Emerging markets trading muted on Hungary news; Bancolombia, Banco Votorantim price notes

By Christine Van Dusen

Atlanta, July 19 - It was a quiet summer weekday for emerging market debt, with only a small chunk of new issuance and light trading as Hungary took over the headlines and issuers and investors waited on the next round of economic data from the United States.

"It's a little bit of a sleepy Monday," a New York-based market source said. "Market sentiment is coming off a fairly negative close on Friday, and with the headlines to digest this morning, those are all reasons why people have just stayed on the sidelines to see where things end up.

"Equities are representative of that. If you look at stocks, they're fairly unchanged on the day, or moderately higher. Everyone is getting their footing."

IMF talks cut short

The big story of the day was that Hungary's talks with the International Monetary Fund and the European Union concerning a $25.8 billion bailout ended early and without completing the sovereign's financial review or approving plans to manage the budget.

According to the IMF, the talks were cut short because "more remains to be done to cement" the sovereign's economic progress "and put Hungary on a strong and sustainable growth path," said Christoph Rosenberg, leader of the IMF mission, in a written statement.

"While there is much common ground, a range of issues remain open," Rosenberg said.

As a result of the abbreviated talks, "the focus has mainly been on Hungary," a Connecticut-based market source said. "The currency is almost 3% weaker versus the dollar and also the same against the euro."

By early afternoon, five-year credit default swaps for Hungary were between 52 basis points and 55 bps wider, he said.

Hungary trouble doesn't spread

Interestingly, though, Hungary's troubles didn't seem to infect other sovereigns.

"It's very limited impact," the Connecticut source said. "Poland was about 4 bps wider. And Bulgaria and Romania were 8 bps wider. Greece is 15 bps wider. It's a Hungary-specific news event right now."

Other than that, market-watchers were mostly keeping an eye on their screens to "see if risk is going up or down," he said. "I think in general people have already positioned themselves to be a little bit more conservative. If anything they risk that if the market moves back up they'll have to chase it."

While Friday's price action may have "spooked people," he said, "you continue to hear stories of inflows into the EM debt market in U.S. dollars and in local currency."

Trading thin

Volumes, in general, were "fairly muted," the New York-based source said.

A trader agreed, calling most EM assets "thinly traded," and "mostly unchanged on price and tighter on spread due to the Treasury sell-off throughout most of the day."

Argentina and Venezuela "treaded water," he said, as did Mexico, Colombia and Peru.

He's watching out for the upcoming U.S. housing numbers, as well as jobless claims, to see if the data "give equities any sustained direction," he said.

Bancolombia prices

The primary market saw only a little bit of activity on Monday.

"New issues continue to print, although with less fervor," the trader said.

Said the New York-based source: "There's some overhang from last week's roadshows that's materializing into deals. The one that stands out as fairly priced and likely to rally would be Bancolombia."

Medellin, Colombia-based lender Bancolombia SA priced $620 million 6 1/8% subordinated notes due 2020 at 98.418 to yield 6.341%, or Treasuries plus 337.5 bps, according to an informed market source.

Bank of America Merrill Lynch and JPMorgan were the bookrunners for the Securities and Exchange Commission-registered deal. Proceeds will be used for general corporate purposes, as well as strengthening capital structure and regulatory compliance.

"They were able to do more size than anticipated. That's in very good shape," the New York-based source said.

Considering Friday's equity market and the Hungary news, as well as "the overhang of what was at the very least a choppy market if not worse, it's good to see some deals materializing and getting through the market and at reasonable levels," he said.

Banco Votorantim prices

Also printing on Monday was Brazilian lender Banco Votorantim SA's $400 million add-on to its $750 million 7 3/8% notes due 2020, which priced at 102.566 to yield 7%, or Treasuries plus 404.3 bps, according to two market sources.

Bank of America Merrill Lynch, Banco do Brasil, Deutsche Bank, Itau Unibanco and RBS were the bookrunners for the Rule 144A and Regulation S deal.

The original issue priced in January at par to yield 7 3/8%.

The tap issue "seemed to be generous in the amount of concession it offered," the New York-based source said. "But there appears to be a bit of pushback based on where it was whispered, at 7% area. That's behind where they ideally want to end up, because 7% is 35 bps of concession."

The deal would add to an already copious amount of supply from Brazilian banks. "In general it seems like most of the supply is getting absorbed," he said.

Primary should perk up

Activity should pick up as the week goes on.

Abu Dhabi's Waha Aerospace is expected to bring to market its $1.5 billion floating-rate notes due 2020 via Deutsche Bank, JPMorgan, Societe Generale, Nomura and Waha Capital.

And Belarus could soon price its planned eurobond notes, possibly totaling $500 million with a maturity of three to five years, but may have to pay a premium in the wake of Ukraine's canceled issue.

Market-watchers also are whispering about possible deals from Barbados, Kazakhstan and Brazilian beef producer JBS-Friboi, as well as a sterling-denominated issue worth $1.07 billion from Singapore-based state-owned investment company Temasek Holdings.

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