Emerging market debt edges lower on profit-taking; Icici Bank sells $400 million in bonds

By Reshmi Basu and Paul A. Harris

New York, Oct. 17 - Emerging market debt succumbed to profit-taking Tuesday on stumbling U.S. equities, while Ecuador saw spreads widen as the results from Sunday's presidential election looked to be closer than originally believed.

In the primary market, India's Icici Bank Ltd. placed an upsized offering of $400 million in five-year senior bonds (Baa2/BB+/BBB-), pricing it at 99.739 to yield a spread of 120.6 basis points more than Treasuries.

Deutsche Bank and Merrill Lynch managed the Regulation S sale, which was launched under the issuer's euro medium-term note program.

The deal, which was increased from $300 million, was more than three times oversubscribed.

Elsewhere, two corporates announced talk on upcoming deals.

Corporacion Nacional de Cobre de Chile (Codelco) set price guidance for a $500 million offering of 30-year senior fixed-rate bonds (Aa3/A) at Treasuries plus the low 130 basis points range.

Deutsche Bank and HSBC are lead managers for the Rule 144A/Regulation S transaction.

The roadshow is scheduled to wrap up in New York on Wednesday.

And out of Russia, OJSC Bank Zenit set initial guidance for a $200 million offering of three-year loan participation notes (B1//B) at 8 5/8% to 9%.

The deal, pricing via Zenit Capital plc, is expected to price before the end of the week.

Also set to price this week, the Province of Buenos Aires (B3/B+) plans to issue a dollar-denominated offering of bonds via Merrill Lynch.

The debt is expected to bear an intermediate maturity and to be brought to market as a Rule 144A/Regulation S sale.

A roadshow is scheduled to begin in London on Wednesday, Oct. 18.

EM moves with U.S. stocks

In trading, emerging market debt tracked U.S. stocks lower as economic data resurrected worries over the growth and inflation story. The market came under some pressure after the September U.S. core producer price index gained a higher than expected 0.6%, surpassing forecasts of a 0.2% gain.

Those inflation numbers provided investors an excuse to take profits, following the past week's impressive performance, noted market sources.

But not too much can be drawn from Tuesday's softer performance, warned some market participants.

The market's bullish sentiment is still in full swing on the expectation of a soft landing in the United States, debt buy-backs, fiscal surpluses, reserve accumulation and with a few exceptions, a positive political landscape across the asset class, which in turn is making the spread investors gain in the asset class feel like free money, noted a source.

Nonetheless, the asset class remains range-bound. While a correction looks unlikely, it is difficult to see much more of an upside, given the tightness of current spread levels, noted a market source.

At session's end, the JP Morgan EMBI Global index was overall flat on the day as spreads widened by one basis point versus U.S. Treasuries.

During the session, Latin America traded in tandem with softer equities. The bellwether Brazilian bond due 2040 gave up 0.15 to 130.85 bid, 130.95 offered. The Colombian bond due 2012 shed 0.50 to 117.30 bid, 117.50 offered. The Venezuelan bond due 2027 lost 0.25 to 122.15 bid, 122.60 offered.

Ecuador retreats on results

In another dramatic turn of events, Ecuador failed to capitalize on Monday's stellar performance as the gap is closing between the country's wealthiest man Alvaro Noboa and radical leftist Rafael Correa in Sunday's presidential election.

The partial results from the quick-count system released on Monday looked to be riddled with errors as a result of computer problems experienced by the Brazilian firm hired to carry out the preliminary count. That company has since been released.

On Monday, the country's bonds soared as initial results suggested an increased likelihood that market friendly candidate Noboa would emerge as the winner in the Nov. 26 second round vote.

But on Tuesday, the tables turned as manual results showed that Correa and Noboa are in a dead heat. With 59.9% of ballot boxes counted, Noboa nabbed 25.31% of votes while Correa garnered 24.6%.

As a result of election uncertainties, Ecuador erased some of its gains from the previous session as some longs took profits, according to Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

During the session, the Ecuadorian bond due 2015 eased 0.25 to 102 bid, 102.75 offered while the bond due 2030 shed 1.25 to 97.15 bid, 97.70 offered.

At session's end, the Andean country saw its portion of the JP Morgan EMBI index fall 1.05% while its spreads kicked out by 15 basis points.

In the previous session, Ecuador tightened by a monstrous 87 basis points while posting a 6.70% daily return.

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