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Emerging Market Credit Daily Roundup: 1 September, 2017

Sharjah looks to CNY market – Kenya Supreme Court calls for new vote – Nigeria to launch country’s first ‘mini LNG’ project – Chile’s entire economic team resigns – Brazil passes new laws to ease secured lending – Peru plans USD6bn in bond issuance for 2018 – RBI chief warns of loan waiver effects on lenders – PetroVietnam scandal widens – Pakistan to launch sukuk after Eid – CBR deputy chairman saw FI rescue larger than anticipated – Serbia looks to Turkey to fund infrastructure

Sep 1, 2017 // 2:04PM


Middle East and Turkey

The Emirate of Sharjah is reportedly in the process of planning to issue a bond denominated in renminbi in the Chinese onshore bond market, according to Reuters. Sharjah is said to be in the process of applying for permission to issue the bond, although the size and tenor of the instrument is not known. Industrial and Commercial Bank of China is one of multiple Chinese banks said to be lead manager on the transaction.



A Supreme Court decision to invalidate the results of Kenya's August 8 election has led to a massive drop in Kenyan equities and a spike in bond yields. The Supreme Court announced Friday that it agreed with opposition arguments that the electoral commission had committed irregulatries, leading to its decision to invalidate the results of the election and order a new vote. The news prompted the Nairobi Securities Exchange to briefly halt trading after shares fell a record 10% within minutes of the announcement. The decision largely took observers and analysts by surprise.

Standard Bank of South Africa signed a USD1bn syndicated loan this week with a range of regional and international lenders, sources confirm. All told, more than 40 lenders participated with the transaction - which was originally launched in July. It is unclear whether latest transaction means the lender will shelve plans to issue its long-anticipated Eurobond.

The Reserve Bank of Zimbabwe has launched a USD10mn loan facility for small-scale oil producers, it revealed this week. The move is intended to spur more domestic oil production and boost exports in a bid to attract more US dollars into the cash-starved country. Zimbabwe's oil and gas resources are significantly under-utilised, largely due to infrastructure constraints and legal barriers to entry.

A joint venture that includes the Nigerian National Petroleum Corporation (NNPC) and Total's local subsidiary has signed an agreement with the Gas Aggregation Company of Nigeria (GACN) and Greenville Oil and Gas to build the country's first mini LNG project. The project will cost an estimated USD 850mn, with USD500mn being pitched in as equity and another USD350mn to be financed through debt, according to reports in ThisDay, a Nigerian journal.

Nigeria's Access Bank has redeemed USD350mn in Eurobonds initially issued in 2012, touting its ability to weather eroding macro fundamentals and FX liquidity shortages. Group Managing Director and CEO Herbert Wigwe told local press agency Naija24 that the bond redemption "highlights the resilience of our balance sheet and the efficiency of our asset and liability management process, especially in the face of a macro underlined by FX illiquidity, double digit inflation and currency devaluation." Access Bank last tapped the market in October 2016.



In an unprecedented move, Chile's entire economic team including Finance Minister Rodrigo Valdes, his deputy Alejandro Micco, and Economy Minister Luis Carlos Cespedes resigned this week. The move came after years of dwindling growth, a credit rating downgrade, and policy uncertainty, and was catalysed by split in the Cabinet over a decision to block a USD2.5bn iron-ore project in the northern part of the country. The Dominga project has faced strong criticism in recent weeks over its failure to adhere to strict social and environmental parameters. Valde, who was ciritical of the decision to block the project, will be replaced by Nicolas Eyzaguirre, an economist and former finance minister. The resignations come amidst a slew of reforms being pushed through by the Bechelet government in the run up to the election later this year.

Brazil passed a law this week that will ease access to secured loans, potentially giving a significant boost to credit access in the country, according to Valor, a local newspaper. The new laws could help generate up to BRL480bn (approx. USD153bn) in new credit by allowing companies to register receivables and legal guarantees as collateral for loans.

Peru is planning to issue up to USD6bn in local and international bonds in 2018, the government said this week. The bugdet for the 2018 fiscal year will see a 10% increase on the previous year's figures, with much of that being used to help finance reconstruction in the country following severe flooding.

