Emerging market debt higher amid thin volumes; TGS sets price guidance

By Reshmi Basu and Paul Deckelman

New York, May 7 - Emerging market debt retraced some of last week's losses in thin trading Monday ahead of the Federal Open Market Committee meeting on Wednesday.

In the primary market, Transportadora de Gas del Sur (TGS) set price guidance for a $500 million offering of 10-year amortizing notes (B1/B+) in the area of 8%.

The notes will be non-callable for five years and will amortize in four equal installments commencing on the seventh anniversary.

The average life for the issue will be 8½ years.

Proceeds from the sale will be used to refinance existing debt.

Merrill Lynch and JP Morgan have been mandated as bookrunners for the Rule 144A and Regulation S deal.

The Buenos Aires-based issuer is a transporter of natural gas in Argentina.

Pricing is expected to take place on Wednesday.

Two more corporates hit the road Monday.

Mexico City-based BBVA Bancomer SA started simultaneous investor roadshows in Europe and the United States Monday for a two-part offering of euro- and dollar-denominated notes.

The roadshow started in the Netherlands and on the U.S. West Coast on Monday. The roadshow will move to London and New York on Tuesday and then to Paris, Frankfurt and Boston on Wednesday.

The tranche of euro-denominated 10-year tier II notes (A1//BBB+) will be non-callable for five years. If the notes are not called, the fixed-rate coupon changes to floating rate and the coupon steps up by 100 basis points.

Meanwhile the $500 million tranche of 15-year tier 1 notes (A1//BBB+) will be non-callable for 10 years. If the notes are not called, the fixed-rate coupon changes to a floating rate and the coupon steps up by 100 basis points.

Proceeds will be used for general corporate purposes.

Credit Suisse, Deutsche Bank and BBVA are joint lead managers for the Rule 144A and Regulation S deal.

Coming from Russia, coal producer Raspadskaya OAO started investor presentations for a dollar-denominated offering of bonds on Monday in Hong Kong.

Following Hong Kong, presentations will move to Singapore on Tuesday, Zurich and Geneva on Wednesday and London on Thursday and Friday.

Citigroup and UBS are lead managers for the Regulation S deal.

Venezuela recovers

Emerging market secondary trading was restrained on Monday, traders said, with the financial markets in London closed for the May Day holiday.

"Today [Monday] for emerging markets was pretty quiet, because London was closed," a trader said.

"Venezuela was up - a couple of basis points tighter," the trader said, terming that move "a decent spread tightening," but adding that "most stuff in our market just didn't move much."

A market source saw Venezuela's bonds up about two-thirds of a point on average, while another quoted its benchmark 9¼% global bonds due 2027 up nearly ½ point during one stretch in the day, before ending up about ¼ point at 119.25. The yield on those bonds tightened by 2 bps to 7.40%.

On the shorter end of the curve, Venezuela's 5¾% notes due 2016 were quoted having risen about a third of a point to 93.62, while their yield came in by about 5 bps to 6.70%.

Venezuela's bonds had gotten pretty well hammered over the last few sessions of last week, following president Hugo Chavez's declaration that he was pulling his nation out of the International Monetary Fund, which he said had been hobbling his nation and limiting its sovereignty "for decades" and which in his view was little more than a tool of his opponents in Washington. The bonds lost about three points as they fell to their lowest levels in many months once it was discovered that Venezuela's withdrawal from the IMF would constitute a technical default, since the debt covenants specifically mention that it is to remain a part of the 185-nation global organization. The 9¼% bonds had been trading in a high 122-low 123 context before Chavez's fateful remarks.

Stung by the reaction in the international debt community - which included recommendations by Bear Stearns, Merrill Lynch & Co. and several other investment banks that investors cut their holdings on the Venezuelan paper - Venezuelan officials sought to reassure financial world that there would be no default and that even if one were to be declared, Venezuela would continue servicing its debt as usual. Analysts came to the consensus that the bombastic Chavez had probably made his threat to withdraw from the IMF without even realizing the dire consequences such a step might have on his country's standing in the international community, and would likely find a way to avoid pulling out of the IMF altogether - while still making a symbolic gesture of some sort in order to save face.

"Venezuela looked OK," the trader said, "but that having been said, I didn't get the impression that it was on a lot of volume. I think it was people just marking it up as they get more comfortable with this whole issue of the IMF, the covenants and stuff."

Colombia's local debt retreats

Elsewhere, Colombia's peso-denominated bonds retreated as that country's currency unit weakened after Bogota's central bank, in an effort to cut speculation, ordered that investors borrowing abroad post deposits of 40% of the amount with the central bank, which would have the effect of limiting speculative capital from abroad.

The benchmark peso bond due 2020 was seen down about ½ point on the day at levels just below 106, while the bonds' yield widened out by around 7 bps to 10.16%.

Overall in the emerging markets, the trader said, the widely followed EMBI+ index tightened 1 bp to 168 bps versus Treasuries.

However, the trader said that with spreads on dollar-denominated global bonds still near all-time tight levels and prices not too far below their recent highs, "sovereign stuff trades less and less all the time now - it's all local [currency-denominated] markets.

"But on a day like today [Monday], with London closed, everyone uses that as an excuse to not do anything. If it weren't for new issues, everyone in sales and trading would have gone home at lunchtime today [Monday]."

MagnaChip higher

In trading in Asian names, a trader saw MagnaChip Semiconductor Ltd.'s 8% notes due 2014 up a point at 70.25 bid, 71.25 offered, for "no real reason." The South Korean computer chip maker's floating-rate notes due 2011 ended in a 90-91 context while its 6 7/8% notes due 2011 closed around 87.

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