Asian pipeline builds as market conditions remain rugged; Telemar to bring up to $2 billion

By Paul A. Harris

St. Louis, Sept. 2 - Both the Latin American and Asian markets tracked lower as players in New York returned to their seats trailing the three-day Labor Day weekend in New York.

Latin America saw widening across the spectrum, according to Enrique Alvarez, head of Latin American debt strategy for the financial research firm IDEAglobal, speaking around mid-morning in New York.

And the U.S. market failed to sustain the tightening seen overnight in the Asian market, said a trader who focuses on Asian fixed income.

Meanwhile the new deal pipeline built, however the trader warned the market conditions have made Asian issuers more pensive than was characteristic before the mid-summer 2007 correction.

Wing Hang tightens talk

With regard to the Asian pipeline, Hong Kong's Wing Hang Bank lowered price guidance on a to-be-determined amount of lower-tier II subordinated notes (A3//BBB+) on Tuesday.

The new guidance, 9 3/8% to 9½%, was lowered from earlier talk of 9½% to 10%.

Deutsche Bank Securities is the bookrunner.

Pricing is expected before the end of the week.

The offering will be sold off Wing Hang Bank's $2 billion medium-term subordinated notes program.

The trader reported hearing on Tuesday morning that the deal is seeing $300 million in demand, and anticipated Wing Hang will come with between $200 million and $250 million of bonds.

Kerry Properties on the road

Kerry Properties Ltd., meanwhile, is making investor presentations in Asia and Europe this week for a to-be-determined amount of bonds (BBB-) in a deal being run by Deutsche Bank Securities.

The issue could price by the end of the week.

The New York-based trader in Asian names did not have information on the approximate size of the Kerry Properties deal.

"These days you start working a deal much more slowly," the trader remarked.

"You gage the response, see what the market will bear - and at what sort of level - and you work it from there."

Elsewhere from Asia, sources continued to profess the expectation that South Korea will come with a dollar-denominated sovereign deal in the near term.

In addition, quasi-sovereign names out of South Korea, including Kookmin Bank and the Export-Import Bank of Korea (Kexim) are rumored to be measuring the market for dollar-denominated issuance, according to a banker in London.

What the market will bear

In the current environment where there is not a lot of secondary market liquidity or transparency, new deal books are being built slowly and issuers and their underwriters tend to go out with very wide guidance, said the trader who focuses on Asian fixed income.

"The Korean pipeline is big as long as the market is there for it," the trader said, but added that it remains to be seen how much of it actually gets done.

"If the market conditions are supportive of supply then we'll see plenty of Korean issuance."

Needing to do dollars

Prospect News asked the trader if the buildup of the Asian deal calendar, with an even bigger shadow calendar rumored, signaled a perception that market conditions have improved.

What it signals, the trader replied, is a need on the part of Asian issuers to do business in the dollar-denominated market.

"U.S. markets have been closed for quite a while, except for small windows in which people have managed to get things done," the trader said.

"In that time you've had plenty of issuance in local currency: Singapore dollars, Malaysian ringgit, yen and some yuan issuance.

"However those markets are not very big. Nor are they very deep.

"I wouldn't say the local markets are exhausted, but a lot of the alternative fundraising in other currencies has probably been done. So there is going to a need to get financing done in dollars as well."

The trader said that it is certainly possible that Asian issuers looking to do dollar deals are facing spreads they ideally would not care to pay.

Trading still thin

The trader in Asian names said that volumes remained thin Tuesday.

The market had been a bit tighter going out in Asia, with that tightness holding through to the New York open.

Then the strength faded as U.S. equities and the investment grade indexes were also in retreat.

Asian credit default swaps were 3 to 5 basis points wider, then came back to being close to unchanged, only to end the New York session 2 to 3 bps wider on the day.

Philippines five-year CDS went out at a 242 bps midpoint, after having tightened to 237 bps.

South Korea five-year CDS finished at a 123 bps mid.

The Asian investment grade index, which was offered at 159 bps at the Asian close, traded at 161 bps in New York, 2 bps wider.

Meanwhile high-yield Asia ended the day at 558 bps mid, little changed

Telemar to sell up to $2 billion

Turning to Latin America, Brazil's Telemar Norte Leste SA is expected to sell between $1.5 billion and $2 billion of senior notes in three tranches next week, according to a market source.

Citigroup and Banco Santander are among the underwriters, according to the source, who added that other banks are expected to be involved.

The offering is expected to be comprised of five-, 10- and 30-year tranches.

Proceeds will be used to help fund the $3.5 billion equivalent acquisition of Brasil Telecom Participacoes SA.

Weakness across Latam

Speaking around mid-morning in New York, IDEAglobal's Enrique Alvarez was seeing widening across the Latin American emerging markets spectrum.

The underperformers included crude oil-exporting credits affected by falling crude oil prices since Friday.

"Argentina has not been able to muster much of a positive response to the announcement that they are going to use $6.7 billion of central bank reserves and pay the Paris Club," Alvarez said, adding that Argentina was off over 1%.

He said that Argentina's discount bonds due 2030 were at 74 bid, 74¾ offered, ¼ point lower on the bid side, while the spread on the EMBI Argentina sub-index was 9 bps wider at a 680 bps spread to Treasuries.

Meanwhile at the high quality end of the Latin American spectrum, the Brazil component of the EMBI was trading at a 246 bps spread, 6 bps wider, tracking a sell-off in U.S. Treasuries.

The Brazil 11% bonds maturing in August 2040 were at 132.15 bid, 132.25 offered, unchanged from Friday.

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