Banco Bradesco prints notes on up and down day for EM assets; Lotte plans roadshow

By Christine Van Dusen

Atlanta, Jan. 6 - Brazil-based lender Banco Bradesco SA priced notes as emerging markets assets finished the week on a stable note after gyrating amid mixed headlines, including Hungary's bonds getting cut to junk by Fitch Ratings and the news that the U.S. economy added more jobs than expected in December.

"Risk assets have stabilized after the softer tone seen during Asian markets as investors' focus has shifted from concerns over European banks toward the U.S. employment report," according to Barclays Capital Markets.

Early in the session, Hungary managed to bounce back a bit, which helped to tighten sovereign spreads overall, a trader said.

"That makes for a much more positive tone," he said.

Ukraine also opened the session tighter, this time by 10 basis points, as the sovereign's ongoing gas negotiations took a turn for the better.

"It appears the Parliament is looking to change pipeline lease rules that may help the gas negotiations," he said. "Gazprom is also opening 5 to 10 bps tighter as it remains the quasi-sovereign of choice."

The day was also favorable for South Africa, which saw good demand after widening 20 bps earlier in the week.

"Turkey is still a laggard, just 3 to 5 bps tighter," the trader said. "Kazakhstan's BTA Bank is still trading well, at 19 bid now, though there is still no sign of the coupon."

By late afternoon, trading activity died down, a New York-based market source said.

"The general thing in emerging markets and the sovereign sector is that it probably had one of the best returns of any sector in the world," he said. "The JPMorgan Emerging Markets Bond Index Plus saw an 8% to 10% return last year, and that's massive. What's happening now is, people are chasing the returns. So we're seeing buying. It's not that there are no sellers, but three out of four inquiries are just buying."

So the market is, overall, well bid, he said.

Banco Bradesco prices notes

In its new deal, Brazil-based lender Banco Bradesco priced a $750 million issue of notes due Jan. 12, 2017 at par to yield 4½%, or Treasuries plus 361.7 bps, a market source said.

BB Securities, Bank of America Merrill Lynch, Bradesco, BTG Pactual, Citigroup and HSBC were the bookrunners for the Rule 144A and Regulation S transaction.

Proceeds will be used for general corporate purposes.

"There's already a fair amount of supply," the New York-based market source said. "If someone needs to issue, the window might close so quickly because of the news around the world. When it shuts, it's not going to be an easy thing. So you're seeing a rush to issue, and you're seeing that dynamic where there is a lot of demand but also a lot of supply."

Lotte plots marketing trip

In other deal-related news, South Korea-based retail company Lotte Shopping was planning a roadshow in Hong Kong and Singapore for a possible issue of renminbi-denominated notes, a market source said.

Deutsche Bank and HSBC are arranging the marketing trip.

Investors, so far this year, are being more specific about the kinds of credits they want to buy in EM, the New York source said.

"They want the higher-quality stuff after getting burned last year with smaller issuers and corporates in Latin America, where the liquidity just disappeared," he said. "So for the higher-quality issuers, the window is open. For the lower-quality issuers, the jury is still out."

EM bond funds record inflows

Emerging markets bond funds saw net inflows of $161 million for the week ended Jan. 4, according to a report from data tracker EPFR Global.

"Emerging markets bond funds eked out modest inflows to start the year as commitments to hard currency funds more than offset a fourth straight week of redemptions from local currency funds," the report said. "Retail investors committed money to this fund group for the first time in eight weeks."

Hard currency funds took in $230 million, and local currency funds recorded outflows of $125 million.

"Investors remained largely on the defensive in early 2012," EPFR said. "Emerging markets local currency bond funds started 2012 by posting outflows for the seventh time in the past eight weeks."

Looking ahead in 2012, global risk appetite should be shaped by four elements, Barclays said in a report.

"The tail risk of a systemic failure in Europe was reduced significantly late last year, following measures to help banks," the report said. "The U.S. cyclical recovery is the only bright spot in the G-10. There is significant uncertainty about the outlook for Europe and China. Monetary policy will ease further in these economies and will remain supportive in G-10 economies."

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