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Emerging Market Credit Daily Roundup

Trump U-turns on NAFTA withdrawal – Nigeria seeking US$6bn loan from Export-Import Bank of China – Brazil looking to clamp down on welfare fraud – Venezuela sets in motion process to withdraw from OAS – Colombia’s Davivienda issues record COP$433bn green bond – China’s Rongshi issued US$500mn in benchmark-sized notes – Sri Lanka preps a US$1.5bn sovereign bond – Russia ups its legal claim against Ukraine’s Naftagaz to US$37bn

Apr 27, 2017 // 5:09PM

Middle East & Turkey

Etihad's bonds have taken a hit after workers at Alitalia, in which Abu Dhabi airline has a 49% stake, rejected the company's turnaround plan. Union rejection of the plan bars the troubled airline from accessing rescue funding. The move prompted notes issued by EA Partners, an SPV that on-lends proceeds from bond issuances Etihad, to trade in the 91-93% price range.

Saudi Arabia is losing its oil market share in favour of Iraq and Iran as OPEC agreement on cuts hits global oil producers unevenly, claimed the head of research at Abu Dhabi Investment Authority. “If you’re talking about winners, you can count Iran and Iraq,” he stated at a conference in Dubai, quoted by Bloomberg. Saudi Arabia, OPEC’s biggest producer, agreed to cut output by 486,000 barrels a day while Iraq said it would cut 210,000 barrels a day. Iran was permitted to increase output by 90,000 barrels a day, according to the OPEC accord.

The Turkish lira has reached a 4-month high, climbing 0.54% against the dollar on Thursday on the back of the Turkish Central Bank’s decision to hike one of its interest rates in order to stem inflation. The lira currently stands at TRY3.5566 per dollar. The Turkish Central Bank kept its three main rates on hold but opted to bump up its liquidity lending rate by 0.5pp to 12.25%. As a result, Turkish credit default swaps fell to the lowest levels in almost two years, with five-year CDS dropping to 214bp, while the average yield spread paid by Turkish dollar bonds over U.S. Treasuries slipped to 291bp.


South Africa's sovereign credit will be booted from the JP Morgan Bond Index following the sovereign downgrade before the end of the week. The country's credit does not qualify for the investment bank's investment grade emerging market bond index, which tracked about US$49bn in funds, due to its 'junk' status. Following the downgrade earlier this month, the bank will also exclude the nation's debt from its GBI-EM GD and ELMI+ indices at the end of May. Analysts suspect most of the forced selling in the wake of the downgrade has already come to pass.

South African President Jacob Zuma will reach out to large companies directly in the wake of the country's downgrade, according to a report in Bloomberg.  Zuma is expected to meet business leaders in a bid to reassure them the government is working to bolster investor confidence and maintain the current policy direction.

The South African City of Cape Town is to begin a roadshow in June in a bid to lure investors to the city ZAR1bn green bond. The City of Cape Town, which carries a AAA+ rating - above the sovereign ceiling - will use the proceeds from the sale to bolster municipal transport electrification, water projects, and renewable energy initiatives.

The Bank of Ghana (BoG) has exonerated the country's Minister of Finance over any wrongdoing after allegations that the Minister had given preferential access to former colleagues for the country's recent sovereign bond. The minority National Democratic Congress (NDC) party alleged that Ken Ofori-Atta gave preferential access to a friend and business partner Trevor Trefgarne, a director at Franklyn Templeton - which bought the overwhelming majority of the country's US$2.25bn bond earlier this month.

Nigeria's president is seeking permission from lawmakers to approve up to US$6bn from the export-Import Bank of China to finance the construction of new rail projects in the country. The move is part of the sovereign's broader shift towards Asian lenders in recent years, with China Eximbank already having provided a raft of loans for railway modernisation projects in the country.

Libya has re-opened its troubled Sharara oilfield after protests blocking the pipeline ceased following negotiations. Earlier in April, the protests briefly ended, only to restart a week later and put a halt to state company NOC's plans to bring production there to 270,000 bpd.

