• ACI Russia

08/07/1998 13:03:45 Emerging debt dragged down by new Russian lows

By Gill Tudor

LONDON, Aug 7 (Reuters) - Russian dollar-denominated debt slithered to fresh

historic lows on Friday, on a dearth of emerging market investor confidence, and

dragged other emerging debt down with it, analysts said.

"Prices have been led lower by PRINs, but effectively all prices are lower,"

said Neil Lockwood, an analyst at ANZ Investment Bank in London.

"It's a complete lack of faith in the whole structure, whatever country you

look at."

At 1130 GMT, Russian IANs <RUSIAN=RR> were 4-1/8 down from New York's

closing levels at 41-1/8 bid, while the country's PRINs <RUSPRIN=RR> were 3-5/8

lower at 34-3/8 bid.

The negative mood drove prices down across the board. Brazil's benchmark "C"

bonds <BRAZILC=RR> were 1-7/8 lower at 71-5/8, Venezuelan DCBs lost 2 to 72-3/4

and Bulgarian IABs were 1-1/2 down at 69.

IANs have shed around 19 percentage points and PRINs around 17.5 points

since July 14, the day after the announcement of an ambitious debt restructuring

plan and a $22.6 billion international rescue package for Russia backed by the

International Monetary Fund.

Lockwood said renewed concern over the possibility of a rouble devaluation

was having some impact on the market, with non-deliverable forwards currently

pricing in a devaluation of 94 percent.

Analysts say a glut of Russian paper is also hanging over the market after

the restructuring deal, aimed at replacing existing paper with long-term


"The bottom line is that Russia got the IMF deal in order to issue more

debt, but investors wanted the deal so they could sell," said David McWilliams,

an emerging markets analyst at Banque Nationale de Paris in London. "We're

getting more issues at a time when people are selling."

But analysts said the biggest factor was the bearish general framework for

emerging markets, buffeted by global worries over the Japanese economy,

increasing credit risk, falls in capital earnings, this week's Wall Street

plunge and the rising dollar.

"I think we've reached a second, previously undreamt-of stage of market

intolerance for risk -- we're not seeing investors at all," McWilliams said.

McWilliams said investors looking for a high-risk market now had to go no

further than U.S. equities, while the nervous majority were seeking a safe haven

in U.S. Treasuries.

"If the market isn't buying Coca Cola, why should it buy Russia?" McWilliams

said. "You may need to see the froth blow off the Dow before people will buy

Russia again."

In less nervous times a strong U.S. Treasuries market has usually supported

emerging debt prices, but analysts say emerging markets are currently taking the

lead from just about any southbound indicator, from the yen to the Dow.

Lockwood said the market was looking for decisive action from the Russian

government to drive along the flagging economic reform process, although even

this would carry little weight if Wall Street or Hong Kong's shaky Hang Seng

stocks index took another serious beating.

"It all depends on what happens in Russia, unless we have some calamitous

event elsewhere," he said. "It needs action to show they're on top of the


((London Newsroom +44 171 542 6414, fax 583 7239,


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