TNK-BP $1 billion two-part note sale nine times oversubscribed; Cyprus, Songa notes on tap

By Cristal Cody and Paul A. Harris

St. Louis, Jan. 27 - Emerging markets were slightly weaker on Wednesday, according to an emerging markets fund manager in the United States.

The EMBI Global index was trading at a spread of 316 basis points, 2 bps wider since the Wednesday open.

"The market is uncertain right now," the investor said, adding that external factors - such as the monetary policy decisions of Chinese central bankers, the Obama administration's moves to regulate U.S. banks, and economic numbers - were weighing upon emerging markets debt, rather than credit specific issues.

TNK-BP oversubscribed

One place that the fund manager expected the market's uncertainty to play out was in Wednesday's sizable deal from Russian energy giant TNK-BP.

TNK-BP Finance priced $1 billion of fixed-rate notes (Baa2/BBB-) in a two-part transaction.

The Moscow-based company priced a $500 million tranche of 6¼% five-year notes at 99.157 to yield 6.45%. The yield printed tight to the 6½% area price talk.

TNK-BP also priced a $500 million tranche of 7¼% 10-year notes at 98.263 to yield 7½%. The yield on the 10-year notes printed at the tight end of the 7½% to 7 5/8% price talk.

Barclays Capital, Calyon Securities and RBS managed the deal.

The combined order books contained more than $9 billion of orders, according to an informed source.

Deal size reduced concession

TNK-BP's deal was expected to come at a concession to its existing bonds, as well as to existing bonds of Lukoil OAO and OAO Gazprom, the mutual fund manager said Wednesday.

However, five hours later when the terms rolled out, that concession had not materialized, according to a syndicate banker.

The reason for the lack of a concession had to do with the deal size, the banker explained.

Initially TNK-BP was expected to size both tranches at $750 million and end up bringing a combined $1.5 billion, the source said, adding that demand was sufficient to easily take down that amount of bonds.

"They decided to not flood the market with paper, which got them better pricing terms," the source remarked.

"Early on most of the accounts indicated a preference for the five-year.

"TNK was looking for something longer.

"So everybody agreed down the middle."

Hence, by containing the deal size, the concession to TNK-BP's existing securities, as well as to bonds from elsewhere in the sector, was minimal, the banker said.

Russia weaker in European trading

Much earlier Wednesday, at the close of the European session, TNK-BP's outstanding 7½% bonds due March 2012 and its 7 7/8% bonds due March 2018 were wider, according to London-based sources.

"All their bonds are 5 bps to 8 bps wider," one trader said.

Russian emerging markets were weaker overall, the trader remarked.

Russia's credit default swaps were 173 bps mid, at the Europe close, about 5 bps wider.

"Everything else is more or less wider by 3 to 5 basis points," the trader said.

Cyprus talks euro benchmark deal

The Republic of Cyprus (Aa3/A+/AA-) set guidance for its benchmark euro-denominated 10-year notes at a 125 bps area spread to mid-swaps on Wednesday.

Deutsche Bank, SG Corporate & Investment Banking and UBS Investment are managing the sale.

Also, Cyprus-based offshore drilling services provider Songa Offshore SE started a roadshow for a $200 million offering of seven-year senior notes.

The deal is expected to price late in the Feb. 1 week.

Citigroup is leading the Rule 144A and Regulation S offering.

Proceeds will be used to refinance debt and for general corporate purposes.

Following the closing of the offering, Songa expects to conduct an exchange offer for its secured fixed-rate notes due 2011 and its floating-rate notes due 2012.

EM still a good relative value

Elsewhere on Wednesday, Brazil five-year CDS were unchanged at 135.25 bps mid late in the European session, according to a source there.

Likewise Mexico five-year CDS were unchanged at 141.5 bps mid.

OAO Gazprom five-year CDS were 245.875 bps mid, 1.5 bps wider.

Emerging markets debt still has room to run, according to an asset manager on the U.S. East Coast, who added that emerging markets still represent a good value, relative to other classes of debt securities.

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