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Emerging Market Credit Daily Roundup

Global sukuk issuance sets new records – growth in the UAE to remain subdued – Dubai Group asks creditors to take haircut – Tourism in Turkey continues to struggle – Zimbabwe looks for fresh external debt – SA Central Bank concerned about future downgrades – Sofo Plus, PGIM Real Estate hit the MXN market – BNDES places first cross-border trade in 3 years – India’s P&SB raises fresh AT1 capital – Rosneft, Bashneft file lawsuit

May 3, 2017 // 5:22PM


Global Themes

Global sukuk issuance hit US$22.2bn at the end of March, down slightly from the same period last year, according to RAM Ratings. Total outstanding global sukuk hit US$346.7bn at the end of the first quarter. Malaysian entities are accounting for the bulk of deal flow during the first quarter (38.5%), with Indonesia (24.7%), Qatar (9.9%) and the UAE (9%) following.


Middle East & Turkey

Bank assets in Qatar rose by QAR18.1bn to QAR1.28tn in March, according to data from the country's Central Bank. Domestic lending to the private sector increased by QAR500mn to WAR439bn, while loans to the public sector dropped by QAR13.8bn.

Growth in the UAE is likely to remain subdued in 2017, according to the IMF. The fund expects growth to increase 1.5% this year, down from 2.7% in 2016, while more fiscal reforms including a new VAT of 5% should help push growth towards 4% by 2020.

Dubai Group, an investment firm owned by the emirate’s ruler, requested creditors to take a cut on the debt maturing in 2024 in exchange for an early settlement, Reuters reported. The company completed a restructuring on around US$6bn of debt in 2014, with lenders agreeing to extend the maturity for secured debt to December 2016 and unsecured loans to December 2024. In the last few days the firms offered creditors around 29 cents on the dollar in return for an early settlement of debt maturing in 2024, the sources said, declining to say the value of the amount.

Kuwait Energy Plc, an oil and gas explorer, plans an IPO that would make it the first company from any OPEC nation to have its stock traded on the London Stock Exchange (LSE). The oil company expects to raise about US$150mn in the IPO, while the shares should start trading in June, the independent energy producer said.

Saudi Deputy Crown Prince Mohammed bin Salman said his radical reforms were succeeding in protecting the kingdom against low oil prices, and promised massive investments in coming years to help diversify the economy beyond oil. "Although our prices dipped to as low as $27 for more than one year...the government managed to shield economic indicators from the negative impact," bin Salman said in a rare nationally televised interview on Tuesday. He also claimed that the planned sale of a stake in Saudi Arabia's national oil company Saudi Aramco will occur through an initial public offer of shares in 2018, and the stake sold "will be not be very far off 5%". In the three years after the share sale, the PIF will spend over SAR500bn (US$133bn), with between 50% and 70% going to develop promising non-oil sectors such as mining and logistics within Saudi Arabia, he added.

Tourism continues to struggle in Turkey, which has been hammered by a number of terrorist attacks in recent years and working to contain a simmering conflict on its southern borders. The number of visitors arriving in Turkey in March hit just 1.58 million, about 3.96% lower than the same period last year.

Turkish CPI rose 1.31% in April, according to fresh data from the Turkish Statistical Institute. Annual inflation growth hit 11.87%, higher than the market was expecting, and the 12-month rolling average reached 8.66%. The data suggests further tightening may be in order when the Central Bank convenes for its next meeting 15 June.



Zimbabwe is looking to secure US$2bn in external credit lines from three large multilateral lenders, according to local press reports. The economically troubled country is said to be in talks with the African Development Bank (AfDB), World Bank, and the International Monetary Fund to secure the funding programme. The country already owes the World Bank and the AfDB about US$1.7bn.

South Africa's Central Bank is concerned about the impact of future credit rating downgrades on the country's financial stability, the cost of funding, and investment flows, it said in a statement this week. "Market volatility could increase as a result, with sharp losses likely to be recorded in the currency, bond and equity markets, thereby negatively affecting the stability of the domestic financial system," it said.

Kenya's Central Bank held US$8.309bn in foreign exchange reserves at the end of last week, a record high for a weekly close, the data showed. Reuters reported that the reserves were enough to cover about five-and-half months’ worth of imports.

