Emerging markets weaker, quieter; heavy supply remains; Vale, Pacific Rubiales launch

By Christine Van Dusen and Paul A. Harris

Atlanta, Nov. 3 - Emerging markets were a bit weaker Tuesday in line with equities, seeing some slippage in price across the sovereigns and corporates as investors continued to grapple with a mild case of heavy-supply indigestion, market sources said.

"It's been reasonably quiet and consistent," a London-based trader said. "It's a combination of catching up with digestion of supply and people look at the P&L and not wanting to give much back."

Investors continued to show a "distinct lack of appetite for risk" and were thinking ahead to year-end, the trader said. "That processing has started a little bit early."

The new issue markets are moving along again, a New York-based market source said, but "on the secondary front, things are quiet. Investors are dealing with supply and thinking about whether we're about to start ripping tighter again or if this is a new kind of norm for now. It's the same theme in the broader market."

Five-year credit default swaps were mixed at the European close, with some corporates widening and some sovereigns tightening.

Argentina five-year CDS closed at 1028.88 bps mid, 76.41 bps tighter; Brazil closed at 133.625 bps, 3.015 bps tighter; and Mexico closed at 162.335, 3.195 tighter. Venezuela, however, closed at 1,033.255 bps, 5.555 bps wider, and Russia closed at 190.73, 3.07 bps wider.

Meanwhile, OAO Gazprom five-year CDS ended the session at 251.83 bps, 4.44 bps wider, and Russia's VTB Bank closed at 344.655 bps, 4.045 bps wider.

Two new deals launched over the course of the day: Brazil's Vale Overseas Ltd.'s $1 billion benchmark issue of 30-year notes and Colombia-by-way-of-Canada's Pacific Rubiales Energy Corp.'s $400 million notes, due in seven years.

Vale launches benchmark

Vale launched a $1 billion benchmark issue of guaranteed senior unsecured notes (Baa2/BBB+/BBB) due Nov. 10, 2039 at a spread of 265 bps to Treasuries, according to a market source.

The bookrunners for the Securities and Exchange Commission-registered deal are Deutsche Bank, HSBC and JP Morgan.

The yield is being whispered at 7%, according to a Europe-based trader.

Proceeds will be used for general corporate purposes.

Vale Overseas is part of Vale SA, formerly Companhia Vale do Rio Doce, a mining company based in Rio de Janeiro, Brazil.

Pacific Rubiales for this week

Pacific Rubiales Energy Corp. plans to sell $400 million senior notes (expected /BB-/B+) due in seven years, according to a market source. The deal is expected to price this week.

The bookrunners for the Rule 144A and Regulation S deal are Bank of America Merrill Lynch and Citigroup.

Though Pacific Rubiales is headquartered in British Columbia, this is considered "primarily a Colombia play," a source close to the deal said.

The notes amortize in years five and six by 33.33% and in year seven by 33.34%. "The structure is a little different," the source said, "but worked for the company."

Because Pacific Rubiales did a no-deal roadshow last month, there will be no further roadshow for these notes, the source said.

Pacific Rubiales produces natural gas and heavy crude oil in Colombia, where it owns 100% of Meta Petroleum Ltd., a Colombian oil operator that operates the Rubiales and Piriri oil fields in the Llanos Basin in association with Ecopetrol SA, the Colombian national oil company.

Petrobras very active

Brazil's Petrobras International Finance Co. "continues to be an actively traded name," and "every day, they're in the top five," according to a trader, speaking after the close. The trader saw the 2040s rolling up almost $150 million of activity on the day, and said: "I wish I was in on that action."

Petrobras, an energy company based in Rio de Janeiro, recently priced a benchmark-sized offering of dollar-denominated notes in 10- and 30-year tranches on Oct. 23, with $2.5 billion of 5.75% notes due January 2020 to yield 5.875% at a spread of 238.5 bps to Treasuries and $1.5 billion of 6.875% notes due January 2040 to yield 7% at a spread of 270.6 bps to Treasuries.

As of mid-afternoon, the 30-year tranche had traded $133.5 million at a spread of Treasuries plus 250 bps, topping all issues. The 10-year tranche was second busiest for the day, with $91 million traded at a spread of Treasuries plus 210 bps.

On Monday, the 10-year tranche was the second most-active investment-grade issue, with nearly $41 million traded at mid-afternoon at a spread of Treasuries plus 212 bps. The 20-year tranche was far down the list that day, with about $17 million traded at Treasuries plus 253 bps at mid-afternoon.

Citigroup, HSBC, JP Morgan and Santander were the joint bookrunners for the Securities and Exchange Commission-registered deal. BB Securities and Societe Generale were the co-managers.

Proceeds will be used to repay borrowings under lines of credit used to finance capital expenditures. Any remaining funds will be used for general corporate purposes.

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