Sri Lanka: Emerging debt-New Sri Lanka bonds off highs in volatile trade

Thursday, 18 October 2007

HONG KONG, Oct 18 - Sri Lanka's maiden international bond rose on Thursday after the $500 million issue was subscribed more than three times, but profit-taking erased gains by the afternoon in an overall steady Asian debt market.

The cost of insuring Indonesian sovereign debt fell after Moody's Investor's Service upgraded its rating to Ba3 from B1, praising its fiscal prudence, improving external position and structural reforms. [ID:nHKG334312]

"Initially, we saw the bond trade higher on short covering after the issue was oversubscribed," said a Hong Kong-based trader. However, investors trading the bond intraday brought prices down.

Sri Lanka's debut international bond priced at par to yield 8.25 percent. The five-year offer rose to a high of 100.75 cents to a dollar before trading at 99.875/100. It traded as low as 99.50 at one point.

Most of the bonds were sold to U.S. investors who accounted for 40 percent of the allocations. Asia accounted for 30 percent and Europe, Middle East and Africa another 30 percent.

By investor type, asset managers took 53 percent, banks 25 percent, funds 10 percent, insurance companies and pension funds 7 percent and retail and private banking 5 percent of the deal.

Indonesian 5-year credit default swaps -- insurance like contracts that protect against defaults and restructuring -- moved in by 3-4 basis points to 118/121 bps after the widely expected Moody's move.

"Indonesia has embarked on a rating upgrade trajectory because the country's fundamentals have been improving significantly," said Sebastien Barbe, economist at Calyon Corporate & Investment Bank.

"The country has been lagging other Asian economies in terms of rating recoveries," he said.

Meanwhile, the broad market was flat, with investors focused on the growing number of borrowers lining up to sell bonds as investor appetite improves.

Bonds from ports-to-telecoms conglomerate Hutchison Whampoa Ltd due in 2033 were unchanged at 162/157 bps above U.S. Treasuries.

Philippines 5-year credit default swaps <PHILP5UA=GFI> were steady at 123/126 bps.

Newly sold bonds from South Korea's National Agricultural Cooperative Federation and Export-Import Bank of Korea continued to perform well in the secondary market.

South Korea's Pusan Bank has hired Citigroup, Korea Development Bank and UBS to sell lower tier II bonds. [ID:nHKG113776]

South Korea's Kookmin Bank has mandated Citibank, Merrill Lynch and Barclays to issue a $300 million, 5-year dollar bond later this year. [ID:nSEO343029] FIVE-YEAR CREDIT DEFAULT SWAPS

Bid/Ask spread

Current Week ago Korea Dev Bank 30/~ 29/33 Hutchison 25/27 ~/29 PCCW-HKT 54/~ 54/~ China 18/21 ~/21 Indonesia 119/125.5 ~/121 Korea 23/25 20/25 Malaysia 22/25 22/25 Philippines 123/128 ~/125 ~ no bid or ask spread For CDS prices double click on <GFICDS> ASIAN BENCHMARK DOLLAR BONDS

Coupon Maturity Bid price Bid spread

5-YEAR

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DBS Bank 7.13 15-May-11 105.95 105

Malaysia 7.50 15-Jul-11 108.13 86

ICICI Bank 5.75 12-Jan-12 97.92 209

Petronas 7.00 22-May-12 106.74 110

Hutchison 6.50 13-Feb-13 104.93 119

Chartered Semi 6.25 4-Apr-13 102.94 139

Korea 4.25 1-Jun-13 95.69 92

United Overseas 4.50 2-Jul-13 94.32 145

PCCW-HKT 6.00 15-Jul-13 100.88 159