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Emerging Market Credit Daily Roundup

Saudi Aramco selects international advisers for IPO- Ulker becomes the first Turkish corporate to request loan- Nigeria sells Eurobond - GNB issues bonds - Mexico’s Central Bank is expected to raise rates - NBAD issues green bond - Ukraine awaits IMF loan tranche decision

Mar 30, 2017 // 4:20PM

Middle East & Turkey

Al Ahli Bank of Kuwait has set initial price guidance for a US dollar-denominated bond in the 175bp over mid-swaps area. The senior unsecured Reg-S registered bond has a five-year tenor and will be of benchmark size, upwards of US$500mn (KWD1.8bn). Citi, HSBC and National Bank of Abu Dhabi are the joint lead managers and bookrunners, with pricing expected later on Wednesday.

Dubai-based building company Drake & Scull admitted it breached financial covenants in relation to a sukuk syndicated facility and other bank facilities in 2016, having incurred an annual loss of AED815.3mn (US$222mn) last year as low oil prices and an economic slowdown hit the construction sector in the Gulf region. As a result, Drake & Scull was not able to comply with reporting requirements requested by its lenders for a conditional waiver valid until the end of 2016, and therefore, breached financial covenants on the sukuk and other debt facilities, which are now overdue and technically payable on demand.

KSA’s bank SABB (Saudi British Bank) says it will establish a sukuk programme that will enable it to obtain funds through establishing an offshore special purpose vehicle for issuing and offering senior and/or subordinated sukuk in one or more tranches by way of a private placement or a public offering in a total amount not exceeding the equivalent of US$2bn. The purpose of the programme is to help the bank strengthen its capital base and support the bank’s Shari’ah compliant activities.

Saudi Arabia is mulling over a structural change to its planned USD sukuk issue, the kingdom's first international issue of Islamic bonds, Reuters reported quoting sources. Riyadh plans a hybrid structure for a possible US$10bn sukuk, to be issued within the next few weeks. But, according to some sources, there are concerns in the banking industry that the structure would comprise a mudaraba agreement, a form of Islamic investment management partnership, plus a murabaha facility that would trade commodities with a special purpose vehicle. The proposed under discussion would make the instrument more easily tradable and less complex to understand for international investors, the sources said.

Ulker, a Turkish food manufacturer, requested a US$200mn syndicated loan, becoming the first corporate from that country to enter the market in 2017. The facility is coordinated by Bank of America Merrill Lynch, has three- year tenor and will have an option to increase in the future.

The National Bank of Abu Dhabi issued the Gulf region's first green bond, raising US$587mn for projects to fight climate change, the London Stock Exchange (LSE) announced. Proceeds from these bonds will help finance projects in renewable energy, energy-efficiency, green transport and waste water treatment.

Saudi Aramco has appointed JPMorgan Chase & Co, Morgan Stanley and HSBC as international financial advisers for its initial public offering, widely expected to be the world's largest equity sale. The trio join Moelis & Co and Evercore, which have been appointed independent financial advisers, Reuters reported. The company has also appointed Saudi Arabia's NCB Capital and Samba Capital as local advisers.

Africa

Egypt's Finance Minister Amr El-Garhy said on Wednesday the country's financing plan for the coming year will include a return to international markets by the end of 2017 or early 2018. Egypt's cabinet approved on Wednesday the 2017/18 government budget with a targeted deficit of 9.1%.

Nigeria sold a US$500m Eurobond as it seeks to turnaround its recession-hit economy with big increases in public spending on infrastructure. Africa largest economy tapped the international bond markets for the second time in two months, pricing its bond with a yield of 7.5%. In February, it issued a US$1bn bond with a coupon of 7.875% that was almost eight times over-subscribe. The West African economy contracted in 2016 for the first time in 25 years, a reflection of the impact of the sharp fall in global oil prices on the crude exports-dependent nation.

Asia

 Union Bank of India issued 2,500 non-convertibles, unsecured subordinated Basel III Debt instruments eligible for inclusion in Additional Tier 1 Capital. The bond bears 9.10% coupon to be paid annually. The AT1 bonds are rated 'BWR AA+/Stable' by Brickwork Rating India and 'IND AA' by India Ratings.