The World Bank has said it will partner with Kenya to research the use of fintech, particularly blockchain technology, when issuing bonds. The technology could have applications within the government's mobile bond platform, which it trialled last month and hopes to expand this summer.

Nigerian President Muhammadu Buhari failed to show up at the third consecutive weekly cabinet meeting, adding weight to speculation about his alleged ill health. Vice President Yemi Osinbajo led the meeting on Wednesday in Abuja, the capital, while the presidency offered no explanation for Buhari’s absence. The 74-year-old leader hasn’t made a public appearance since April 14, when he attended Friday prayers at a mosque.

Nigeria has resumed paying into the Excess Crude Account, a fiscal buffer used by the government. Speaking at an event hosted in Lagos this week, the country's Finance Minister Kemi Adeosun said the government paid US$87mn into the ECA last month, the first time it made such a payment since 2015 - when the Buhari administration came to power.



Latin American corporate debt issuance hit US$7.1bn in the first quarter of 2017, more than seven times the volumes seen during the same period the previous year according to a recent report from Moody's Investor Service. Petrobras alone accounted for more than half (US$4bn) of that issuance. "Global growth remains at historically low levels, and increased political and policy uncertainty in Europe and the US will contribute to continued risk aversion and volatility in capital flows in the region," said Martina Gallardo Barreyro, an Assistant Vice President and Analyst at Moody's.

Remittances sent home by Mexicans living abroad climbed to an eight-and-a-half year high in March as workers remain on the edge over President Donald Trump’s stance on immigration and trade with the US’s southern neighbour. According to the FT, Mexicans sent home US$2.52bn in March, 15% up the amount transferred during the same period in 2016, according to data from Mexico’s central bank.

Brazil's economy will post growth of between 0.7 and 0.8% in the first quarter, turning the corner on a two-year recession, Finance Minister Henrique Meirelles claimed this week. Latin America's largest economy shrank 0.9% in the last three months of 2016, its eighth straight quarter of retreat. Unemployment has hit a record 13.7% with more than 14 million Brazilians looking for work.

Brazil's BNDES closed its first cross-border bond in three years this week, placing US$1bn in the international markets. The 2024 notes' final yield, at 4.80%, was just 60bp above the sovereign curve. The sale generated over US$4.5bn in orders. Bank of America Merrill Lynch, Credit Agricole CIB, and JP Morgan managed the trade.

PGIM Real Estate tapped into the local Mexican market this week to place MXN884mn (approx. US$47mn) in notes maturing 2027. Sale of the notes was led by Citibanamex and Banorte.

Mexican credit and leasing company Sofo Plus hit the local market to place MXN75mn (US$4mn) in short term notes. Sale of the notes maturing 2018 was led by Casa de Bolsa Ve por Más, S.A.

Puerto Rico filed for bankruptcy under Title III of last year's Puerto Rico rescue law known as PROMESA. The governor said he is requesting that the island's financial oversight board initiate a Title III, a day after several major creditors sued his government over defaults on the island's US$70bn in bonds. Its bankruptcy would be the largest in the history of the US$3.8tn US municipal debt market. It would give the Caribbean island the legal power to impose drastic discounts on creditor recoveries, but could also scare away investors and keep and cut off the island’s access to the markets.



A top government adviser in India has criticised a proposal to create a state-run bank to absorb and restructure the country's distressed assets. In an interview with Live Mint, Arvind Panagariya, Vice-Chairman of Niti Aayog, the government’s top policy planning body, said there are already a number of large asset reconstruction companies (ARC), and that setting up a new body may take too much time - which could worsen the scale of the problem. He added that it would be better to focus on creating incentives for ARCs to resolve the debt at close to face value. India has among the highest levels of distressed assets in the world.

Indian state-owned Punjab & Sind Bank raised Rs1,000 crore (approx. US$155mn) in Additional Tier 1 capital this week. The Basel III-compliant AT1 notes were issued at a 10.9% coupon, according to a regulatory filing.

Fitch has downgraded the local currency credit rating of Chinese aluminium manufacturer China Hongqiao from 'BB' to 'B+', citing continued delays in publishing the firm's annual financial results. Fitch has also downgraded Hongqiao's senior unsecured rating and the ratings on its outstanding US$400mn 7.625% senior unsecured notes due 2017 and US$300mn 6.875% senior unsecured notes due 2018 to 'B+' from 'BB'.

