Emerging market debt uneasy over U.S. growth prospects; two corporates hit the road

By Reshmi Basu, Paul Deckelman and Paul A. Harris

New York, Jan. 4 - Emerging market debt was dogged Thursday by concerns over the health of the U.S. economy ahead of Friday's release of jobs data.

In the primary market, the corporate pipeline is building up.

Kazakhstan's JSC Bank CenterCredit plans to start investor presentations in the United States, Europe and Asia next week for a dollar-denominated offering of eurobonds.

The Asian and European roadshows will begin on Wednesday in Hong Kong, followed by Singapore on Thursday, then Zurich on Friday, Jan. 12 and wrapping up on the following Monday, Jan. 15 in London.

Meanwhile the U.S. leg will start in Los Angeles on Wednesday, then Boston on Jan. 11 and finishing off in New York on Jan 12.

ING and JP Morgan are joint bookrunners for the Rule 144A/Regulation S transaction.

Out of India, Mumbai-based ICICI Bank, the country's second largest commercial bank, will run simultaneous Jan. 5-8 roadshows in Asia, Europe and the United States for a benchmark-sized dollar-denominated three-tranche notes offer.

The deal is comprised of a tranche of three-year floating-rate senior notes (expected ratings Baa2/BB+), a tranche of five-year fixed-rate senior notes (expected ratings Baa2/BB+), and a tranche of 15-year upper-tier 2 subordinated notes with 10 years of call protection and a 100 bps coupon step-up if they are not called before April 2017.

Tranche sizes remain to be determined.

Pricing is expected to follow the conclusion of the roadshows.

Citigroup, Deutsche Bank Securities and Merrill Lynch & Co. are joint bookrunners for the notes which are being marketed via Rule 144A and Regulation S.

Petrobras steady on exchange

In other news, Petroleo Brasileiro SA, Brazil's state-controlled oil company, began an exchange for up for up to $500 million of new 6 1/8 notes due 2016 via UBS.

The corporate will exchange five series of notes for the 2016 notes.

In the secondary, the 2016 notes were seen unchanged at 101 bid, 101.50 offered.

EM lower on U.S. growth worries

In trading, emerging market debt posted lower bond prices Thursday over uneasiness created by a slate of U.S. economic data, which pointed to slower growth, noted sources.

The U.S. economic story has continued to drive emerging markets, which makes Friday's release of non-farm payroll numbers all the more important, noted a market source.

On Thursday, high beta credits such as Argentina and Turkey slipped. In trading, the Argentinean discount bond due 2033 slid 0.55 to 110 bid, 110.75 offered. The Turkish bond due 2030 gave up 0.50 to 155.50 bid, 155.75 offered. The bellwether Brazilian bond due 2040 added 0.05 to 133.05 bid, 133.15 offered.

Venezuela dips with oil

In other developments, plunging oil prices played spoiler to Venezuela as the credit turned in the worst performance of the day.

A trader in Latin American issues said that Venezuelan bonds "traded poorly with oil off two-and-a-half bucks."

During the session, the Venezuelan bond due 2027 lost 1.75 to 127.25 bid, 127.45 offered.

Venezuela, the world's fourth-largest oil producer and a leading member of the Organization of Petroleum Exporting Countries, could see its national earnings drastically slashed by any extended slide in world crude prices, which have dropped from record late-summer/early-fall levels approaching $80 per barrel down into the mid-$50s.

On Thursday, those prices hit their lowest levels in more than six months, with light, sweet crude for February delivery plunging $2.73 (4.7%) on the New York Mercantile Exchange to settle at $55.59 a barrel - the lowest settlement price since June 15. That decline came on top of a 4.5% slide in Wednesday's dealings.

Oil prices have recently weakened due to the unseasonably warm winter weather in much of the United States and elsewhere in the Northern Hemisphere, causing weak demand for heating fuel in the Northeast and Midwest.

The U.S. government reported higher-than-expected inventories of heating oil as well as other distillates such as gasoline and diesel fuel on Thursday, pressuring crude prices further southward.

The trader said that apart from specific names reacting to news, like Venezuela retreating in line with lower oil prices, the overall emerging debt market "held in okay," quoted on a spread basis unchanged to just one or two basis points wider.

Ecuador higher

Meanwhile Ecuador turned in gains Thursday for the second straight session, after incoming economy minister Ricardo Patino discussed a possible Dutch auction tender for some of its bonds in a televised interview. That was seen by market-watchers to be a step backward from his previous rhetoric pointing towards a possible default on Quito's $11 billion of debt, a possibility which president elect Rafael Correa has also alluded to.

One observer saw Ecuador's debt "all over the place, as it is every day," before closing higher.

In trading Thursday, the Ecuadorian bond due 2012 added 0.50 to 81 bid, 82 offered while the bond due 2030 gained 1.25 to 77.50 bid, 78.5 offered.

In the previous session, the country's bonds rose on short-covering and apparent relief that Patino did not again talk openly about Ecuador possibly choosing to default on its bonds.

Since Correa's win in the run-off election on Nov. 26, the country's bonds have declined on hard-line comments made by the president-elect regarding debt restructuring and a potential Argentina-like default.

The president-elect has said he would sever ties with international lenders such as the World Bank on "unfair" treatment his nation had allegedly received.

In response to his remarks, Ecuador has emerged as one of the most volatile credits in the asset class.

And as one market source said Thursday, "I haven't played in Ecuador. And I believe I never will."

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