Emerging Market Issuers Get Warm Welcome From Investors

Friday January 10, 8:30 PM sg.biz.yahoo.com By Angela Pruitt Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--A mix of investment-grade and junk-rated emerging market issuers are making the trek to international capital markets this week with hungry investors ready to feast on the new bonds.

Mexico and Turkey marked the latest sovereigns to access a welcoming market. Mexico launched a $1.5 billion 10-year global bond Thursday, while Turkey sold $750 million in new 10-year securities. The offerings follow Chile's $1 billion global bond priced Wednesday as well as a $500 million increase of the Philippines' outstanding 2013 global bond.

"Broadly speaking, (issuers) have reasonable access," to overseas markets, said Rob Gvozden, an analyst at Lehman Brothers, adding there was no evidence of great discrimination among credits.

The raft of new bonds comes as emerging market debt capped off 2002 with about 15% in gains and staged a spirited rally in the first week of the new year. A positive environment in the U.S. corporate bond sector and brighter political and economic outlook in Brazil have nourished the environment for new issues, observers say.

There is "clearly an appetite for paper," said Francis Rodilosso, a portfolio manager at Van Eck Capital. However, he said there is "not a bottomless pit of demand. Some credits would have a difficult time issuing now."

Indeed, analysts say the issuers rated in the single-B category, such as Brazil and Venezuela, will be hard-pressed to tap overseas markets as their spreads hover around 1250 basis points and 1300 basis points over U.S. Treasurys, respectively.

"The market is not bullish enough," to take on debt from these countries, said Siobhan Manning, an emerging markets debt strategist at Caboto IntesaBci.

Indeed, Brazil isn't expected to be able to access the market for some time given lingering questions about how President Luiz Inacio Lula da Silva's administration will engineer greater growth for South America's largest economy while maintaining fiscal discipline. Venezuela's debt servicing cost have surged recently amid an ongoing national strike that has shut down the country's vital oil industry, among many other sectors.

"There is no urgency for Brazil to come now. Over the next couple of months the window may open," Manning said, noting the country's coupon and amortization payment schedule is heaviest in April and October.

January is typically a heavy issuance month for emerging markets sovereigns, although with Brazil on the sidelines and following a slew of new debt placed during the tail end of the fourth quarter, the pipeline this quarter is seen as less frenetic compared to last year.

Exotic borrowers are expected to be the next batch of deals to hit external markets this month, including the Dominican Republic, Costa Rica and Guatemala. Market chatter also has it that Colombia could be readying a new bond soon.

Van Eck's Rodilosso said the bonds currently hitting the market don't appeal to a monolithic investor base. These "deals are not necessarily going into same portfolios."

The relative cheapness of the Philippines' deal drew some investors, but others remained turned off by the country - which doesn't have investment-grade status -due to concerns over its widening budget deficit. The new bonds were priced 553 basis points over comparable Treasurys and re-offered at 96.75.

Investment-grade corporate bond investors showed the most interest in Chile's deal, which marked the nation's largest sovereign bond ever. The government said it received some $4 billion in orders as expectations the country won't tap the U.S. market again this year fueled demand.

As such, Chile was able to price its transaction at the bottom end of official price guidance - 163 basis points over Treasurys.

Mexico, which was due to price late Thursday, has also become less of a dedicated emerging markets play given the country's investment-grade status, observers say.

"We are particularly bullish on Mexico relative to the high-grade universe," said Lehman's Gvozden. He said that Mexico's fairly small financing requirements given the government's zero net borrowing requirement "offers a fairly strong underpinning."

Mexico upsized its deal, co-managed by J.P. Morgan and UBS Warburg, from $1 billion and narrowed the price guidance to 246 basis points from an initial 250 basis points.

Meanwhile, Turkey sold its bond at a spread 712 basis points over Treasurys, via J.P. Morgan and Morgan Stanley. The new securities carried a yield of 11.25% and an 11% coupon.

-By Angela Pruitt, Dow Jones Newswires, 201-938-2269, angela.pruitt@dowjones.com