Emerging markets trip into week; Shinhan Bank prices $500 million bonds; spreads ripped wider

By Aaron Hochman-Zimmerman

New York, June 22 - Emerging markets continued a losing streak Monday that extended from the previous week's trading.

South Korea's Shinhan Bank was nearly four times oversubscribed as it priced $500 million of bonds, but the paper performed poorly in trading.

"It was a pretty bad day, generally," a buysider said.

The higher-yielding credits were hurt by spillover risk aversion from the major markets.

"There's nothing really EM specific," the buysider said. "It's all risk related."

Sentiment was helped slightly by the 10th straight week of inflows for emerging market bond funds, according to data compiled by EPFR Global.

Still, "with the spread between U.S. Treasuries and JPMorgan's benchmark EMBI+ index rebounding from 412 basis points to more than 435 bps, emerging markets bond funds specializing in hard currency debt accounted for the bulk of the week's inflows, which fell to an eight-week low," EPFR said.

Further than 435 bps, investors turned away from risk, and emerging markets widened by 18 bps to a spread of 458 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging market debt.

Meanwhile, equities sold off and volatility spiked back up over 30.00 as a jump of 3.18 ended the day at 31.17, according to the VIX index. The index is an often used gauge of market volatility.

Shinhan Bank prices $500 million

Shinhan Bank priced a $500 million three-year senior unsecured bond (A2/A-/A) at 99.835 with a coupon of 6% and a spread of mid-swaps plus 380 bps.

The bonds priced in line with talk in the mid-swaps 380 bps area.

BNP Paribas, Deutsche Bank, HSBC, Merrill Lynch and RBS Securities acted as bookrunners for the deal.

Shinhan Bank is a Seoul-based retail and commercial bank.

The offer book was "supposedly" $2 billion, a buysider said.

The bonds traded poorly, closing l.1 points lower at 98¾ bid, 99½ offered.

"I don't know why they didn't pull it," another buysider said.

Also in the pipeline, Croatia Bank for Reconstruction and Development talked its €300 million five-year bond (Aa3/BBB/) offering at 8½% to 8¾%.

Deutsche Bank and RBS Securities will act as bookrunners for the deal.

Books opened on Monday, and the deal was expected to price early in the week.

The bank holds an Aa3 rating from Moody's Investors Service, but only Standard & Poor's will rate the new offering.

The Croatia Bank for Reconstruction and Development is a Zagreb, Croatia-based development lender.

Emerging Europe opens weaker

Emerging Europe began the week on a downward slope as investors were disheartened by the major markets.

In Russia, reports recounted losses in the equity markets; but on the credit side, rumors circulated of a new benchmark-sized bond from government energy firm OAO Gazprom.

Just to the east, Poland is holding a non-deal roadshow throughout the week.

In Belarus, the national bank widened the band for the Belarusian ruble from plus/minus 5% to plus/minus 10%.

The International Monetary Fund issued a statement of support.

"The widening of the band increases the flexibility of the exchange rate regime, which will make it easier for Belarus to absorb external shocks," said Chris Jarvis, head of an IMF mission to Belarus.

"The recent gradual depreciation of the exchange rate within the band will improve Belarus's balance of payments. The decision by the [central bank] last week to increase the interest rate on overnight lending to commercial banks was a positive step that will support economic and exchange rate stability," he said.

The ruble was seen trading at 2,848 to the dollar.

Elsewhere in the former Soviet Union, Ukraine's bonds due 2016 underperformed by dropping 1 point to 66½ bid.

In Turkey, bonds were pushed slightly lower after an optimistic session for the country on Friday.

The category has suffered in recent sessions, but Turkey has performed relatively well as investors were encouraged by a 50 bps rate cut to 8¾% and optimistic words from IMF first deputy managing director John Lipsky at a meeting of the Turkish Industrialists' and Businessmen's Association.

"The improving prospects for the global economy owe much to resolute policy actions across a broad range of countries," he said.

Specifically for his audience, "The Central Bank of Turkey's inflation targeting framework and the floating exchange rate regime have worked well to absorb external shocks," he said.

The near-term prospect of a new standby loan from the IMF is still in doubt, but many in the market believe that the IMF will remain at an arms length if Ankara finds itself in need of help in the future.

The Turkish government bonds due 2030 slipped 5/8 point to 151 3/8 bid.

LatAm drags wider

Latin America widened on low volumes during a session similar to Friday's, a buysider said.

The high-betas were the clear victims, while some of the less-volatile credits escaped relatively unscathed.

Light sweet crude oil was seen trading as low as $66.25 per barrel, while Venezuela lost 5/8 point from its 9¼% Venezuelan sovereigns due 2027. The bonds traded at 68½ bid.

Elsewhere, in Argentina, president Cristina Kirchner touted her administration's accomplishments ahead of the June 28 legislative elections.

"You can count on the permanent commitment of this president to keep working for creating more welfare, jobs and a better life quality for the majority of Argentines, to compensate for long decades of abandonment and neglect," Kirchner said.

Kirchner attended the opening ceremony of a new soccer stadium named for the national team's manager and former star player Diego Maradona, the Buenos Aires Herald reported.

The 8.28% Argentine discount bonds due 2033 fell by 1 point to 44 bid.

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