Demand strong for EM paper; Banco Mercantil, Braskem issue add-ons; Waha, Kookmin price

By Christine Van Dusen

Atlanta, July 21 - Federal Reserve chairman Ben Bernanke's comment that the outlook for the economy is "unusually uncertain" may have triggered a sell-off of equities and a rally in the U.S. Treasury market on Wednesday, but emerging market debt generally stayed fairly strong and encountered healthy demand.

This was true despite the fact that Hungary's currency continued to plummet after breaking off bailout talks and as yields on 10-year U.S. Treasuries fell to their lowest point in more than a year.

"EM has been very active," a New York-based market source said. "Investors are able to digest the supply."

As evidence, he pointed to two tap issues that printed on Wednesday. Brazil-based lender Banco Mercantil do Brasil priced a $50 million add-on to its $200 million 9 5/8% notes due 2020 at 100.787 via Bank of America Merrill Lynch and Banco Santander in a Rule 144A and Regulation S deal.

The original issue priced at par to yield 9 5/8%.

And Cayman Islands-based petrochemical company subsidiary Braskem Finance Ltd. priced a $350 million add-on to its $400 million 7% notes due 2020 at 100.86944 to yield 6 7/8%, or Treasuries plus 268 basis points, a market source said. Bradesco BBI, HSBC and Santander were the bookrunners for the Rule 144A deal.

Waha, Kookmin price notes

The day also saw Abu Dhabi's Waha Aerospace price $1.5 billion 3.925% bonds due 2020 at par to yield Treasuries plus 225 bps, an informed market source said.

Deutsche Bank, JPMorgan, Societe Generale, Nomura and Waha Capital were the bookrunners for the Rule 144A and Regulation S transaction, which was talked at Treasuries plus 225 bps to 230 bps.

And South Korea-based lender Kookmin Bank priced a two-tranche ¥18 billion issue of samurai bonds due 2012 and 2013, according to a market source. The ¥16 billion tranche of 1.9% bonds due 2012 priced at par to yield 140 bps over yen swaps. The ¥2 billion tranche of 1.97% bonds due 2013 priced at par to yield 145 bps over yen swaps.

Mitsubishi UFJ Morgan Stanley, Mizuho Securities, RBS and UBS were the bookrunners for the deal.

"The market tends to feel pretty strong," a market source said. "The equity markets would tell you something different; they're trading sideways here. But fixed income markets continue to chug along. It's busy out there."

A lot of issues have printed, particularly from Latin America, so that "pipeline may slow down a bit," he said. "For the rest of the week it may be slowing down."

Corporates trade higher

Emerging market bonds in general closed on Wednesday "a little wider," particularly on the higher-rated credits, a trader said.

"We opened with a strong tone in the morning, building on yesterday's close and positive momentum," he said. But Bernanke's remarks, as well as the weakening equity markets, put "slight pressure on our prices" and took emerging market names "off the early highs."

Still, "the account base in general seems to be trying to add EM exposure," he said. "Positive price momentum, new money allocations and chase for some yield all have helped the EM asset class outperform."

Corporates, for the most part, traded higher on Wednesday, another trader said.

Brazil's Companhia Siderurgica Nacional (CSN) - which had been expected to print $750 million but instead priced $1 billion 6½% 10-year notes at 99.096 to yield 6 5/8%, or Treasuries plus 357.7 bps - is "continuing to trade higher as the overhang in the new issue seems to be slowly getting digested," he said.

Also showing strength on Wednesday was Bancolombia SA's $620 million 6 1/8% subordinated notes due 2020, which priced at 98.418 to yield 6.341%, or Treasuries plus 337.5 bps. "They're trading well at 1003/4, after being issued 98.418," he said.

Meanwhile, the $400 million add-on to Brazil-based lender Banco Votorantim SA's $750 million 7 3/8% notes due 2020, which priced at 102.566 to yield 7%, or Treasuries plus 404.3 bps, was "trading a little heavier than expected due to their statement regarding their intent to issue more paper soon," he said.

Naspers sets guidance

Also on Wednesday, South Africa-based media company and pay-television provider Naspers Ltd. set price talk at 6½% for its planned benchmark-sized offering of senior unsecured notes due 2017, a market source said.

Citigroup, Barclays Capital and JPMorgan are the bookrunners for the Rule 144A and Regulation S deal. Proceeds will be used for general corporate purposes and to repay borrowings under the company's revolving credit facility.

The next deal to price could be Mumbai, India-based lender State Bank of India's benchmark-sized dollar-denominated bonds, which are being whispered to yield Treasuries plus the high 200 bps to 300 bps, a market source said.

Bank of America Merrill Lynch, Citi, Deutsche Bank, HSBC, RBS and UBS are the bookrunners for the deal.

"That's going well," the source said.

Also on the near-term horizon is the planned eurobond notes, possibly totaling $500 million with a maturity of three to five years, from Belarus via RBS, Sberbank, Deutsche Bank and BNP Paribas.

The market also could soon see Shanghai-based women's apparel company E-Land Fashion China Holdings Ltd. price a $200 million offering of three-year senior unsecured notes via Morgan Stanley.

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