Emerging markets pushed wider; Venezuela to nationalize Santander unit; Avangard talks new bonds

By Aaron Hochman-Zimmerman

New York, Aug. 1 - Emerging markets produced little momentum of their own on Friday and instead followed equities' retreat as the U.S. unemployment rate rose to 5.7%.

In trading, investors got up and walked away from Venezuela after president Hugo Chavez announced he will nationalize the Bank of Venezuela division of Spain's Banco Santander SA.

The benchmark bonds due 2027 bled 2.15 points.

In the primary, Ukraine's ZAT Avangard talked its upcoming issue in the 20% area.

Investors were anxious to begin the weekend as a weak tone left little opportunity to trade, a market source said.

Equities' wild ride was reflected in the volatility numbers, which ended the day lower by 0.37 at 22.57, according to the VIX index. The index is a frequently used measure of market volatility.

Asia wider on externals

Asia turned in a typical summer Friday's performance as it followed the external markets wider.

"Spreads are definitely wider ... 3 [bps] to 5 [bps] in the higher-beta names," a trader said, but generally "it's so thin, so quiet."

Some trading action was seen in the recent issue from Hong Kong & China Gas, he said.

The $1 billion 6¼% notes priced to yield Treasuries plus 237.5 bps but had "a strong overnight" in the Asian markets, he said, as the spread narrowed to 223 bps bid.

The issue was traded less frequently in the United States as it came off of its tights to 228 bps bid.

"That's a pretty credible performance in what's been a choppy couple of days in the market," he said.

Meanwhile in the Philippines, the state-run National Power Corp. filed a petition with government regulators requesting a series of rate hikes, the Manila Times reported.

If the request is granted customers will see increases of PHP 0.18 per kilowatt-hour in Luzon, PHP 0.45 per kilowatt-hour in the Visayas and PHP 0.36 per kilowatt-hour in Mindanao.

The company has said, as recently as June 3, that rates would remain stable through 2009.

Also in the Philippines, the central bank announced that rural and cooperative banks had a second-quarter non-performing loan ratio of 9.82%.

"This is the seventh consecutive quarter of improvement in the ratio," the bank said in a statement.

At the end of 2007 the ratio stood at 9.95%.

The Philippine government bonds due 2030 were seen at 127.625 bid, 128.125 offered.

In Indonesia, the country's largest telecom firm, PT Telecomonikasi, posted a 5% year-over-year loss in profits for the first half, according to the Jakarta Post.

Profits only hit 6.3 trillion rupiah, compared to 6.6 trillion rupiah during the same period of 2007.

The company continues to see heavy losses to its fixed-line telecommunications business in favor of mobile communications.

The Indonesian sovereigns due 2017 were quoted at 99.5 bid, 100 offered.

Also in China, ahead of the Olympics the government's push to quickly green the country led it to spend $12 billion on renewable energy development, second only to Germany, according to a Climate Group study, the BBC reported.

"China has been experiencing similar problems during its industrial revolution that western nations saw during their period of rapid growth - pollution, environmental damage and resource depletion," Changhua Wu, co-author of the study, told the BBC.

Incentives from the government helped, but further policy changes are still needed, she said.

Also in Asia, Pakistan's bonds were unchanged at 68 bid, 74 offered.

LatAm slips lower

Latin America drifted wider on a light volume day with little leadership from the U.S. market.

In Argentina, the first meeting between vice president Julio Cobos and president Cristina Kirchner in the three weeks since Cobos' vote against the president's tax proposal did little to soothe relations between the two, according to the Buenos Aires Herald.

Some believe that Kirchner's use of the word "traitor" referred to Cobos.

After the meeting, Cobos said that their discussion was "sincere and frank ... We made an analysis of the situation and now we have to look forward," he said in the report.

The 8.28% Argentine government bonds due 2033 improved by 0.5 point to 76 bid, 77 offered.

"Now that they don't have those tax increases, subsidies are really high and inflation is really high and pressure to increase wages is really high," a strategist said.

The government may face the choice of revisiting the export tax or cutting subsidies, the strategist said.

In Brazil, as the beef producer JBS Friboi offered a consent solicitation for its 9 3/8% notes due 2011 and the 10½% notes due 2016, the company's bonds "traded off today," a strategist said, even after a strong showing following the company's earnings report on Thursday.

The 7 1/8% Brazilian sovereigns due 2037 took on 0.75 point to 111 bid, 111.25 offered.

Venezuela sinks

In Venezuela, president Hugo Chavez said he will make good on threats to nationalize the Bank of Venezuela, which is owned by Spain's Banco Santander.

Chavez was unsuccessful in his attempts to push Santander to make greater investments in Argentina, said an equity analyst who covers the financial sector.

"If this is a surprise to Santander, then they are fools," he said.

No price has been set for the government to buy the bank.

Caracas has recently nationalized major industry players in steel, cement, telecom and other industries.

The 9¼% Venezuelan sovereigns due 2027 were smashed for 2.15 points at 89 bid, 90 offered.

Emerging Europe pulled wider

Emerging Europe widened slightly on a pin-drop quiet market day.

In Russia, the security council said it intends to reach out to its former Cold War ally Cuba to strengthen ties, especially in the field of developing Cuban oil, the RIA Novosti News Agency reported.

In 2006, Russia loaned Cuba $355 million for vehicles and energy infrastructure, the report said.

Also in emerging Europe, Georgia's breakaway republic South Ossetia's capital Tskhinvali took mortar fire from the Georgian army, according to RIA Novosti.

"A Georgian mortar platoon is shelling southern districts of Tskhinvali," South Ossetia's information and press committee said in the report.

"The northern [de facto] border is also being shelled. South Ossetia is returning fire."

The Russian news agency was not able to reach officials in the Georgian capital of Tbilisi for comment.

Turkey was praised by the European Union's enlargement commissioner, Olli Rehn, who was initially highly critical of the case brought against the AK Party, reports said.

Rehn hoped that Turkey would reinvigorate its democratic reforms and continue to pursue the measures of E.U. accession.

However, the recent political turmoil will delay the accession process, Rehn said.

Investors began to take profits from the Turkish sovereign bonds due 2030 as they dropped 0.75 point to 149.5 bid, 150 offered.

Avangard talks 20% area

ZAT Avangard issued talk in the 20% area for its eurobond offering, which will come between $100 million and $150 million.

Talk was revised from the 13% area for the three-year eurobond issue.

Standard Bank was asked to act as bookrunner for the deal.

Proceeds will be used to open four new poultry plants.

Avangard is a Zahvizdya, Ukraine-based egg and egg products producer.

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