EM new issue pipeline open at a steady drip; volumes remain thin; Brazil, Road King price

By Christine Van Dusen

Atlanta, Sept. 14 - Better economic news, attractive yields and built-up cash helped keep the new issue pipeline open at a steady dribble on Tuesday, but emerging market investors remained somewhat cautious and concerned that the economy is headed for trouble in the second quarter.

Not even the news that U.S. inventories grew in July and retail sales rose in August could manage to boost volumes much.

"Volumes are surprisingly low," a Connecticut-based trader said.

But that didn't stop issuers from contemplating and moving forward with new deals.

"It's crazy, totally crazy," said a London-based investment analyst, whose week has been chock full of roadshow-related meetings. "There was a lot of quiet in August, obviously, so a lot of pent-up demand. Spreads are still relatively tight, so issuers are going for it."

Brazil, Road King print notes

On Tuesday, the Federative Republic of Brazil priced a $500 million add-on to its $1.775 billion 5 5/8% notes due Jan. 7, 2041 at 106.407 to yield 5.202%, or Treasuries plus 142 basis points, a market source said.

ItauBBA and HSBC were the bookrunners for the Securities and Exchange Commission-registered add-on, which includes a make-whole call at par. Proceeds will be used for general budgetary purposes.

"Since it was only $500 million it seems to have been immediately absorbed," the Connecticut trader said. "So demand for any new paper seems to be brisk."

Also pricing on Tuesday was a $350 million issue of 9½% bonds due 2015 from Hong Kong-based toll road and property company Road King Infrastructure Ltd., which came to market at par to yield 9½%.

DBS and JPMorgan were the bookrunners for the Regulation S-only deal, which was talked at the 9 5/8% area.

The notes include a make-whole call prior to Sept. 21, 2013 at Treasuries plus 100 bps and a clawback for up to 35% at 109.5 until that date.

Proceeds will be used to fund a concurrent tender offer, for future debt refinancing and for project development.

Celulosa does a deal

Tuesday also saw Chile-based wood pulp and forestry company Celulosa Arauco y Constitucion SA price $400 million 5% notes due Jan. 21, 2021 at 99.093 to yield 5.115%, or Treasuries plus 245 bps, a market source said.

JPMorgan and Santander were the bookrunners for the Rule 144A and Regulation S transaction, which had been whispered at Treasuries plus 275 bps.

"That's been very well subscribed," the investment analyst said. "They tightened the guidance a lot. They might've tightened it a hair too much in my view."

Proceeds will be used for general corporate purposes and to repay upcoming debt maturities.

The notes were up "about a half-point in secondary trading," a trader said near the close.

Also on Tuesday, Cayman Islands-based CSN Islands XII Corp.'s planned $1 billion perpetual notes were whispered at the high 7% area, according to a market source.

Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank and Morgan Stanley are the bookrunners for the Rule 144A and Regulation S notes, which are guaranteed by Brazilian steel producer Companhia Siderurgica Nacional.

The notes are callable September 2015 in whole but not in part.

A roadshow for the deal ends Sept. 16.

Proceeds from the notes will be used to prepay $750 million in outstanding guaranteed perpetual notes issued in 2005 by CSN Islands X Corp. and for liability management, according to a Moody's Investors Service report.

Suzano, others on tap

Another deal expected soon is Brazil-based pulp and paper company Suzano Papel e Celulose SA's dollar-denominated benchmark-sized issue of 10-year bonds via BBBI, JPMorgan and Santander.

"There has been a pretty well telegraphed pipeline of deals that are predicted to come in the next couple of weeks," the Connecticut trader said. "I think guys have held cash aside to participate in a lot of those deals.

"As long as the market holds pretty steady and these deals are priced appropriately, there should be strong demand for both the sovereigns and the corporates in the EM space."

Other upcoming deals include a dollar-denominated benchmark-sized issue of notes from Korea National Oil Corp. and a possible issue of €1 billion in bonds from the Republic of Poland.

Also looking at a deal is Santiago-based financial services subsidiary Banco Santander Chile, which could bring to market a benchmark-sized issue of bonds as soon as this week, a market source said.

Deutsche Bank and JPMorgan are the bookrunners for the Rule 144A and Regulation S deal.

Proceeds will be used for general corporate purposes, mainly to fund lending activities.

"That will do very well because it's in the same general vein of deals that are local currency denominated and settle offshore in dollars," the Connecticut trader said.

The week is also expected to see pricing on San Salvador-based telecommunications company Telemovil El Salvador's $450 million notes due 2017.

These and other deals will "continue to dribble out," he said.

Market sources also were whispering about a possible euro-denominated deal from Morocco. "That will do well on the London side," the trader said. "We'll see where it prices and if there's much demand in the U.S. for a euro-denominated deal."

Philippines sees demand

Volumes were thin but, perhaps, "maybe a little better" than they've been lately, the London-based investment analyst said.

Latin American corporate street flows were "relatively light, given that firms are fully staffed now and the new issue pipeline kicks into higher gear," a New York-based trader said.

Brazilian corporates continued to dominate flows, though some focus remained on the ongoing troubles at Brazilian beef producer Independencia, which previously stopped paying its cattle suppliers and furloughed its workers and is now being permitted to delay its September and October payments to cattle suppliers until November.

The company appears to be continuing its "quest for what would look to be a formidable equity infusion," the New York trader said.

On the sovereign side, the Brazil 2041s had traded at about 170 on Monday and on Tuesday were "almost square around the tights for the year," a source said.

Some recent new issues did manage to garner some attention on Tuesday. The PHP 44.11 billion 4.95% global bonds due 2021 from the Republic of the Philippines - which recently priced at 99.607 to yield 5% - were seeing "ongoing demand," he said. "It was 13 times oversubscribed. We're seeing people buying it even though the peso has been weakening a touch over the last two days."

The deal illustrates the fact that "there's very, very strong demand for foreign currency denominated paper that settles offshore," he said. "We've seen additional demand for that type of paper with Chile and Colombia, with existing deals. There must be some specific money mandated for local currency bonds."

In other news Tuesday, National Bank of Abu Dhabi mandated Societe Generale and UBS for a non-deal roadshow that will run until Sept. 17, a market source said.

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