Emerging markets slide into weekend; spreads widen; Kospo, three others price deals

By Aaron Hochman-Zimmerman

New York, April 11 - Emerging markets saw a bout of selling on Friday, both in trading and in new issuance.

Spreads widened by 5 to 10 basis points, but four new issues were hurried through the pipeline in the primary.

Korea Southern Power Co. led the charge with a $300 million five-year deal, which came at mid-swaps plus 208 bps, tighter than its talk at mid-swaps plus 220 bps.

In trading, Argentina fell the farthest by giving up 1.25 points from its discount bonds due 2033.

Still, emerging market bond funds had inflows of $143 million during the week ended Wednesday, according to EPFR Global. The inflows snapped a three-week losing streak for the sector.

"Flows into emerging markets bond funds were once again driven by those investing in local currency debt. They took $242 million for the week, more than offsetting another week of outflows from their hard currency counterparts," EPFR said in a press release.

As stocks fell, volatility made a comeback by adding 1.48 to end at 23.46, according to the VIX index. The index is a frequently used yardstick of market volatility.

As a sector, emerging markets was pulled wider by 3 bps to a spread of 288 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold money in emerging markets debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was wider by 4 bps with a spread of 317 bps.

The diversified index has a less strict liquidity rule for inclusion.

High-betas lead LatAm wider

Latin America traded wider, particularly in the high-beta credits as the mood was affected by U.S. equities.

The more stable credits outperformed, even as the sector was generally wider by 5 bps, a syndicate desk official said.

"Venezuela and Argentina were the underperformers," he said as they widened by closer to 10 bps.

In Venezuela, after the announcement Wednesday that the Venezuelan, Sidor division of Luxembourg's steel producer Ternium SA will be nationalized, the company has asked Argentina president Cristina Kirchner for help in the upcoming negotiations.

Kirchner has had a cooperative relationship with Venezuela president Hugo Chavez.

The 9¼% Venezuelan sovereigns due 2027 dropped 0.75 point to 96 bid, 97 offered.

"There's so much noise surrounding Venezuela," a strategist said.

Meanwhile, U.S. assistant secretary of state Tom Shannon was also looking for Kirchner's help to improve U.S. relations with Venezuela, the Buenos Aires Herald reported.

"It was rather us highlighting to a friendly government, such as that of Argentina, our interest in improving our relationship with Venezuela," Shannon was quoted in the Herald.

Shannon was specifically concerned with ensuring peace between Venezuela and its uneasy relationship with neighboring Colombia.

Also in Argentina, the official statistics reporting agency Indec posted a March inflation rate of 1.1%, according to its web site.

However, many familiar with Argentina's reporting history believe they have been severely rounding down inflation figures for political gains and to curb payments on inflation-linked debt, the Buenos Aires Herald reported.

The peso was seen trading at 3.157 to the dollar.

The 8.28% Argentine discount bonds due 2033 sank by 1.25 points to 83.5 bid, 84.5 offered.

In Mexico, the left-leaning opposition occupied both houses of Congress in protest over the bill proposed by president Felipe Calderon to allow foreign investors access to the state oil firm Petroleos Mexicanos de SAB de CV (Pemex).

The constitution requires Pemex to remain in public hands, but Calderon hopes to allow it to be able to make more decisions internally about the awarding of contracts and its budget.

His party represents the minority in the legislature.

The Mexican sovereigns due 2017 tacked on 0.25 point to 106.5 bid, 106.9 offered.

Elsewhere, Brazil's highly traded 11% bonds due 2040 also added 0.25 point to 135.75 bid, 135.85 offered.

Four deals price for Friday finale

After sessions of increasing new deal volume, the primary built to somewhat of a crescendo by pricing four deals ahead of the weekend.

Korea Southern Power (A1/A-) priced $300 million of 5 3/8% five-year senior bonds at 99.61 to yield 5.465%.

The deal priced at mid-swaps plus 208 bps, which was tighter that its talk in the mid-swaps plus 220 bps area.

The price brought a spread over Treasuries of 289.6 bps.

ABN Amro, Citigroup and Deutsche Bank acted as bookrunners for the deal.

