Emerging debt-Pakistan's sovereign debt beset by concerns

HONG KONG Aug 19 (Reuters) - Pakistan's sovereign bond spreads stayed high on Tuesday after the resignation of President Pervez Musharraf failed to clear doubts whether the government will now tackle its urgent political and economic problems.

Despite the rally in Pakistan's stocks, credit analysts warned the country has yet to convincingly show it will deal with a host of economic problems, including its deteriorating fiscal position, slowing economic growth and double digit inflation.

The nuclear-armed country also faces continued political uncertainties such as who will replace Musharraf and how the coalition government, comprising historic rivals Pakistan People's Party and Pakistan Muslim League, will deal with a Taliban insurgency.

Pakistan's five-year credit default swaps (CDS) PKGV5YUSAC=MP were bid at 700 basis points, little changed following Musharraf's resignation on Monday.

Investors would thus need to pay $700,000 annually for protection against a default in $10 million of the country's underlying debt.

"We do not think the political issues are all resolved - the key question remains how well the two major coalition partners ... can cooperate without conflict, and focus on turning around the economy," said Lehman Brothers in a note to clients.

"We still see substantial risk of political turmoil dominating the more pressing economic issues. In addition, concerns over a potential deterioration in the security situation remain in place as well."

Spreads on Pakistan sovereign bonds, which are not widely traded, have widened more than 2 percentage points this year as the political and economic turbulence has spurred ratings downgrades by Standard & Poor's and Moody's.

Few investors expect Pakistan to fulfil its intention of selling a sovereign bond anytime soon, though the country is moving ahead with plans for its first local currency Islamic bond, or sukuk, sale in September.

Pakistan is the latest potential headache for Asian credit investors, which are dealing with slowing regional economic growth and global financial sector woes, though the recent slump in oil prices has at least eased some of the inflation concerns.

Key measures of risk aversion in the region widened on Tuesday after business publication Barron's said U.S. officials may have no choice but to effectively nationalise U.S. home finance providers Fannie Mae FNM.N and Freddie Mac FRE.N.

Such a move could lead to losses among the firms' shareholders and buyers of its subordinated debt, while raising concerns about the U.S. government's own finances and the confidence in the overall U.S. financial sector.

The iTRAXX Asia ex-Japan high-yield index ITAHY5YIA= widened by 5 basis points (bps) to around 545 basis points, while the equivalent investment-grade index ITAIG5YIA= moved out 2-3 bps to 143. (For a list of upcoming debt issuance from Asia see [EUB/ASIA]

FIVE-YEAR CREDIT DEFAULT SWAPS

Bid/Ask spread

Current Week ago Korea Dev Bank ~/140 ~/140 Hutchison ~/122 110/~ PCCW-HKT 165/~ 150/~ China 56/~ ~/65 Indonesia ~/256 ~/258 Korea 99/~ ~/108 Malaysia 108/~ 110/~ Philippines 226/~ ~/245

~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-11 106.35 157

Malaysia 7.50 15-Jul-11 108.50 130

ICICI Bank 5.75 12-Jan-12 94.89 442

Petronas 7.00 22-May-12 108.40 148

Hutchison 6.50 13-Feb-13 102.05 291

Chartered Semi 6.25 4-Apr-13 97.23 390

Korea 4.25 1-Jun-13 97.78 172

United Overseas 4.50 2-Jul-13 96.51 226

PCCW-HKT 6.00 15-Jul-13 101.18 267

China 4.75 29-Oct-13 101.88 128

10-YEAR

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Hutchison 6.25 24-Jan-14 103.02 338

Korea 4.88 22-Sep-14 100.35 100

PCCW-HKT 5.25 20-Jul-15 89.41 341

Woori Bank 6.13 3-May-16 96.36 293

Penerbangan 5.63 15-Mar-16 101.80 152

Philippines 8.75 7-Oct-16 114.00 269

Indonesia 6.88 9-Mar-17 100.00 306

ICICI Bank 6.38 30-Apr-22 85.46 400

Petronas 7.88 22-May-22 120.10 193

(Reporting by Rafael Nam; Editing by Tomasz Janowski)