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Emerging Market Credit Daily Roundup: 27 July, 2017

Iraq mandates banks for dollar bond – ADCB hits the formosa market – Turkey to keep monetary policy tight for now – Rosneft mulls Mozambique office – AECI builds war chest for acquisitions – Ghana sells 5-year local bonds – IMF upgrades Argentina forecast – Banco de Bogota to issue US$600mn – Shanghai International Ports launches benchmark bond – Chinese stock exchanges launch trials to sell gov debt to individual investors – London court rules in Russia’s favour on Ukraine 2015 bond default

Jul 27, 2017 // 5:08PM

 

Middle East & Turkey

Iraq has appointed bankers for a new US dollar denominated senior unsecured bond transaction. The country, with last sold US$1bn in US-backed 5-year bonds in January this year, has enlisted Citigroup, Deutsche Bank, and JP Morgan has joint bookrunners on the transaction. The move is another sign of growing investor appetite for high-yield sovereign issuers.

Abu Dhabi Commercial Bank (ADCB) raised US$320mn through the sale of a five-year Formosa bond, Reuters reported. The sale was placed with institutional investors, and a Taiwanese bank was said to have arranged the deal.

Saudi Arabia has vented its frustration at what its Energy Minister Khalid Al-Faleh has called a lack of commitment towards continued oil production cuts amid OPEC members. “We have to admit that the market has turned to the downside amid a number of factors driving this sentiment,” explained Al-Faleh in an interview with New Khalij. “The commitment of some countries is still weak, which is a concern that must be addressed directly.” The comments were in part aimed at Qatar, a state with which Saudi Arabia among a number of other gulf countries have recently severed diplomatic ties, as Qatar Petroleum chief Saad Al-Kaabi recently announced a plan to increase gas production by 30% by 2024.

Qatar's Central Bank deposited more than US$10bn in local banks last month in order to offset deposit withdrawals from foreign institutions. According to the Central Bank's most recent data, deposits by foreign customers and institutions in Qatar fell 7.6% to QAR170.6bn in June, down from QAR184.6bn the month before. Qatari banks' borrowing from foreign institutions also shrank in June, from QAR51.8bn to QAR46.4bn.

Turkey has reportedly withdrawn a list of German companies it initially purported to be supported terrorist organisations, a list that included top tier German names including Daimler and BASF. The list of over 600 companies was initially sent to Interpol in a bid to provoke a probe into whether they supported "terrorist organisations" according to German daily Die Ziet, a move critics allege would have largely amounted to a crackdown on anti-Erdogan Turks working in the country. Both Turkish Deputy Prime Minister Mehmet Simsek and President Tayyip Erdogan denied the probe into German companies.

Turkey's Central Bank said this week that it plans to keen monetary policy tight until the inflation outlook improves, opting to leave its main policy and repo rates steady. The Bank has been somewhat reticent to hike interest rates for fear of a political backlash and subdued credit growth. It has instead relied on a variety of unconventional tactics - including buying and selling currency swaps - to help keep inflation under control.

 

Africa

The Kuwaiti Fund for Arab Economic Development has signed a funding agreement with the government of Morocco to finance the second phase of a high-speed train system. The MAD474mn (approx. US$49mn) project will reportedly be the first high-speed train of its kind in Africa, and will link two key industrial hubs in Morocco – Casablanca and Tangier.

Rosneft is reportedly planning on opening an office in Mozambique, a gas-rich African country, a move that could help give Russia a strong foothold on the continent. Rosneft has already partnered with American oil and gas giant ExxonMobil to explore Mozambique's offshore reserves, with Rosneft reportedly securing a 20% stake in any development to result from the endeavour. The reserves could provide a crucial source of supply for East Asian countries.

South African chemicals giant AECI is said to be mulling a series of acquisitions and is looking to raise about ZAR6bn (approx. US$460mn) to finance its expansion efforts, according to a report in Reuters. The company is looking to make further headway in Europe, Africa and North America in a bid to add to its footprint in Africa, Australia, Indonesia and South Africa.

The Nigerian Federal Government has secured a NGN3.38bn (approx. US$10.7mn) loan from the African Development Bank (AfDB) to help fund the production and development of Irish potato crops in Plateau State. The state is currently the country's largest potato manufacturer, and will be supported by an additional NGN595mn in government funding for the initiative. The government and the AfDB claim the funding will help create up to 60,000 new jobs.

A top government adviser in Zimbabwe has warned the government not to continue US dollarization in the economy, a problem perpetuated by the recent introduction of currency bond notes - which are pegged to the dollar. "Dollarization is a dead end unless the country has a source of US dollars," Ashok Chakravarti, who also lectures at the University of Zimbabwe, told retailers at a conference in Harare earlier this week. Chakravarti said one possible option for overcoming a cash shortage in Zimbabwe would be to further integrate with South Africa, and adopt the Rand. "We should go the route of the Rand," he said.