With the intention of to tame rising lending rates, the People’s Bank of China injected RMB140bn to the financial system via its regular open market operations, marking the biggest one-day addition of funds for the last four months. The cost of short-term lending in China has risen to two-year highs in recent days, following reports that President Xi Jinping had called for concrete efforts to maintain financial security.

Fitch Ratings this week maintained its sovereign rating on India at BBB-, just one notch above junk status. The rating agency cited week public finances and insufficient capital injections among key constraints on the country's credit score. “India is not immune to external shocks, but the country's strong external finances make it less vulnerable than many of its peers, but weak public finances continue to constrain India's ratings.” The rating hasn't deterred global investors - who picked up nearly US$7.5bn in Indian sovereign and corporate debt this year to date, according to data from NSDL.


Russia, CIS and Europe

The Czech Central Bank is expected to keep its policy rate steady when it meets this Thursday, analysts at BBH suggest. “After dropping the EUR/CZK floor last month, we see no changes to policy for the time being.  If price pressures remain high, we think a tightening cycle could start in late 2017 or early 2018.” It is unclear however whether a government row that prompted the country's Prime Minister to resign this week will influence the Bank's position later this week.

Georgia's Central Bank raised its main refinancing rate by 25bp to 7% this week. The Bank also said it does not expect to raise rates again in 2017, and pledged to get inflation back within the 4% range in early 2018.

Russia's Rosatom on Wednesday reaffirmed its commitment to participating in a transparent and competitive bidding process for South Africa's planned new nuclear fleet after a court last week stopped the controversial plans from going ahead. "We are confident in our world class technology, unmatched safety standards and highly competitive solutions," a senior Rosatom official said in a statement, quoted by Reuters.

Russia appeared to lean towards continuing its support for OPEC oil production cuts for another six months, citing current market dynamics as the main driver. According to Bloomberg, which was citing sources in the Russian government, world’s largest energy exporter exceeded its target of cutting production by 300,000 barrels a day from October levels by 790 barrels a day on May 1 and was willing to maintain the curbs for another half a year.

The Russian Direct Investment Fund (RDIF) and the Japan Bank for International Co-operation (JBIC) have agreed on key terms and conditions for establishing a joint Russia-Japan Investment Fund. The fund will see the two parties jointly pursue investment projects as part of trade, economic and investment co-operation between the two countries. The development was announced on the sidelines of a meeting between Russian President Vladimir Putin and Japan’s Prime Minister Shinzo Abe last week, on the back of the memorandum of understanding, signed in December 2016, which earmarked ¥100bn (US$900mn) for the new fund.

Rosneft and Bashneft have filed a lawsuit with the Moscow Commercial Court seeking to a compensation of RUB106.6bn (US$1.9bn) from AFK Sistema holding company, which used to own Bashneft. While the cause for legal action has not been disclosed, local news agencies cited spokesman for Rosneft Mikhail Leontyev, who claimed that the lawsuit is connected with alleged siphoning of assets before Bashneft was nationalized. Bashneft was controlled by the government of Russia’s Bashkortostan region until 2003 and was privatized in 2009, when Russian oil-to-telecoms conglomerate Sistema gained control of it. A court in Moscow ruled that Bashneft had been privatized in violation of law, a ruling that led to 71.6% stake in Bashneft being returned to the government, with the company eventually being sold to Igor Sechin’s oil giant.

Russian gas giant Gazprom said on Tuesday that its partners in the Nord Stream 2 pipeline would give the operator of the project a bridge loan of up to EUR6.65bn (US$7.25bn). The loan agreement carries an interest rate of 6% and could last until the end of 2019, Gazprom said in a statement, adding that partners involved in the deal were Engie, OMV, Shell, Uniper and Wintershall.

Bosnia's autonomous Serb Republic sold BAM50mn of five-year bonds at a higher yield to help cover budget gap in the absence of cash from IMF. They sold at a weighted average yield of 3.49%, up from 2.50% when last auctioned in March. The IMF has halted disbursements under US$604mn three-year extended loan arrangement for Bosnia, which was approved last September to support the country's economic reforms, because of reform delays.

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