Vale, Oi, SingTel price notes on mixed day for emerging markets; risk appetite 'tepid'

By Christine Van Dusen

Atlanta, Sept. 8 - With a fairly ho-hum economic headline out of the United States on Wednesday, trading activity was mixed - with some sources saying it was active while others spotted investors sitting on the sidelines - and the new issuance pipeline stayed open at a trickle.

Echoing recent comments from Federal Reserve chairman Ben Bernanke, the Fed's Beige Book report on Wednesday showed that the U.S. economy has slowed but is still growing and that inflationary pressure is limited.

Had the comments been more surprising, "that could have totally changed the sentiment in the market," a source said. "There was a little bit of caution ahead of that."

But instead the news had "a small, mildly negative impact," said Nick Chamie, global head of emerging market research for RBC Capital Markets. "People are already concerned with the soft patch of growth and are trying to sort out whether it's a return to trim growth or something more deep-seated than that. For the time being it deepens the feeling of lack of risk appetite."

Vale prices notes

Even so, some issuers did bring deals to market on Wednesday.

Brazil-based metals and mining subsidiary Vale Overseas Ltd. priced $1 billion 4 5/8% notes due 2020 at 99.03 to yield Treasuries plus 210 basis points and a $750 million reopening of its 6 7/8% notes due 2039 at 110.872 to yield 6.074%, or Treasuries plus 235 bps, a market source said.

Credit Suisse and JPMorgan were the bookrunners for the Securities and Exchange Commission-registered deal.

The 2020 notes include a make-whole call at Treasuries plus 30 bps.

The 2039 notes - which include a make-whole call at Treasuries plus 40 bps - will be consolidated to form a single series with the company's original $1 billion 6 7/8% notes due 2039 issued on Nov. 10, 2009.

Proceeds from both issues will be used for general corporate purposes, including funding capital expenditures, managing the currency and maturity profile of the company's liabilities, and potentially making acquisitions, according to a filing with the SEC.

"That would be the deal of the day," Chamie said.

Oi, SingTel do deals

Also on Wednesday, Brazil-based telecommunications company Telemar Norte Leste (Oi) priced $1 billion 5½% notes due Oct. 23, 2020 at 99.991 to yield 5½%, or Treasuries plus 283.9 bps, a market source said.

Bank of America Merrill Lynch, BNP Paribas, BTG Pactual and Itax were the bookrunners for the deal, which includes a change-of-control put at 101%.

"There was $6 billion in the book," a source said.

And Singapore Telecommunication Ltd.'s broadband service subsidiary, SingTel Optus Pty. Ltd., priced €700 million 3½% notes due Sept. 15, 2020 at 99.569 to yield 3.552%, or mid-swaps plus 100 bps, according to a market source.

BNP Paribas, Citigroup, HSBC and JPMorgan were the bookrunners for the deal, which was marketed on a roadshow in London, Germany and Paris.

This followed the late Tuesday pricing of Brazil-based business conglomerate Odebrecht Finance's $500 million 7½% perpetual step-up notes at par to yield 7½%, a market source said.

Credit Suisse and Banco Itau were the bookrunners for the Rule 144A and Regulation S offering, which was upsized from $250 million.

The notes are non-callable for five years.

Proceeds will be used to refinance the company's outstanding 9 5/8% perpetual notes and other debt.

BCP talks price

Wednesday also saw Lima, Peru-based lender Banco de Credito del Peru's planned dollar-denominated, benchmark-sized issue of notes due 2020 talked at Treasuries plus 275 bps area, an informed market source said.

Bank of America Merrill Lynch and Deutsche Bank are the bookrunners for the Rule 144A and Regulation S deal, which was marketed on a roadshow in the United States and London.

Also on radar screens is the upcoming benchmark-sized offering of euro-denominated notes due 2017 from Brazil-based development bank Banco Nacional de Desenvolvimento Economico e Social (BNDES), which is whispered to yield 4¼%.

The Rule 144A and Regulation S deal is expected to price on Thursday.

"Yield-wise it's not so interesting, but there are not many euro issues in the market," a Zurich-based trader said. "So it will be OK, I guess."

No gush of issuance

In general, "investor appetite remains tepid," Chamie said. "So it really hasn't opened the doors wide open to new issuance quite yet."

Still, in looking at the level of new issuance so far in September, the total was about $7.6 billion before Wednesday's deals, the strategist said.

"In all of August we only got $11.5 billion. So already we're almost getting the whole amount that was seen in the last month," he said. "That just shows there's a strong level of demand in the market. These bonds wouldn't be placed if investors were leery."

The market saw a "hiccup after U.S. Treasuries sold off after the non-farm numbers, but that didn't scare investors away," the strategist said. "There's plenty of demand for new supply."

Quite a few issuers are looking to do deals, Chamie said. "We'll start to see more over the coming weeks," he said.

Spreads tighten

Meanwhile, the secondary market saw "tons of activity," a New York-based market source said.

An emerging markets strategist agreed. "It looks like activity has really picked up," he said. "There are a lot more bids and offers, so clearly investors have returned from the holiday."

For some, though, it was a day of slowly getting back to business after the long weekend. "We've seen more buyers than sellers," a Connecticut-based trader said. "It's pretty much the first or second day back from vacation, so some people are easing in. A couple of bonds are under pressure."

"If you look at the EMBI Global index," he said, "Venezuela is a little wider. But really, when one country is a little wider that doesn't necessarily mean anything. Investors might be swapping one country for another."

But most spreads were "generally tighter," the strategist said, "though that just reflects the Treasury sell-off we saw today."

Treasury yields were wider by about 6 bps, Chamie said. "That's helped some EM bonds tighten on a spread basis. Largely on a price basis, EM debt is more or less flat."

Overall, "there's very little conviction out there," he said. "Quite a lot of investors remain on the sidelines and are trying to figure out what they want to do. I think generally liquidity is not up to more normal levels."

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