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Emerging Market Credit Daily Roundup: 27 June 2017

Zimbabwe debt rises to 53% of GDP – IMF approves Cameroon programme – SA Treasury in talks with South African Airways on debt rollover – Peru factory fire highlights labour concerns – Rotoplas places MXN2bn in local markets – Argentina’s Province of Cordoba to roadshow new RegS deal – INR loan growth at record lows – China curbs liquidity-enhancing measures – RussHydro to move ahead with bond placement in Q3 – Russia, Ukraine corporates hit by massive cyber-attack

Jun 27, 2017 // 5:17PM

 

Africa

Zimbabwe's public-sector debt rose to US$11bn during fiscal year 2017, the Parliament Budget Office reported this week, a sign the country's economic fundamentals continue to erode. Domestic debt rose close to 40% to US$4.3bn, with external debt jumping to US$7.5bn. According to the PBO, about US$5.2bn of that debt is currently in arrears. The government has so far relied on a raft of new taxes and 'bond notes', an artificial currency pegged to the dollar, to help stave off a full blown economic crisis.

Credit Suisse this week rebuffed claims it secured over US$100mn in fees in exchange for troubled loans arranged for Mozambique's state-backed companies. The company said in a statement that it has secured US$23mn for arranging US$2bn in loans to tuna fishing company EMATUM, security firm Proindicus and Mozambique Asset Management (MAM). A forensic audit of the dodgy deal, which was unapproved by parliament and caused the IMF to halt critical funding to the nation, was released Saturday. Among other things, the audit determined that not enough had been done to explain how the US$2bn was spent, and highlighted concerns around discrepancies in the price of assets and services provided by Credit Suisse and VTB, the two lenders that arranged the loans.

The IMF has approved a US$666mn 3-year credit facility for the nation of Cameroon to support the country's economic reform efforts, the lender said this week. "Having initially shown resilience owing to its greater diversification, the Cameroonian economy is now facing decelerating growth, declining fiscal and external buffers, and rapidly-rising public debt," the IMF said in prepared remarks. The Francophone West African region has struggled in the face of low oil and commodity prices and increasing security concerns as it seeks to contain Boko Haram militants along its border with Nigeria.

The Central Bank of Nigeria (CBN) in collaboration with the Nigeria Communications Commission (NCC) intervened in the crisis between Etisalat and a consortium of thirteen Nigerian banks over a syndicated loan of about US$1.2bn in order to prevent job losses and asset stripping, reports BusinessDay.

Morocco's Central Bank is due to announce this week the date for the first phase of liberalising the dirham, an IMF-backed reform to strengthen the North African kingdom's economy, Reuters reported. Most experts anticipate the currency transition to be smooth, with foreign reserves looking solid, the dirham balanced and public finances improved by lower global oil prices that eased the cost of energy imports.

South Africa's Treasury is in talks with banks to roll over ZAR9bn (US$695mn) in debt due to be paid this month by struggling state airline South African Airways (SAA), according to multiple reports. SAA, which is reliant on government debt guarantees of almost ZAR20bn rand, has been cited as a threat to South Africa's economy by rating agencies that have recently downgraded the country's sovereign rating to "junk". If SAA fails to meet its debt obligations, it may have ripple effects on the government's wider guarantee framework, Treasury Director General Dondo Mogajane told legislators.

 

Americas

A factory fire in Peru last week has cast a light on poor working conditions in the country, with the Public Ministry opening an investigation into possible human trafficking offenses. The factory housed a number of small manufacturers. According to local press reports, workers were illegally locked inside on the rooftop terrace, prompting the International Labour Organisation to weigh in on the tragedy and call on the government to improve worker safety and focus on formalisation of the workforce.

Mexico's sovereign bond curve inverted for the first time in 6 years, according to data from Bloomberg. Yields on 6-month government securities hit 7.05% while 3-year government bond yields tightened to 6.46%. Just 50bp separates yields on Mexico's 6-month and 30-year notes, according to the data, which suggests investors are pricing in significant short-term risk.

Rotoplas, a Mexican utilities company, tapped the local markets with a MXN2bn bond. The proceeds of this transaction will be used to refinance existing debt and to cover corporate costs. HSBC, Santander, GBM and Banorte Ixe managed the transaction.

Inmobiliaria Vinte, a Mexican real estate company, issued a MXN500mn bond in the local market this week. The notes are due in 2022 and Actinver acted as the sole bookrunner.

Argentina's Central Bank head believes inflation in the country will likely slow to 22% in July, he said at an investment conference this week. Federico Sturzenegger, President of the Central Bank of Argentina (BCRA) said inflation is likely to reach its lowest levels since 2009 if the country continues its fiscal consolidation plans, with a view towards getting inflation down to regional norms by 2019.

Argentina’s Province of Cordoba is set to start a roadshow for a 144a/Reg bond of up to US$500mn. HSBC and J.P Morgan are acting as joint bookrunners while Banco de la Provincia de Cordoba is acting as the local arranger.