Mozambique’s parliament ratified a law that provides state guarantees for previously hidden loans of two state-owned companies that sparked a debt crisis in one of Africa’s most underperforming economies. Lawmakers from the ruling Front for the Liberation of Mozambique approved the state accounts for 2015, which included guarantees for loans worth US$1.12bn that ProIndicus and Mozambique Asset Management took out in the prior two years. The approval means the loans are now legal, in spite of a previous ruling by the country’s administrative court that they violated Mozambican budget law.


US President Donald Trump reversed his earlier decision to seek immediate termination of the NAFTA agreement, instead suggesting that a gradual renegotiation is required. This news was welcomed by investors in local currencies assets and boosted the Mexican peso, as the dollar was down 0.6% against the Mexican currency on Thursday, standing at 19.0560 pesos.

Argentina fiscal deficit was 0.4% of the GDP in the first three months of the year, beating the government estimates of 0.6%. According to local media this was possible because the southern country's income increased by more than 40% in the first quarter, mostly due to the fiscal amnesty implemented by the government. In January, the Minister of Treasury Nicolas Dujovne said the ARS23.2bn peso deficit for the first two months of 2017 was consistent with the target for a ARS58.5bn peso deficit for the first quarter.

The oil giant Total SA announced it will spend US$500mn over three to four years to develop a shale-gas field in Argentina as the country’s government lures investors by pledging a minimum price.  The French company is going to develop the first phase of the Aguada Pichana Este license in the Vaca Muerta formation.

Colombia's Davivienda hit the market for a COP433bn (approx. US$149mn) green bond this week, the company announced. The notes maturing 2027 were sold exclusively to the IFC.

Brazilian energy company Neoenergia sold BRL250mn (approx. US$79mn) in the local debt markets this week. The sale was led by Banco Santander.

Brazilian energy transmission company Extremoz Transmissora Do Nordeste - ETN S.A. hit the local market to price a BRL168mn (approx. US$53mn) debenture maturing 2029.  The sale was led by Banco Santander.

The Brazilian senate is looking to establish a social security committee tasked with clamping down on welfare fraud, according to local press. Senator Paulo Paim is spearheading the initiative, which will see the Parliamentary Commission of Inquiry on Social Security investigate possible fraud among welfare recipients.

Brazil may be looking to join the Organisation for Economic Co-operation and Development (OECD), according to Reuters. Brazilian president Michel Temer may look to gain approval from the organisation as early as next month, but joining the organisation would likely follow months of review and require new legislation in order to confirm to OECD rules on membership.

Venezuela will formally withdraw from the Organisation of American States (OAS) in the next two years. Embattled President Nicolas Maduro said the move was in response to what he saw as a Western-backed coordinated campaign aimed at discrediting the socialist leader and undermining its sovereignty.

The stock of non-financial corporate credit in Brazil tightened again this month, declining 0.3% in March to hit BRL1.49tn, down from BRL1.5tn. Central Bank data also show non-financial corporate credit dropped 8.5% for the previous 12-month period.

Moody's Investors Service downgraded local currency credit rating of Trinidad and Tobago from "Baa3" to "Ba1", with a stable outlook.


Chinese e-commerce giant Alibaba is said to be mulling whether to start offering other tech companies credit services in Brazil, according to local press reports. The company's chairman Jack Ma was quoted in local press O Estado as saying that it wants to "invest in e-commerce, logistics and inclusive financing."

China's Rongshi International Finance tapped international investors for US$500mn this week through the sale of benchmark-sized notes. The notes maturing 2022 were priced at 99.516% to yield 2.98%. Agricultural Bank of China, Bank of China, CITIC Securities International, CCB International, Citigroup, DBS Bank, Deutsche Bank, Essence Securities, Goldman Sachs, HSBC, ICBC, and Standard Chartered Bank managed the trade.

Malaysia's national mortgage corporation Cagamas announced a MYR2.3bn triple-tranche bond this week. The issuance was split between a US$350mn 3-year senior unsecured note, a MYR500mn sukuk, and a MR225mn conventional local currency bond. " Despite a challenging backdrop that included global geopolitical uncertainty and the surprise announcement of a snap election in the United Kingdom (UK) coupled with an active USD primary issuance pipeline within Asia, the issuance was competitively priced at 115 bps over the 3-year US Treasury (UST) bonds yielding 2.53%," said Datuk Chung Chee Leong, Chief Executive Officer of Cagamas in a statement.

