Emerging market bonds pierce new spread low again; IRPC issues new debt

By Reshmi Basu and Paul Deckelman

New York, May 22 - Emerging market debt trading Tuesday would have again been uninspiring Tuesday - except that the asset class saw spreads narrow to another historical low, assisted by the sell-off in U.S. Treasuries. Emerging markets itself saw a little profit-taking.

At the end of the session, spreads for the JP Morgan EMBI Global index were tighter by 3 basis points at 153 basis points versus U.S. Treasuries.

In the primary market, Thai petrochemical company IRPC PCL sold a $250 million offering of 10-year bonds (Baa3/BBB-) at 99.323 to yield a spread of mid-swaps plus 113 basis points.

The deal came inside of guidance, which was set at 115 to 120 basis points over mid-swaps.

Barclays Capital and Citigroup were joint bookrunners for the Regulation S transaction.

Shanghai Zendai on the road

Hitting the road, Hong Kong-based property developer Shanghai Zendai Property Ltd. plans to start a roadshow for a $150 million offering of five-year senior fixed rate bonds (B2/B+/B+) in Hong Kong on Wednesday.

Following Hong Kong, the roadshow will move to Singapore from Thursday to Friday and in Europe on the following Tuesday.

Merrill Lynch is the bookrunner for the Regulation S deal.

Proceeds will be used for existing and new project developments, including land acquisitions costs, and for working capital purposes.

Tristan Oil to tap 2012 notes

In other pipeline developments, Tristan Oil Ltd. will host an investor call on Thursday for a $120 million add-on to its 10½% senior secured notes due Jan 1, 2012 (existing ratings B2/B+).

Pricing is expected during the week of June 4 following a consent solicitation.

Jefferies & Co. is the bookrunner for the Rule 144A/Regulation S add-on.

The notes are guaranteed on a senior secured basis by Kazakh affiliates Kazpolmunay LLP (KPM) and Tolkynneftegaz LLP (TNG).

Proceeds will be used for working capital and for the general corporate purposes of KPM and TNG, including future capital expenditures.

The original $300 million issue priced at par on Dec. 13, 2006

Tristan is a British Virgin Islands oil and gas exploration and production company operating primarily in Kazakhstan.

Out of South Africa, processed foods company Foodcorp Pty. Ltd. will begin a two-day roadshow on Wednesday for an approximately €142 million add-on to its 8 7/8% first priority senior secured notes due June 15, 2012 (B2/B+).

Citigroup is the bookrunner for the Rule 144A/Regulation S add-on.

The notes become callable on June 15, 2009.

Proceeds will be used to fund the acquisition of First Lifestyle, a South African producer of ready-to-eat meals.

The original €175 million issue priced at par on June 15, 2005.

The issuer is a unit of Bedfordview, South Africa-based branded grain-based processed foods company Foodcorp Holdings Pty. Ltd.

Spread tighten again

Back to secondary trading, participants saw spreads between emerging debt and U.S. Treasuries continuing to tighten to record levels, impacted by continued investor demand for the higher-yielding emerging bonds as well as by rising U.S. debt yields, as a short-lived Treasury rally came to an end. The yield on Washington's 10-year widened out by 4 bps to 4.83%, the highest level in 3½ months, after Richmond regional Federal Reserve Bank president Jeffrey Lacker warned of lingering inflation, and speculation increased that the American economy is gathering momentum.

Those rising Treasury yields helped to push the widely followed EMBI + index of average spreads for emerging debt down to record tight levels at 150 bps at the close - and at one point, the spread narrowed still further, to 149 bps - the lowest level since JP Morgan & Co. began compiling the index a decade ago.

The fall in Treasuries helped to more than mask a slight weakness Tuesday in some of the recently high-flying EM bonds, such as Brazil's benchmark 11% notes due 2040, whose price was quoted as having actually declined by about 1/3 point on the day, to just a shade below 135. Its yield rose a little to 5.625% from 5.595% on Monday. Even so, Brazilian debt, on average, was 4 bps tighter versus Treasuries.

The five-year credit default swaps contract on $10 million of Brazilian debt was about unchanged, at 61.5 bps.

Mexican, Colombian local bonds firmer

In the Mexican market, the country's peso-denominated local-currency bonds were seen slightly firmer, even as the currency unit came down from its highest levels in nearly seven months, after a central bank governor said that inflation would likely remain under control, making another interest-rate hike less likely.

Although the peso was being quoted at 10.795 to the dollar late in the day - a retreat from its peak strength of 10.738 to the greenback, its firmest level since last November - the peso-denominated 10-year bonds rose 0.10 to be quoted at 126.37, while the bonds' yield tightened by 1 bp to 7.73%.

Colombia's 11% peso-denominated bonds due 2020 were seen up more than ¼ point to just under 107.35, while the yield tightened by 4 bps to punch below the psychologically potent 10% mark. Those bonds got a boost as the Colombian peso hit its highest levels in seven years.

Currencies such as the Mexican and Colombian pesos, and the Brazilian real, continue to push to their highest levels against the U.S. dollar in years, helped by a flow of foreign capital into their bond and stock markets as investors seeking high-yielding returns increase their tolerance for risk. Also helping to prop the currencies are high prices for export commodities such as oil, a key support to the economies of such countries as Mexico and Venezuela.

Just how much foreign investors like those emerging bonds was evident on Tuesday, as the EMTA trade association announced that trading in emerging market debt during the first quarter came to $1.697 trillion - a 4% increase from a year earlier, and the highest level since the group began calculating that statistic a decade ago.

The report said that the bulk of emerging debt trading took place in local-denominated instruments, rather than in paper denominated by such reserve currencies as dollars or euros. Local-currency instrument trading accounted for $1.025 trillion, or fully 60% of the emerging debt traded - a 30% rise from a year ago - with Mexico, Brazil, South Africa, Turkey and Argentina, in that order, having the most frequently-traded local instruments.

Apart from the sovereigns, a trader in Latin American debt saw Bancolombia SA's new 10-year unsecured notes, which priced on Monday at 98.661, as having moved up to 100.25 in Tuesday's dealings.

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