Emerging markets wrap tighter; Venezuela better with oil; Hungary prices €1.5 billion

By Aaron Hochman-Zimmerman

New York, June 5 - Emerging markets were mixed in price terms but reeled in spreads on weak U.S. Treasuries and a strong equity market.

"Even oil is back, which helps the likes of Venezuela, which is the outperformer," a market source said.

Venezuela's bonds due 2027 added 1.4 points.

It was the sovereigns that had the stage in the primary as Hungary priced €1.5 billion 10-year bonds with a coupon of 5¾% and Ukraine announced it would sell $400 million this month.

Equities rallied in the face of rumors of future rate hikes from the Federal Reserve as well as a downgrade for the monoline insurers.

The rally helped volatility drop 2.17 to 18.63, according to the VIX index. The index is a common yardstick of market volatility.

Also, Treasuries yields were up by another 9 basis points, which tightened in all the emerging market sectors.

"You almost have to look at the prices instead of the spreads," a market source said.

As a sector, emerging markets tightened by 4 bps to a spread of 240 bps, according to the JPMorgan EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to keep assets in emerging markets debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 9 bps with a spread of 268 bps.

The diversified index has a less strict liquidity rule for inclusion.

Emerging Europe prices slip

An equity rally, a tumbling Treasuries market and a spark from the primary were not enough to spur a rally in emerging Europe.

"Ukraine and Turkey are all kind of down," a market source said, as the chief of Ukraine's national oil firm Naftogaz Ukrainy, Oleg Dubina, met with OAO Gazprom chairman Alexey Miller to discuss energy prices.

"The parties addressed the current situation surrounding gas deliveries to Ukraine and the state of implementation of the bilateral agreement on the development of relations in the gas industry," a Gazprom press release said.

Dubina hopes to reach a deal to set a "European price" for energy within five years, Itar-Tass reported.

The Ukrainian sovereign bonds due 2016 were seen at 94.75 bid, 95.5 offered.

Meanwhile in Russia, rumors of a partial state takeover of TNK-BP surrounded a call by the Interior Ministry to speak with Robert Dudley, TNK-BP's chief executive officer, concerning tax evasion.

The Moscow-based oil company has been targeted by the government in the past and was forced to sell its share of the Kovykta oil field to Gazprom.

The firm's offices have also been raided by police on multiple occasions.

Inflation up, rates to follow in Turkey

In Turkey, the central bank responded to a letter from state minister Mehmet Simsek by revising its target inflation to 7.5% from 4% for 2009, a market source said.

Targets were set at 6.5% and 5.5% for 2010 and 2011, respectively.

The less ambitious goals will make previous rate cuts easier to tolerate and also keep the short end of the yield curve lower than it may have been otherwise, the source said.

Over the long term, if inflation rates are higher for a longer period of time, longer-term investments in the country take on additional risk, the source said, adding that the less aggressive approach may have the added effect of costing the bank some of its prestige.

Still, a 50 bps rate hike is expected this month, the source added.

The lira was seen trading at 1.236 to the dollar.

The Turkish bonds due 2030 sank 1.125 points to 150.125 bid, 150.625 offered.

Hungary, locals price

The primary made a strong push ahead of the nonfarm payroll data release on Friday.

The Republic of Hungary (A2/BBB+/BBB) priced €1.5 billion 10-year bonds at 99.54 with a coupon of 5¾% to yield mid-swaps plus 98 bps.

The deal was talked at mid-swaps plus 100 bps to 105 bps.

BNP Paribas, Citigroup and ING acted as bookrunners for the deal.

Proceeds will be used for general financing purposes.

"The largely oversubscribed book enabled the leads to price the bond through the original price guidance," according to a news release.

In local-currencies, Egypt's Al Ezz Steel Rebars Co. priced a 1 billion Egyptian pound seven-year unsecured bond.

The bonds priced with a coupon of 11½%.

The Arab African International Bank acted as the bookrunner.

Proceeds will be used to refinance existing debt.

Al Ezz is a Cairo-based steel producer.

Also, Singapore's ASL Marine Holdings Ltd. priced S$50 million over two tranches from its S$350 million program. The deal was upsized from S$30 million.

The S$39 million tranche carries a coupon of 1.7% plus the six-month Singapore dollar swap offer rate and will mature in 2010.

The S$11 million tranche carries a coupon of 1.9% plus the six-month Singapore dollar swap offer rate and will mature in 2011.

DBS Bank acted as the bookrunner for the deal.

ASL Marine Holdings Ltd. is a Singapore-based shipping firm.

Ukraine sets $400 million, others lined up

After a last month's mandate, Ukraine (B1/BB-/BB-) set the amount at $400 million for its new sovereign issue.

BNP Paribas, JPMorgan and Standard Bank had been asked to act as bookrunners.

The bonds are expected sometime in June.

The country's most recent issuance was $700 million of 10-year 6¾% bonds placed on Nov. 7, 2007.

Brazil's Arantes International Ltd. (B) is waiting on the calendar with a $150 five-year senior unsecured bullet bond.

The deal has been talked at 10½%, but "it's a little hard to understand," a strategist said, "it's a weaker credit and it should pay a lot more."

"They're very exposed to the embargoes and they've had to shift sales domestically," the strategist said.