Sri Lanka has appointed seven lead managers including for the upcoming up to US$1.5bn sovereign bond with the country expected to tap the capital market "possibly later in May", according to Reuters, which cited sources. The banks are Citigroup, Deutsche Bank, HSBC, Standard Chartered Bank, Morgan Stanley and two Chinese institutions, the report claimed.

The recent agreement between Malaysian state-owned fund 1MDB and Abu Dhabi's s International Petroleum Investment Co (IPIC) has not relieved much uncertainty around how it will settle bond payments and continues to pose some risk, Moody's said this week. The Malaysian Ministry of Finance recently agreed to assume responsibility for all future interest and principle payments on up to US$3.5bn in bonds issued by 1MDB. "It's neither credit positive nor credit negative," said Christian de Guzman, a Singapore-based senior credit officer at Moody's Investors Service told Reuters at a Moody's event in Kuala Lumpur.

Sinopac Financial Holdings Co and China Development Financial Holding Corp. have reportedly sought approval from the Taipei Exchange to issue the institutions' inaugural green bonds, according to a report in Reuters. The banks were looking to take advantage of a new service offered by the Exchange that sees it assist in helping green issuers secured medium-term financing.

India's NTPC issued a masala bond this week, placing INR20bn (approx. US$312mn) in notes maturing 2022. The notes were priced at 99.878% and carry a coupon of 7.25%. Axis Bank, Barclays, ICICI Bank, Mitsubishi UFJ Financial Group, and Standard Chartered Bank managed the sale.

HDFC Bank is planning India’s biggest offering of perpetual debt as it seeks to raise capital after missing a beating strike of profit growth that lasted two decades. The INR50bn bond will not have a maturity date, and is its first issuances under Basel III norms, according to Bloomberg. The notes, which are rated AA+, carry a coupon of 8.8% and have a call option at the end of five years.

Saka Energi Indonesia issued international notes worth US$625mn maturing in 2024 with a 4.45% coupon. Bonds were sold at a price of 100% with an initial yield of 4.45%. BNP Paribas, Citigroup, HSBC, Mandiri Sekuritas, Mizuho Financial Group and UBS managed the deal.

Russia, CIS and Europe

Gazprom may look to cut gas transit through the Ukraine by as much as 80%, according to local press reports. The move would follow completion of the Nord Stream 2 gas pipeline, which will significantly increase the volume of gas the Russian company can bring into Europe.

Russia's Koks priced an upsized US$500mn trade on the back of strong demand. The notes maturing 2022 were priced at par to yield 7.5%, tighter than initial price thoughts of 7.75%. Citigroup, Gazprombank, Renaissance Capital, Sberbank CIB, and VTB Capital managed the sale. The company initially aimed to raise about US$350mn.

Russian gas giant Gazprom raised its claim against Ukraine's Naftogaz to US$37bn and expects an arbitration court in Stockholm to rule in the dispute on June 30, the company’s regulatory filing stated on Thursday. It had previously been seeking US$31.76bn to compensate it for what it says were gas debts accumulated since 2012. Naftogaz, in its turn, claims it has overpaid for Russian gas. It is seeking more than US$14.2bn from Gazprom.

Credit Bank of Moscow has issued a US$700mn international bond with a 5-year USD Swap Rate + 6.942% coupon. Citigroup, Credit Suisse, HSBC, JP Morgan, RBI Group, BK Region and Societe Generale acted as bookrunners on the deal.

Russian oil major Rosneft has hiked its offer of 10-year exchange bonds from RUB30bn to RUB40bn due to high demand, Russia’s Interfax agency reported on Thursday. The company also cut guidance for the first coupon to 8.55–8.65% annually, which corresponds to an 8.73–8.84% annual rate to a 6-year offer. The technical placement is scheduled for May 4, with Gazprombank acting organizer, and VTB Capital, brokerage company Region, Promsvyazbank, and Sberbank CIB acting as co-organizers.

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