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Emerging Market Credit Daily Roundup

Explosion hits St. Petersburg underground station – Socialist candidate Lenin Moreno wins Ecuador election by a whisker – Protests hit Paraguay’s capital as President Cartes looks to change the constitution – Turkey inflation hits double digits first time since 2012 – Turk Telecom fails on another loan payment – South African rand and bonds drop after finance minister sacking – Ghana raises US$2.2bn with domestic bond sale

Apr 3, 2017 // 5:22PM

Middle East & Turkey

Shareholders of Qatar’s Masraf Al Rayan Islamic lender approved the issuance of sukuk worth up to US$2bn to meet the bank's liquidity needs. The Gulf state’s second largest lender by market value appointed banks in January to handle a debut sukuk issue of around $500mn, Reuters reported.

GCC is expected to account for about 31% of sovereign bond issuances from emerging markets this year. The expected 2017 sovereign issues will be distributed among GCC, Eastern Europe Middle East Africa (EEMEA) and Latin America, according to forecasts by Bank of America Merrill Lynch. Saudi Arabia, Argentina, Kuwait and Indonesia are set to be the largest issuers in 2017, these four countries might account for 32% total sovereign gross issuance

Turkey’s inflation rose by 11.29% in March, the worst since 2008, as the economy battles with a plunging lira and rising global energy prices. Inflation hit double digits for the first time since March 2012 last month, putting pressure on monetary policymakers who have been trying to steady its weakening currency and support growth since the start of the year.

Otas, the SPV that owns Turkey’s biggest phone company Turk Telekom, failed to pay another instalment on its US$4.75bn loan, pushing the largest syndicated loan ever extended in the country further into arrears, Bloomberg reported Monday. The company missed a US$290mn repayment due last week after skipping a payment for the same amount in September, with the outstanding principal on the loan from Turkish and international lenders currently standing at a total of US$4.6bn.

Abu Dhabi National Energy Co (TAQA) is considering debt funding options including a Formosa bond, sukuk and bank loans, the company announced Monday, with proceeds expected to go towards serving existing debt maturities due in October 2017 and January 2018. Last week TAQA reported a 2016 loss of AED18.55bn (US$5.05bn), largely due to a AED16.9bn post-tax impairment on oil and gas assets.

Africa

Average yields on Egypt's three-month rose to an average of 19.418%, while the yield on nine-month treasury bills were stable at 19.178% in an auction on Sunday, Central Bank showed, reported by Reuters.

South Africa's president Jacob Zuma faces a stand-off with senior members of the ruling African National Congress and a plunging currency after the latest cabinet reshuffle, which led to the sacking of the country's finance minister Pravin Gordhan. The minister’s departure last week prompted the rand’s worst week since December 2015 and it was dropped a further 1% on Monday, down to 13.55 per dollar. South Africa’s sovereign bonds have also lost much of their recent gains, with yields climbing a further 7.1bp on Monday morning to 8.926%. On Monday SP Global Ratings downgraded South Africa's sovereign credit rating to BB+ from BBB- grade, citing the reshuffle as a risk to fiscal policy.

Ghana successfully raised US$2.2bn from a sale of long-term domestic bonds on Friday, boosting its Central Bank reserves by 30%. Offshore buyers constituted 90% of accepted bids, according to Barclays Bank Ghana sources, quoted by Reuters. The cedi fell to a record low of 4.7420 to the dollar last month but rallied to 4.2750 on Monday.

Kenya's government has unveiled a package of initiatives under its latest budget to develop Islamic finance in the country. The moves could boost Kenya's Islamic banking sector and help the government fund infrastructure in a country where Muslims account for about 10% of the population. The government is also set to pass amendments to the Public Finance Management Act that will allow the country to issue Islamic bonds, or sukuk, as an alternative funding source.

Asia

India continues to press for US$2bn infrastructure loan from New Development Bank. Finance Minister Jaitley said the government will work with the NDB to develop a strong pipeline of projects in specific areas such as smart cities, renewable energy, urban transport, including metro railways, clean coal technology, solid waste management and urban water supply.

The Indian government-owned export credit agency, Export-Import Bank of India (Exim Bank), is looking to raise about US$3bn from international capital markets in 2017-18. Of this total, the bank intends to mop up US$1bn by introducing a 10-year bond issue in the 144A /Reg S format to raise funds from large institutional investors, including wealth and asset management funds, insurance and pension funds as well as sovereign wealth funds.

Latin America

Fitch announced it expects to assign a BBB+ rating to SURA Asset Management SA’s 10-year US$350mn Senior unsecured bond due in 2027.

Socialist candidate Lenin Moreno won Ecuador's presidential election, bucking a shift to the right in South America, but his conservative challenger, Guillermo Lasso demanded a recount as supporters took to the streets in protest. The election, which Moreno won by about 51% of the vote (around 200,000 votes) was one of the closest in the country’s history.

Paraguay was plunged into a constitutional crisis after congress was stormed and set on fire by protesters demanding that President Horacio Cartes backtracks on plans to amend the constitution to allow his re-election. Protestors, who accused Cartes of engineering a coup, clashed with riot police, saw one of their leaders killed and dozens of others arrested.  The timing of the arrest is particularly painful for the government as it looks to woo foreign investors during the annual meetings of the Inter-American Development Bank in Asunción.

Brazil's government expects to raise at least BRL24bn (US$7.7bn) in oil and gas auctions through 2019, Energy Ministry Executive Secretary Paulo Pedrosa announced on Monday. The auctions, should raise at least BRL8.5bn in 2017, with proceeds from the sale potentially divided between Eletrobras and the federal Treasury.

Reconstruction efforts in Peru following severe flooding that killed more than 100 people warrant a wider fiscal deficit target, though the country does not plan to tap the debt markets to finance it, government minister said, quoted by Reuters. The recovery efforts will cost about US$3bn over three years and are expected to begin in the second half of 2017.

Russia, CIS and Europe

Fitch Ratings affirmed the "BBB-" credit rating of Russia with a stable outlook on March 31. The country was rocked by blast, thought to be a terrorist attack, that hit one of the St Petersburg underground stations. President Putin, who was in town for a meeting with Belarus president Alexander Lukashenko, said all causes, especially terrorism, were being investigated.

Russia’s shipping company Sovcomflot plans to offer US dollar-denominated 6-year Eurobonds with a yield guidance of about 5%, with Citi, J.P. Morgan, ING, Sberbank CIB and VTB Capital acting as organizers. In June 2016, the company placed a US$750mn Eurobond yielding at 5.375% maturing in June 2023.

Russia’s Gazprombank is collecting bids for RUR10bn 7-year exchange bond, with guidance set in the area of 9.50–9.70%, corresponding to a 9.73–9.93% yield in a 3.5-year buyback offer. The technical placement of the bonds is preliminarily scheduled for April 18. The bank acts as the organizer.

Russian Railways cut the first coupon guidance for its RUR15bn exchange bond maturing in 15 years and 2 months to 8.7–8.8% annually, from the initial 8.9–9%. The technical placement is scheduled for Friday April 7, with VTB Capital, Gazprombank, Sberbank CIB, and Raiffeisenbank acting as organizers.

Russian bank Otkrytie is set to purchase a 20% stake in the state insurance giant Rosgosstrakh, as part of the corporate’s drive to expand into the country’s insurance market. The deal had an unusual structure whereby the purchase was made via a REPO agreement with the shares used as collateral, according to Russian news channel RBC, adding that the purchase fee was undisclosed.

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January / March 2020

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