Brazilian President Michel Temer was charged with corruption this week for allegedly taking up to BRL38mn (approx. US$15,000) in bribes from JBS, the country's leading meatpacking company. Temer is the country's first sitting president to be indicted for corruption, though analysts believe he has enough support from lawmakers to block a trial from taking place. Bond yields have not shifted in reaction to the news at the time of publishing, but the news undoubtedly strikes a blow to the President and his coalition, and could prove to inhibit progress on Temer's ambitious social and labour reform plans.

 

Asia

Net outstanding loans for the top 1,000 listed companies in India dropped by over INR1tn (approx. US$15.4bn) in fiscal year 2017, according to a report published by SBI Research. The figures suggest credit growth continues to drop towards record lows, and hit just 5.1% in March this year - its lowest level since 1951. Outstanding loans in the 2017 fiscal year, which ran from March 2016 to March this year, hit INR26.5tn.

The World Bank has approved a US$250mn loan for India, which will help the government fund a new initiative aimed at up-skilling and re-skilling youth emerging the workforce. "The $250 million Skill India Mission Operation (SIMO), approved by the World Bank board of executive directors, will increase the market relevance of short-term skill development programmes (3-12 months or up to 600 hours) at the national and state level," the World Bank said in a statement.

Indian Banks have inadequate loan loss provisions due to an excessive build-up of bad debt, according to a report from CRISIL, a local rating agency. The country's banks are said to have provisioned about 40% or INR2tn, but the rating agency estimates banks will need to take a 60% haircut on at least the largest 50 non-performing loan cases, meaning banks will need to increase provisioned by 25% in the coming fiscal year. According to a report in Reuters, India's Central Bank has asked banks to provision at least 50% of loans referred for insolvency.

Shriram Transport Finance Co has approved the issuance of INR450mn in non-convertible debentures, according to a release from the company. A date for the NCD sale has yet to be finalised.

Taiwanese lawmakers passed a bill reforming civil servant pensions Tuesday, eliminating 18% annual interest on savings, starting in 2018. The reforms, which only cover civil servants, will see pensions receive 9% from July 2018 to the end of 2020, and will be reduced to 0% from 2021 onward. The retirement age will also be increased to 65 starting in 2020.

Hong Kong based Swire Pacific issued international bonds for US$300mn maturing in 2024 with a 3% coupon. The notes were sold at a price of 99.656% with an initial yield of 3.07%. HSBC and Morgan Stanley managed the transaction.

China-based Shandong Ruyi Technology Group issued international bonds for US$200mn maturing in 2022 with a 6.95% coupon. Bonds were sold at a price of 96.237% with an initial yield of 8.57%. Standard Chartered Bank acted as the sole bookrunner.

Voting was underway in Mongolia this week as the Mongolian People's Party (MPP), led by Miyeegombo Enkhbold - a former mayor, breakaway Mongolian People's Revolutionary Party (MPRP) led by Sainkhuu Ganbaatar and the Democratic Party led by property mogul Khaltmaa Battulga square off in a race many say will be too close to call. At the time of publishing, Enkhbold was around 1,700 votes ahead of nationalist Ganbaatar. A run-off is widely expected.

Analysts expect China's Central Bank to continue curbing liquidity enhancing open market operations due to strong yuan liquidity in the market. The People's Bank of China ceased open market operations for a third consecutive day as it boosted fiscal expenditure to counter maturing reverse repos, according to a statement on the Bank's website. Part of the reason may be down to strong preference for dollar borrowing among Chinese corporates as of late. The value of assets held by China's banking sector rose %12.5 at the end of May compared to the same period a week earlier, according to the China Banking Regulatory Commission (CBRC).

 

Russia, CIS & Europe

Russian institutions have seemingly balked at the prospect of further sanctions tightening the screws on their ability to raise fresh capital, with bond sales in 2017 already besting last year's volumes. The Russian government, corporates and financial institutions have so far raised more than US$17bn from international bond markets, according to research from JP Morgan, more than the US$15.2bn raised by Russian entities in the international markets last year. These figures are down from 2013 deal flow highs of US$52.1bn.

RussHydro is moving ahead with plans to offer RUB10-15bn in fresh bonds in the third quarter this year, according to a statement from the company's first deputy CEO George Rizhinashvili. The bonds will be listed on either the Irish or London Stock Exchange. The company has about RUB90bn in bonds outstanding to date.

EuroChem is set to place a 4-year dollar-denominated Eurobond with yield guidance of 4.3%. The company held a roadshow in Switzerland and the UK in June.  Citi, J.P Morgan, Credit Agricole CIB, Sberbank CIB, SG CIB and UniCredit are managing the transaction.

More than 80 companies in Russia and Ukraine were struck by the Petya virus that shut down computers and told users to pay US$300mn in cryptocurrency to unlock them, according to the Moscow-based cybersecurity company Group-IB quoted by Bloomberg. Telecommunications operators and retailers were also affected and the virus is spreading in a similar way to the WannaCry attack in May, it said. Rosneft, Russia’s largest crude producer, said in a statement that it avoided “serious consequences” from the “hacker attack” by switching to “a backup system for managing production processes.”

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