely some selling on the long end of the curve, but because there was some weakness on the back of that, it sparked some speculation that there might be some issuance," remarked the trader.

Meanwhile the local press is reporting that opposition groups are pledging to get rid of president Gloria Macapagal-Arroyo and plan to hold a mass rally next week to commemorate the 20th anniversary of the ouster of former president Ferdinand Marcos.

That noise created some pressure for the credit, noted the trader.

The Philippines' long end was off by a point or so from the highs.

Asian pipeline rumors

After the Chinese New Year, the Asian primary pipeline was expected to burst into life - but instead it shut down. However, there are now a few rumors of potential corporate deals.

Siam Commercial and Krung Thai are rumored to be in the market with subordinated capital deals, according to the trader.

Additionally, Fosun International Ltd. is rumored to be coming back to the market, but not much else is being bandied around at this stage.

Last October, Chinese conglomerate Fosun postponed its downsized $325 million to $350 million offering of seven-year senior notes (Ba3/BB-) due to market conditions. The offering had been downsized from $500 million earlier. The notes, which were being sold in a debt refinancing transaction, had been talked earlier in the week at 9% area. Preliminary guidance had been 8½% to 9%.

Morgan Stanley and Citigroup were managing the deal.

"There have been a couple of issue-specific pieces of news in the Asian high-yield market over the past couple of weeks that have impacts primarily on the issues concerned," note the trader.

First off, Asia Aluminum had some news about a potential management buyout and Noble Group has had some issues about losses in its aluminum trading business. The news has impacted spreads on those particular names.

The trader observed that there is good demand for the right Asian high-yield names.

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