Ghana sold a GHS1.49bn (US$341.2mn) five-year local bond at a yield of 18.5%, lead arranger Barclays Bank Ghana said. According to the lender the bids tendered for the 2022 notes amounted to GHS1.71bn.

 

Americas

The IFC launched a 3-year PEN175mn (approx. US$54mn) bond in the offshore market this week, a move aimed at paving the way for other issuers to tap into the offshore sol market. "This trade continues the trend we have seen in recent months where investors are looking for high credit quality issuance in some of the more rare local currency markets such as ARS, COP & PEN," said Stephen Dirou, Head of EMEA and LATAM Eurobonds at JP Morgan, a lead on the transaction.

The IMF has upgraded its growth forecast for Argentina from 2.0% to 2.4% for the rest of 2017. While not considered especially high in the context of EM and frontier markets, it's great news for an economy that contracted 2.2% in 2016 and suffers from staggeringly high inflation.

In a unanimous decision, Brazil's Central Bank monetary committee (Copom) cut its benchmark selic rate by 100bp for the third time in a row as the country looks to stimulate credit demand and further growth. The Central Bank has cut its main policy rate by 500bp since it began easing in October last year, adding that the current inflation conditions remain favourable. Inflation expectations dropped to 3.6% this month, down from 4.0% in May.

Brazilian meatpacker JBS SA, which was recently wrapped in a huge graft scandal implicating some of the country's top lawmakers, has reportedly inked a deal with several commercial banks to keep its credit lines open. At the same time, a report in Reuters alleges that JBS has called a shareholder meeting for September to address concerns that BNDESpar, the development bank's asset management arm which owns over 20% of the company, could be headed for the exit.

Brazilian police arrested former Petrobras chief exec Aldemir Bendine on suspicion of receiving substantial sums of money in bribes from embattled construction giant Odebrecht, the latest high-profile arrest as part of the widening 'Car Wash' scandal. Bendine reportedly sought up to BRL17mn in bribes when he led Banco do Brasil to authorise loan rollovers for an Odebrecht subsidiary.

Banco de Bogota is set to issue 10-year unsecured senior notes worth US$600mn. The proceeds of this transaction will be used to repay a senior bridge loan and for general corporate purposes. Fitch Ratings assigned the notes a Long-Term Foreign Currency Rating of 'BBB(EXP)' in line with the lender’s Issuer Default Rating (IDR).

 

Asia

The Indian government is readying a plan to offer INR2,000 crore in credit guarantees to startups, a move that will help them raise bank financing without collateral. The scheme is said to likely function under the trusteeship of the National Credit Guarantee Trustee Company, which will provide the guarantees to qualifying companies.

Shanghai International Port tapped the international markets with a US$500mn bond maturing in 2021 with a 0% coupon. The notes were sold at par and Deutsche Bank acted as the sole bookrunner.

State -owned Korea Land and Housing tapped the international markets with a dual-tranche bond worth US$200mn. The first tranche worth US$100mn matures on 3 August 2020 and the second on 4 August 2020. Both tranches carried a 3M LIBOR USD + 0.73% coupon and were sold at par. UBS managed the transaction.

A number of Chinese stock exchanges have begun trialling a new system that lets individual investors buy local government bonds. The Shanghai Stock Exchange and the Shenzhen Stock Exchange will kick off new trials with the sale of CNY30bn (approx. US$4.4bn) of Sichuan Province's securities in August. The Shanghai Stock Exchange already secured approval for its trial earlier this month, successfully placing bonds issued by the Inner Mongolia autonomous region.  In a statement to press, the Shenzhen Stock Exchange is launching the pilot in a bid to help improve local market liquidity. Banks are the main buyers of Chinese government debt, currently.

 

Russia, CIS & Europe

Russia's Ministry of Finance sold RUB30bn (approx. US$502mn) of OFZ treasury bonds at auction this week. According to the Ministry, it sold RUB15bn in 2020s and RUB15bn in 2022s at yields of 8.12% and 9.74%, respectively.

Promsvyazbank, a Russian privately owned lender, issued international bonds for US$500mn with an 8.75% coupon. The notes were sold at a par with Gazprombank, Promsvyazbank, RBI Group and Renaissance Capital acting as joint bookrunners.

The High Court of London has ruled that Ukraine pay GBP2.8mn (approx. US$3.6mn) in compensation related to its 2015 default on US$3bn in Eurobonds issued in 2013. The Court ruled that Ukraine must also pay the par value of the Eurobonds in addition to a US$75mn coupon payment and penalty interests on that amount. An appeal to the decision is scheduled for review in January 2018.

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