Emerging markets stabilize; volatility subsides; Korea South-East Power pulls offering

By Paul A. Harris

Portland, Ore., July 13 - Trailing intense volatility earlier in the week, emerging markets prices stabilized on Wednesday in the Asian, European and American market sessions, sources said.

In Asia, where emerging market corporate bond prices dropped 1 point to 3 points on Monday and Tuesday, there was a better tone on Wednesday, according to a Singapore-based trader of debt securities.

In Europe, the sovEX index ended the session at 208½ bps bid, after having traded as wide as 231 bps bid on Tuesday. Turkey's global bonds due 2030 were 8 bps to 10 bps tighter at 169½ bid, 169¾ offered.

Prices were unchanged at the end of the session in New York, a syndicate banker said. Venezuela's benchmark global bonds due 2027 were unchanged. Volumes were light in the U.S. markets, and at the end of the day issues tended to be 1 bp to 2 bps wider on a spread basis.

Kosep pulls deal

The primary market remained quiet on Wednesday.

Although equity prices improved around the globe, sources were unwilling to suggest that market volatility is subsiding.

"Syndicate desks are still a little nervy," a London-based trader said.

One reason for the nervy-ness is the Kosep deal, the trader added.

Trailing unsuccessful attempts to price $300 million of bonds on Monday and Tuesday, Korea South-East Power Ltd. (Kosep) abandoned the effort.

Price talk on the 5.5-year senior notes (A1/A) ended at Treasuries plus 230 bps, up from initial talk of Treasuries plus 215 bps, according to a market source.

Citigroup, Goldman Sachs and Morgan Stanley were the bookrunners.

Search for Pioneers

In the wake of Kosep's unsuccessful attempt, issuers might be inclined to be guarded about jumping into the volatility, sources said.

"No one wants to be a pioneer at a time like this, because pioneers so often come back with arrows in their heads," a buyside source remarked.

Nevertheless there were rumblings on Wednesday.

One deal that could come sooner than later is the Metalloinvest Management Co. LLC benchmark dollar-denominated offering, a London-based fund manager said.

The Moscow-based mining and metallurgy company has been marketing an offering via Bank of America Merrill Lynch, BNP Paribas, Credit Suisse, ING, JPMorgan, RBS, Societe Generale, Troika Dialog and VTB Capital.

The roadshow was scheduled to wrap up on Wednesday.

Although specifics were not yet announced, the manager expects $1 billion to $1.5 billion of issuance, possibly with a five-year maturity, and said that such a deal might come at a 500 bps spread to Treasuries.

Meanwhile Indian Bank, which announced a benchmark dollar-denominated deal in late June, could launch and price that deal before the end of the week, pending market conditions, a London-based trader said.

Citigroup, HSBC, RBS and Standard Chartered are the bookrunners.

On Wednesday Standard & Poor's assigned its BBB- rating on the proposed senior unsecured notes under the $1 billion medium-term notes program. Fitch Ratings also assigned its expected rating of BBB- to the proposed $1 billion issue.

However the size of Indian Bank's deal, should it attempt to launch and price one before the end of the week, is more likely to be $500 million, a market source said.

Chinese corporates eyed

In addition to Europe's mounting credit concerns, and their implications for global liquidity, Asian investors reacted to a report titled "Red Flags for Emerging-Market Companies: A Focus on China," which was published by Moody's Investors Service after Monday's close in Asia, a Singapore-based trader said.

The report raises red flags where Moody's detects possible weaknesses in corporate governance, riskier or comparatively opaque business models, fast-growing-business strategies, poorer quality of earnings or cash flow, and concerns over auditors and the quality of financial statements.

West China Cement triggered 12 red flags, the most of any company in the report, as Moody's noted that the second largest producer of cement in China's province of Shaanxi "has a risk profile."

Among Moody's concerns - two key individuals, the company's chairman and his daughter, dominate the company with 44% of its stock and the firm's auditors have changed twice.

Winsway Coking Coal came in second with 11 red flags, as Moody's took note of the company's short track record and plan for rapid expansion.

China Lumena New Materials was assigned 10 red flags by virtue of its rapid growth, short listing history, high concentration of customers and ownership, and poorer quality of earnings and cash flow.

Other corporates cited in the July 11 report included Hidili Industry International, with nine red flags, and Longfor, with seven red flags.

Most of Tuesday's action in the Asian high-yield emerging markets secondary hinged on the Moody's report, said the Singapore-based trader.

Prices fell 1 point to 3 points, depending upon how implicated the credit was in the report.

A number of the companies in the report spent the remainder of the Tuesday session responding to points raised in the report, which helped the market to stabilize later in the session.

On Wednesday, the market enjoyed a better tone overall, the trader commented.

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