Paraguay plans to join Argentina and Uruguay in a regional bid to host the centenary World Cup in 2030, the President of the South American football association CONMEBOL, Alejandro Dominguez, confirmed this week. If secured, the move could spur billions of dollars in new infrastructure projects for the countries and attract new foreign investment.

The bonds of Citgo seems to be trading well above par despite concerns of an imminent default at its parent company, Venezuela's state-owned oil producer PDVSA, data from Bloomberg show. Citgo's notes due 2020 were trading at 107.119 Friday despite fresh US sanctions imposed on holders of Venezuelan debt. Analysts believe the US-based refiner's bonds are well-insulated from the turmoil currently engulfing Venezuela.

Mexico's Central Bank has increased its growth forecast for the following two years on the back of declining downside risks associated with the renegotiation of NAFTA and stalled foreign direct investment. The 2017 full year growth range forecast was increased to 2.0% - 2.5%, from 1.5% - 2%, while the country expects to put in between 2% and 3% in 2018, up from 1.7% to 2.7% previously forecast. Inflation still remains a concern, however; it is currently hovering around the 6% range, well above a target of 2-4%.

Pemex is looking for partners to help develop a new offshore field, the Nobilis-Maximino, which is expected to generate up to 174,000 barrels of oil per day at its peak. According to Reuters, the project is expected to cost up to USD10.7bn to develop.



Reserve Bank of India Governor Urjit Patel has reiterated concerns over a loan waiver programme that would help the country's farmers in two of its largest states come to grips with overdue loans in the wake of flooding and poor yields. Patel said the loan waiver programme - which could see billions of dollars wiped clean - would carry negative consequences for the country's lenders and lead to higher spending.

Pakistan has ramped up plans to issue a USD1bn sukuk to finance a swelling deficit and boost foreign currency reserves, according to sources. The country's finance ministry is planning a soft launch of the sale as early as next week, after the Eid holiday.

Vietnam is looking to prosecute four more officials from Vietnam's state-owned oil company over what it claims was an intentional breach of state rules and financial mismanagement. The widening scandal at PetroVietnam, which has already led to the firing of a senior Politburo member and former PetroVietnam chairman, has ensnared a former lead accountant at the company and several former board members and reverberated through the country's banking sector.


Russia, CIS & Europe

Russia Central Bank Deputy Chairman Vasily Pozdyshev confirmed this week that the scale of bailouts for distressed Russian financial institutions is greater than many suspected. In an interview with Reuters, Pozdyshev said the group, which includes Otkritie Bank, Trust Bank, Rosgosstrakh Bank, Rosgosstrakh insurance company, and related pension funds will need between RUB250bn and RUB400bn (approx. USD4.3bn to USD6.9bn). “A substantial amount of funding should be provided to support Rosgosstrakh, a systematically important insurance company, and on finalising a bailout of Trust Bank. The rest will be spent on covering risks related to the operations of Otkritie Bank itself, including operations related to its holding company," he said.

The Otkritie bank fiasco will be an important test for a wider cleanup of the Russian banking sector, Fitch said in a note this week. The Central Bank of Russia (CBR) said on Tuesday that it would take a 75% stake in Otkritie and that the bank would continue to operate normally, but the CBR has also made committments to contain a wider crisis by recapitalising a number of struggling domestic financial insitutions. "nd the CBR has not specified whether support will extend to Otkritie Holding, which owned 67% of the bank's standalone equity (and will therefore report a significant loss on write-down of this investment) and has at least RUB170 billion of bonds reportedly issued to third parties (some of which may be held by other banks). Nor is it clear if the bank will ultimately be sold back into private ownership. Moreover, the approach taken to Otkritie may not be replicated with smaller or less interconnected banks, which could see less favourable resolution for creditors (Peresvet was this year resolved through a combination of state support and voluntary bail-in of senior creditors, for example). This may mean that the shift by depositors towards state-owned or stronger private banks will continue," it explained.

Serbia's infrastructure ministry is looking to attract Turkey's participation in the construction of a motorway linking Belgrade to Sarajevo, according to local press. The country is looking to attract Turkish contractors and lenders to participate in the construction of the motorway.

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