Issuance muted amid FOMC meeting; Korea National Oil prices; Saudi British Bank on tap

By Christine Van Dusen

Atlanta, Nov. 2 - Though sentiment was fairly positive on Tuesday, emerging market investors and issuers mostly stayed on the sidelines and waited for Wednesday, when the Federal Open Market Committee will disclose details on the next round of quantitative easing.

"It's been very, very quiet," said Nick Chamie, global head of emerging market research for RBC Capital Markets.

Only Korea National Oil priced notes while several other issuers - including Kazakhstan's KazMunaiGas, Brazil's General Shopping Finance Ltd., Telefonica Moviles Chile SA, the Saudi British Bank and the Republic of Georgia - tiptoed toward the market.

The morning's tone was "steadily more bullish" following "some early nerves" related to the Reserve Bank of Australia's "unexpected" increase in its main cash rates, according to an RBC report. "Investors globally seemed to be in a pretty good mood."

But "the focus remains tomorrow's FOMC meeting and specifically whether the Fed decided on front-loaded or incremental QE," the report said.

By mid-morning the JPMorgan Emerging Markets Bond Index Plus had tightened about 1 basis point. By the end of the day, it closed unchanged, with yields in Hungary, Russia and South Africa dipping slightly and Turkey up between 3 bps and 10 bps.

Market awaits the Fed

Most investors spent Tuesday squaring away risk and getting their books "into a position in which they're comfortable with their exposures," Chamie said. "I doubt they will make any major allocation changes in their holdings at this point. I expect it to remain quiet through tomorrow."

Many market-watchers expect the Fed to announce a Treasury-buying program of $100 billion a month for as long as the market seems to need it.

"I expect that the Fed will try to reinforce the point that they stand ready to continue to provide this liquidity in order to minimize the risk of inflation moving forward," Chamie said.

This will "likely meet market expectations but not beat them, given how much the markets have moved since the discussion around QE2 began," he said.

There could be some profit-taking in response, in the near term, a market source said.

"More global liquidity means more money can be put into play," he said.

And that's "a great environment for EM debt issues," Chamie said. "Not withstanding the fact that QE has been priced in already, the environment will continue to be supportive for EM debt assets."

Korea National Oil prices

The only deal of note to come to market on Tuesday was Korea National Oil's $700 million 2 7/8% notes due Nov. 9, 2015, which priced at 99.838 to yield Treasuries plus 175 bps, a market source said.

Barclays, BNP Paribas, Credit Suisse, Deutsche Bank and Korea Development Bank were the bookrunners for the Rule 144A and Regulation S deal, which priced in line with talk of Treasuries plus 175 bps.

This followed the late-Monday pricing of a $350 million add-on to Banco Santander Brasil's existing $500 million 4½% notes due 2015. The new notes - via Deutsche Bank, JPMorgan and Santander - priced at 103.139 to yield Treasuries plus 255 bps, a market source said.

Market-watchers were also talking about a possible deal from Indonesia-based oil and gas exploration and production company PT Energi Mega Persada Tbk.

Once the FOMC meeting passes, the market should expect to see "issuance come from further down the credit spectrum," Chamie said. "The higher-yield or lower-grade issuers will probably increase their presence in terms of issuance and look to tap capital markets, given how much spreads have tightened in."

Kazkommertsbank delays

Kazakhstan-based issuers were in the news on Tuesday, with oil and gas company KazMunaiGas mandating Credit Suisse, RBS and UBS as bookrunners for a dollar-denominated offering of notes under its $7.5 billion notes program, a market source said.

A Rule 144A and Regulation S transaction is expected to launch soon.

Also from Kazakhstan, lender Kazkommertsbank canceled its planned dollar-denominated offering of seven-year notes, according to a company announcement.

JPMorgan and UBS were the bookrunners for the Rule 144A and Regulation S deal, which was whispered to yield in the high 9% area.

"The bank will continue monitoring markets for the right financing opportunity," the company's announcement said. "As discussed with investors in the recent meetings, KKB intends to be opportunistic and yield-focused when considering the wholesale funding markets."

Brazil gets busier

In other news, Brazil-based retail and shopping center company General Shopping Finance set guidance for its offering of senior perpetual bonds, a market source said.

Bank of America Merrill Lynch and BTG Pactual are the bookrunners for the Rule 144A and Regulation S notes, which are non-callable for five years.

Proceeds will be used to redeem outstanding debt and to finance capital expenditures.

Additionally, the Brazil sovereign is expected to re-tap an existing real-denominated global issue or open a new one, a market source said.

This comes as Brazil considers yet another increase in the tax levied on foreign investment, a move that would allow the sovereign to curb inflows and limit the appreciation of the real but also could eventually lead investors to reconsider their allocations.

Telefonica Moviles plans notes

Also from Latin America, telecommunications company Telefonica Moviles Chile set the size for its planned issue of five-year notes at a maximum of $380 million, a market source said.

BBVA Securities, Citigroup and Deutsche Bank are the bookrunners for the Rule 144A and Regulation S deal, which is expected to price this week.

Proceeds will be used for debt refinancing.

Tuesday also saw Riyadh-based the Saudi British Bank tap HSBC for a benchmark-sized offering of dollar notes that will be marketed during a roadshow starting Wednesday, a market source said.

The investor meetings will be held in Europe, the Middle East and Asia. The deal is expected to launch soon afterward.

And the Republic of Georgia is planning to issue $500 million of 10-year bonds, a market source said.

The deal is expected to come to market as soon as 2011 but could be pushed into 2012, the source said.

No other details were available Tuesday.

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