Moody’s gave an investment grade rating to the State Banks of India’s (SBI) proposed US$10bn medium-term program note. The Baa3 rating is the same as the Indian sovereign’s and is the lowest investment grade the rating agency give. The MNT program will be carried in the bank’s branch in London and will be listed on the Singapore Stock Exchange.

South Korea's disgraced ex-President Park Geun-hye has been questioned on Thursday by a court, which is expected to rule on whether she should be arrested over corruption allegations that led to her impeachment. The ruling, expected by Friday morning, could see Park be immediately sent to a detention facility, as prosecutors can detain her for up to 20 days before laying formal charges.

Latin America

Colombian bank GNB Sudameris issued a US$300mn 10-year Tier 2 subordinated bond, according to local media.

Mexico's Central Bank is expected to raise its benchmark interest rate for the fifth meeting in a row on Thursday, after which it is likely to slow the pace of hikes on the back of the peso rally. The Banco de Mexico will raise rates by a quarter percentage point to 6.50%, according to analysts surveyed by Reuters, having hiked by 50bp in all of its past four meetings, as the peso tumbled to successive historic lows.

Brazilian banks set aside a record amount of capital to cover bad loans in February, the Central bank said. Loan loss provisions averaged the equivalent of 6.9% of Brazil's outstanding bank loans last month, above 6.8% in January and 6% in February 2016. State-controlled and private-sector banks remain reluctant to reduce their loan loss provisions despite recent declines in delinquencies. Lenders surprisingly moved borrowing costs slightly higher last month, on concerns that an unexpectedly slow economic recovery could spur new defaults.

Fitch Ratings assigned a BBB+ rating to the proposed senior unsecured notes to be issued by Inversiones CMPC S.A. (Inversiones CMPC), and guaranteed by Empresas CMPC S.A. (CMPC). Proceeds from these unsecured notes, which are expected to total USD500 million, with a tenor of 10 years, will be used to finance or refinance investments in Eligible Green Projects and to extend the company's debt maturity profile. According to Fitch the positive rating supported CMPC's strong business positions, as the third-largest market pulp producer globally and a leading tissue producer in Latin America.

Russia, CIS and Europe

The International Monetary Fund is expected to make a decision on April 3 about the disbursement of the next US$1bn aid tranche to Ukraine, as part of its US$17.5bn bailout program for the country. The IMF had delayed the disbursement from March in order to assess the impact of a blockade that Kiev imposed on separatist-held territory.

VTB has 12 new Eurobond issues in the pipeline coming in April and May, according to the bank’s first deputy CEO Yuri Soloviev, as the country continues to reap benefits of the historically low spreads for its corporate Eurobonds. This is no surprise for one who regularly follows our CIS credit report. According to ING Bank analysts’ calculations, 9 Russian issuers already placed Eurobonds worth in total US$6.9bn, with possible new issuances to  be announced by likes of Norilsk Nickel, TMK, Phosagro, Metalloinvest, Nord Gold, Promsvyazbank, SIBUR, Eurochem.

Russian Prime Minister Dmitry Medvedev is coming under increasing pressure from the opposition parties in the Duma and the Russian press, as the Kremlin continues to blank recent anti-corruption protests across the country that lead to the arrest of around 1500 people. The former Russian president was the target of an investigation by the anti-corruption campaigner Alexei Navalny, in which it was alleged that a network of palaces and vineyards was linked to funds affiliated with Medvedev. While the protests were largely ignored by Russia’s state television, in the following days leaders of Russia’s two opposition parties demanded an official investigation into the allegations, while the chair of the country’s Federation Council, Valentina Matvienko, urged the government to “heed to the protesters’ calls”.

The Credit Bank of Moscow issued a US$600mn international bond maturing in 2027 with a 5-Year $ Swap Rate + 5.416% coupon. Bonds were sold at a price of 100%, with Citigroup, HSBC, Credit Suisse, ING Wholesale Banking London, JP Morgan, RBI Group, BK Region, Societe Generale, UniCredit acting as bookrunners.

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