Kospo is a Seoul-based energy firm.

"I think it went well ... It was broad based," said a source close to the deal.

The order book hit $1.7 billion with about one-third of the interest from the United States, a quarter from Europe and the rest from Asia, he said.

"It was very well-received," he added.

The issue traded tighter and was spotted at 281 bps bid, 276 bps offered.

Also in Korea, Korea Development Bank (Aa3/A/A+) priced CHF 100 million five-year bonds at 100.25 with a coupon of 4 1/8%.

BNP Paribas acted as the bookrunner for the deal.

KDB is a Seoul-based state-run bank.

In Latin America, Banco Fibra priced $150 million 6¾% two-year eurobonds at 99.534 to yield 7%.

Standard Bank acted as the bookrunner for the deal.

Banco Fibra is a Sao Paulo-based retail and commercial bank.

Meanwhile, the European Bank for Reconstruction and Development (Aaa/AAA/AAA) reopened its 9% notes due 2010 for 50 million real at 97.1. The offer brings the total amount issued to 125 million real.

The TD securities acted as the bookrunner for the registered deal.

Proceeds from the sale will be used for general corporate purposes.

EBRD is a London-based development bank focused on Eastern Europe and the commonwealth of independent states.

Asia holds in well

Asia's benchmarks performed well even as much of the market saw widening and lower prices.

In Indonesia, national and local government offices, ministries and state firms may have inappropriately used $2.5 billion in government funds in the second half of 2007, the supreme audit agency reported to the House of Representatives, according to the Jakarta Post.

Chief auditor Anwar Nasution blamed the alleged corruption on the absence of transparency and accountability, but added that the findings were not surprising for a country going through a transition period, the report said.

The House has the option to refer the findings to the attorney general or national police.

The Indonesian sovereigns due 2017 added 0.5 point to 103.75 bid.

In the Philippines, the International Monetary Fund believes the central bank will be able to cut rates as inflation calms in the second half, according to the Manila Times.

The two countries which will have the room to cut rates are the Philippines and Malaysia.

Cuts would encourage growth, which is expected at 5.8% in 2008, compared to 7.3% in 2007, the report said.

The Philippine government bonds due 2030 added on 0.75 point to 132.75 bid.

Also in Pakistan, the new opposition-run parliament will consider a bill to end many of the restrictions on free speech enacted by president Pervez Musharraf late last year.

The bill would allow for more freedoms concerning sedition against the president, government or army as well as end the ban on live broadcasts.

Europe lower into weekend

Emerging Europe slipped on Friday as U.S. equities were damaged and investors were ready to consolidate ahead of big earnings reports from Merrill Lynch and Citigroup.

Russia's head of the department of trade negotiations at the ministry of economic development and trade, Maxim Medvedkov, met with U.S. officials about the possibility of Russia joining the World Trade Organization.

On Friday, vice prime minister and finance minister Alexei Kudrin and U.S. trade representative Susan Schwab were scheduled to meet in Washington, D.C., to discuss WTO membership, according to the Itar-Tass News Agency.

Russia's government bonds due 2030 added 0.375 point to 115.625 bid.

Meanwhile in Ukraine, where the parliament approved WTO membership on Thursday, prime minister Yulia Timoshenko said she expects a finalized price agreement between OAO Gazprom and Naftogaz Ukrainy shortly, Itar-Tass reported.

She did not indicate whether or not the deal would be signed when Russian prime minister Viktor Zubkov visits Ukraine on April 18, the report said.

"They do need money," a strategist said about Naftogaz Ukrainy.

Turkey's long road to E.U. membership

Elsewhere, the political unrest in Turkey may be doing damage to its chances of joining the European Union, the Turkish Daily News reported.

Poland president Lech Kaczynski said in addition to the pending lawsuit against its ruling AK party, Turkey has cultural differences from the E.U. beyond Ukraine and Georgia.

Turkey began the accession process in 2005, but it has been slow to move closer to E.U. economic and political standards, the report said.

Poland and the United Kingdom have been some of the strongest supporters of Turkey's membership. France and Austria have been less welcoming.

The Turkish sovereigns due 2030 slipped by just 0.1 point to 151 bid.

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