"It's a little company compared to the others," the strategist said about the Brazilian beef industry.

"The CDS for Arantes was 500 over for the one-year two weeks ago."

Although, "there isn't much to do in Brazil," the strategist said, adding that deals from banks such as Banco Panamericano and Banco Pine should get done without much trouble.

Also in Latin America, Argentina's Tarjeta Naranja SA plans a $20 million 13-month note offer at par.

Banco de Galicia y Buenos Aires will act as bookrunner for the deal.

The issue is expected from the company's $350 million note program.

Tarjeta Naranja is a Cordoba, Argentina-based credit card lender.

"It's a great company," the strategist said.

"It's owned by Banco de Galicia and they run a very tight shop, a very good shop," the strategist said.

Local currency deals wait

Elsewhere, the Philippines' Robinsons Land Corp. announced plans to issue PHP 2 billion five-year notes.

HSBC will act as bookrunner for the deal.

Proceeds will be used for capital expenditures.

Robinsons is a Manila-based property developer.

Also in Asia, Malaysia's Malayan Banking Bhd. announced a tier I note program of up to 4 billion ringgit.

Proceeds will be used for working capital.

Maybank is a Kuala Lumpur, Malaysia-based commercial and retail bank.

In the long-term, the trouble in Asian will likely result "on the sovereign side you'll see more hard currency deals," a market source said, "local currency also dissipates."

High betas bounce in LatAm

Latin American trading volumes picked up despite an anticipated data release on Friday, a strategist said.

In Venezuela, rising oil prices helped the high-beta credit mount a turnaround from a series of weak sessions.

As light sweet crude traded up by more than $5 per barrel at $128 per barrel, the benchmark 9¼% sovereigns due 2027 took on 1.4 points to 94.5 bid, 95 offered.

In Brazil, "prices are down," a market source said.

"There maybe a little selling the fact" after the recent ratings upgrade, he said.

The 7 1/8% government bonds due 2037 were down 1 point to 116 bid, 116.25 offered.

In corporates, the Bertin Ltda. 10¼% bonds due 2016 were lower by 0.25 point to 109.5 bid, 110.25 offered.

Truckers join farm fracas

In Argentina, truckers, not farmers, blockaded roads in order to express their disgust over the events that have led to a halt of grain sales.

"People will mistakenly think that it is we who are blocking the roads and the government is taking advantage to once again blame us," a farm representative told the Buenos Aires Herald.

"Truckers contribute to tarnish our protest and play into the hands of the government," said Eduardo Buzzi, head of the Argentine Agrarian Federation (FAA).

The 8.28% Argentine discount bonds due 2033 jumped 0.95 point to 82.75 bid, 83.25 offered.

"It's not performing that well," another strategist said about the Argentine corporates, although "a lot of that has been."

"It's not a good situation," but "I don't think the worst-case scenario is the most likely one," the strategist said.

Asia holds steady

Asian trading has been damaged by inflation and turbulence in the local markets, but on Thursday "across the board in Asia, it doesn't look like anything was hit hard," a strategist said after the close.

However, the market saw "a fairly weak Asia open and a fairly strong Asia close," a trader said, after "flows overnight were pretty mild."

"The Philippines is pretty much flat," the strategist said.

The Philippine government bonds due 2030 were quoted at 130.125 bid, 130.75 offered.

Meanwhile in Indonesia, the government announced that it is working on a system to protect intellectual property, according to the Jakarta Post.

"With the protection of copyrights and provision of financial assistance for small and medium businesses, we expect to be able to nurture the industry," trade minister Mari Elka Pangestu said.

Some analysts believe Indonesia is 18 years behind some of its economic competitors in the arena of intellectual property, the report said.

Between 2002 and 2006, the central statistics agency reported that the creative industry was responsible for 6.3% of the GDP.

The government projects that the sector will make up 9% to 11% of the GDP between 2015 and 2020.

The Indonesian sovereigns due 2017 were spotted at 99.625 bid, 100.5 offered.

Pakistan's government bonds due 2017 were unchanged at 76 bid.

Elsewhere in India, communist and other opposition interests led protests against a 10% rise in energy costs.

The Communist Party called for a week of demonstrations against the government ahead of general elections next year.

"It must be appreciated what has been done is the bare minimum," prime minister Manmohan Singh said on Wednesday.

"There are limits to keep consumer prices unaffected. This way we will have no money to import oil," he said.

Philippines, Indonesia hike rate 25 bps

The central banks in the Philippines and Indonesia increased their key rates by 25 bps on Thursday.

In the Philippines, the overnight borrowing rate is now 5.25%, while the overnight lending rate is now 7.25%, according to a bank press release.

"The monetary board noted that emerging baseline forecasts, which reflect more recent data on inflation and output, indicate a likely breach of the inflation target for 2008," the bank said.

Inflation is forecast between 7% and 9% in 2008 and between 4% and 6% in 2009.

"The monetary board stands ready to undertake further action as and when necessary in order to ensure the achievement of the BSP's price stability objective," the bank said in its statement.

The peso was seen trading at 43.85 to the dollar.

In Indonesia, the key rate is now 8.5%, while it struggles with its May inflation rate of 10.38%, according to the central bank's web site.

The rupiah was seen trading at 9,280.23 to the dollar.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.