Issuers, investors mostly mum ahead of FOMC; Pemex, Cheung Kong set price talk; KTZ on tap

By Christine Van Dusen

Atlanta, Sept. 20 - Emerging market issuers and investors were in wait-and-see mode on Monday, holding off on any major moves until after Tuesday's key interest-rate policy meeting from the Federal Open Market Committee.

"We're just waiting for tomorrow, to see what the announcement is going to be," a California-based market source said. "It's been pretty quiet today."

She was most interested in Venezuela, which on Monday was "rallying on not a lot of flow," she said. "They're catching up from the underperformance of the last few days."

On the JPMorgan Emerging Markets Bond Index Global, Venezuela's spread was at 1,204 bps, tighter by 33 bps.

Pemex sets guidance

New issuance was scarce on Monday, though some corporate and sovereign names did take steps toward bringing deals to market.

Mexico-based oil and gas company Petroleos Mexicanos SAB de CV (Pemex) set price talk for a planned benchmark-sized issue of perpetual notes at the 6 7/8% area, a market source said.

Citigroup and HSBC are the bookrunners for the deal, which is expected to total $1 billion and is non-callable for five years.

"That could price Tuesday," a market source said.

Also from Mexico, phosphate fertilizer producer Grupo Fertinal is on a roadshow for a planned issue of $200 million notes due 2015 via UBS, a market source said.

The roadshow is set to end on Sept. 22, with pricing soon after.

Two non-deal roadshows

Two other Latin American names are wrapping up non-deal roadshows this week.

Buenos Aires has selected Bank of America Merrill Lynch and Deutsche Bank for a trip ending Sept. 24, a market source said.

And Brazil-based petrochemical company Braskem SA has tapped Deutsche Bank, HSBC and Itau for a non-deal roadshow ending the same day.

Cheung Kong, KTZ pricing soon

Also marketing a deal is Hong Kong-based property development company Cheung Kong Infrastructure, which on Monday concluded a roadshow for a benchmark-sized dollar-denominated offering of perpetual notes via JPMorgan. Price talk was set at a 6 7/8% yield, a market source said.

And railway company Kazakhstan Temir Zholy Finance BV (KTZ) will embark on a roadshow starting Sept. 22 for a dollar-denominated benchmark-sized issue of notes, a market source said.

Barclays, HSBC and RBS are the bookrunners for the deal.

"There are a lot of roadshows right now," a market source said. "We're waiting for those deals."

Philippines plans notes

Also on Monday, the Republic of the Philippines was planning a benchmark-sized issue of dollar notes due Jan. 15, 2021 and a tap of its existing 6 3/8% bonds due Oct. 23, 2034 as part of an exchange offer, according to a market source.

The 2021 notes are set to yield Treasuries plus 149 bps to 164 bps, and the add-on is being talked at Treasuries plus 148 bps to 163 bps.

Citigroup, HSBC and UBS are the joint dealer-managers for the Securities and Exchange Commission-registered transaction, which aims to exchange $3 billion from $17.7 billion of the sovereign's outstanding global bonds.

The new issue is expected to price on Sept. 29.

This would follow the sovereign's Sept. 10 pricing of PHP 44.11 billion 4.95% global bonds due 2021 at 99.607 to yield 5%. The deal, denominated in pesos but paid in dollars, raised $1 billion from more than 280 investors.

This demonstrated that there is a strong demand for foreign currency-denominated deals, a source said.

Inflows up

There ha been a great deal of demand for local currency deals, according to Cameron Brandt, senior analyst with data tracker EPFR Global.

"The sort of uptick in risk appetite has shifted in the EM universe back to local currency," he said. "During August and late July the pendulum was beginning to switch back to the hard currency. But during the last couple of weeks it has gone the other way."

The reason, he said, is that "local currency bond funds, rightly or wrongly, are perceived as somewhat more risky, but they also tend to get a boost whenever the dollar does," he said.

Overall, inflows into emerging market bond funds totaled $678 million for the week ended Sept. 15, up from $283 million the week before.

"It's a little frenetic," Brandt said. "By early October you can tell if it was just a post-summer, get-your-bearings situation or a more sustained change in direction."

He also noted another trend: Europe, the Middle East and Africa have not been getting as much attention as other regions.

"The EMEA region doesn't appear to be as attractive to either equity or fixed-income investors," he said. "The money is tending to go to Asia first and Latin America second. What that tells me is that there are still real concerns about the markets where the public finances are not in good shape. And in the EMEA universe, there are some star nonperformers, like Hungary, Turkey and South Africa."

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