Banco Cruzeiro, Cencosud, Sinochem sell notes; sovereign default risk a 'global threat'

By Christine Van Dusen

Atlanta, Jan. 12 - As Brazil's Banco Cruzeiro do Sul SA, Chile's Cencosud SA and Sinochem Hong Kong Group priced notes and a few other issuers - including West China Cement - moved closer to market on Wednesday, activity was somewhat muted due to snowy conditions throughout most of the United States.

"The snow has made things a little bit more quiet," a New York-based market source said. "People are getting in late. So there's a fairly quiet tone."

Even Portugal's successful bond sale, which may suggest that the debt-saddled sovereign and others like it could be on the road to recovery, failed to do much to ignite the markets.

"Issuance is still rather subdued," said Jerry Brewin, head of the emerging market debt portfolio at Aviva Investors. "The focus today was on the Portugal funding. It seemed to be well placed, but the suspicion is that the ECB bought a good slug of the bonds and added more Greece and Spain debt in an attempt to squeeze the market tighter. The Japanese and Chinese have made warm comments about their happiness to buy the big new EU bonds, which helped sentiment."

Tunisia, Lebanon in focus

Also impacting the picture for emerging markets assets on Wednesday were several international headlines, including news of the dismissal of Tunisia's interior minister following violent protests over unemployment, corruption and rising costs.

"In the market, we're seeing a willingness to buy Tunisia's five-year credit default swaps at 145 bps and sell at 165 bps," a London-based trader said.

And Lebanon's prime minister cut short his trip in the U.S. amid resignations from Hezbollah ministers, which could lead to a collapse of the unity government.

"Spreads in Lebanon closed 5 to 15 bps wider," the London trader said. "The Ivory Coast situation continues to be one to watch, as does the story unfolding in Pakistan. So there are a few stories out there, but overall, spreads continue to perform."

Cruzeiro, Cencosud sell notes

In the primary market, Brazil's Banco Cruzeiro do Sul priced $400 million 8¼% notes due Jan. 20, 2016 at 99.498 to yield 8 3/8%, a market source said.

Barclays Capital, BCP Securities and UBS were the bookrunners for the Rule 144A and Regulation S deal, which was whispered at the mid-8% area before price talk was set at the 8 3/8% area.

And Chile-based retail company Cencosud priced $750 million 5½% notes due Jan. 20, 2021 at 98.783 to yield 5.661%, or Treasuries plus 230 bps, a market source said.

JPMorgan and Deutsche Bank were the bookrunners for the Rule 144A and Regulation S deal, which was whispered at a spread in the Treasuries plus 225 bps area.

Proceeds will be used for to refinance debt and for general corporate purposes.

"Both of those trades have been well received," the New York-based market source said. "They're trading reasonably well."

Sinochem prices notes

In another new deal, Sinochem Hong Kong Group priced RMB 3.5 billion notes due Jan. 18, 2014 at par to yield 1.8%, a market source said.

Deutsche Bank and Citic Securities were the bookrunners for the Regulation S-only deal, which was talked at 1¾% to 2%.

This followed Tuesday's pricing by Santiago, Chile-based Banco Santander Chile SA of $500 million five-year floating-rate senior notes at par to yield Libor plus 160 bps, according to a company announcement.

JPMorgan and Santander Investment Securities Inc. were the bookrunners for the Rule 144A and Regulation S offering.

In other news from Latin America, Brazil-based sugar and ethanol company Grupo Virgolino de Oliveira SA is planning a dollar-denominated issue of seven-year notes, a market source said.

The notes will be non-callable for four years.

West China Cement on roadshow

Also on Wednesday, Abu Dhabi's First Gulf Bank talked its planned Swiss franc-denominated five-year notes at mid-swaps plus 164 bps, a market source said.

In November the company delayed a dollar-denominated issue of notes due 2015 via BNP Paribas, Citigroup, Deutsche Bank, HSBC and National Bank of Abu Dhabi. The Regulation S notes were talked at a spread of mid-swaps plus 250 bps.

And Xi'an-based West China Cement Ltd. is on a roadshow this week for a dollar-denominated issue of five-year senior notes, a market source said.

Deutsche Bank and ICBCI Capital are the bookrunners for the Rule 144A and Regulation S deal.

Proceeds will be used for general corporate purposes and to repay an $85 million bridge loan with ICBC International.

Busier morning for trading

In trading, the European morning was active and saw decent demand in the marketplace before subduing a bit in the afternoon, the London-based trader said.

"It was a more lackluster afternoon with more balanced flow," he said. "The market definitely remains in a sweet spot, but I would like to see how the market behaves with some decent supply."

Qatar Islamic Bank's 3.856% notes due 2015 were seen trading Wednesday at 100.80 bid, 101.30 offered, after closing Tuesday at 100.75 bid, 101.25 offered.

Bahrain's 5½% 2020 notes were unchanged Wednesday at 102.12 bid, 102.62 offered, while Bahrain Mumtalakat Holding's 5% 2015s finished the day at 102.12 bid, 102.62 offered from Tuesday's 101.90 bid, 102.40 offered.

And Abu Dhabi Islamic Bank's 3.745% 2015s - which traded Tuesday at 98.12 bid, 98.32 offered - were seen Wednesday at 98.15 bid, 98.35 offered.

Egypt bonds trade up

In other news from the Middle East, Egypt's long-term foreign currency issuer default rating was affirmed at BB+ and its long-term local currency issuer default rating was affirmed at BBB-.

"Egypt's economy proved resilient to the global financial crisis and is now in recovery mode," says Richard Fox, Head of Middle East and Africa Sovereign Ratings at Fitch. "Strong external indicators remain the key support for Egypt's rating. By contrast, progress reducing high deficit and debt ratios will remain limited this year and inflation is a challenge in the face of rising food prices. The pace of reform has also slowed as elections loom and political uncertainties increase."

Egypt's 2020 notes, in response, found some support. The notes were seen trading at 102.62 bid, 103.12 offered, up about 40 points over the month, a trader said.

Asset bubble could pop

Meanwhile, the World Economic Forum released a report on Wednesday pointing to sovereign debt defaults as one of the biggest global threats for 2011.

"There is a high degree of risk and uncertainty regarding how much debt can be borne by the public sector, particularly in advanced economies, before the debt burden seriously impacts economic growth through increasing borrowing costs, politically unacceptable amortization payments, and the subsequent need for fiscal austerity," according to the "2011 Global Risks" report, released in advance of the WEF's annual meeting in Davos, Switzerland.

Advanced economies are at the highest risk of fiscal insolvency, which is turning investors' attentions to emerging markets.

"Loose monetary policy and slow growth in advanced economies, together with high growth in emerging markets, is already attracting increasing gross capital flows to emerging economies and decoupling their stock markets from those of advanced economies," the report said. "This could result in asset bubbles as rising equity markets leak into real estate prices."

Though some emerging markets are trying to restrain capital inflows, "it would be difficult for all emerging markets simultaneously to resist the upward pressure on their currencies," the WEF said. "Such asset bubbles, driven as they are by excess liquidity rather than increases in underlying value, could result in severe crashes, damaging both emerging markets and the world economy as a whole."

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