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Emerging Market Credit Daily Roundup: 29 June 2017

Syndicated lending in emerging EMEA lowest in 8 years – Banque Misr gets US$200mn loan from Afrexim – Turkish borrowers exposed to credit tightening – NNPC, French Development Agency team on fund – Peru to award Metro Lima lines 3, 4 in 2018 – Brazil mulls new credit rules as defaults escalate – Chinese issuers hit the market en masse – Reliance refinances US$2.3bn – Rosbank finalises RUB2.8bn bond sale

Jun 29, 2017 // 5:39PM


Global Themes

Syndicated lending in the MENA region hit US$434bn in the first half of 2017, Thomson Reuters LPC data shows. The figure is down 6% year on year compared to the first six months of 2016, while lending to emerging market countries - particularly Central and Eastern Europe, the Middle East and Africa - down to just US$52.9bn during the same period, well below the US$125.4bn seen in syndicated lending during the first 6 months of 2016, and the lowest syndicated loan volumes from emerging markets in over 8 years. Analysts believe a big part of the drop relates to increased reliance on the bond market, particularly in the Middle East. While refinancing is seen to be a major driver of loan activity in MENA for the first half of the year, maturities in 2018 beat this year's debt coming due by more than a third - suggesting a potential increase in the lending through the second half of this year. Increasing US interest rates are also likely to drive loan supply through H2 2017.


Middle East

Banque Misr secured a US$200mn loan from the African Export- Import Bank (Afreximbank), according to a statement from the Egyptian lender. The 3-year facility will be used to support lending for small and medium-sized businesses in Egypt. The deal adds to a growing pipeline involving international multilateral development finance institutions in the country. In April Afreximbank also signed a US$300mn facility with the National Bank of Egypt.

Credit Default Swaps on Qatari 5-year debt has risen nearly 60bp in the past 30 days, data from Markit shows. The cost of insuring Saudi debt has also risen slightly as the diplomatic row between the Saudi-led coalition and Qatar nears its fourht week.

About 62% of corporate resources used by Turkey's 500 largest companies are secured through borrowing, according to the Istanbul Chamber of Industry (ISO). The figure brings new urgency to rising double digit inflation in Turkey and the precarious position of many of the country's borrowers, who may struggle with repayments as policymakers increasingly become left with little choice but to increase interest rates - a move vehemently opposed by Turkey's president and senior AKP members.

Russian giant Gazprombank is said to be leaning towards exiting the domestic Turkish market, according to reports in Kommersant. Citing unnamed sources, Gazprombank is nearing the withdrawal from Promak, which owns a controlling stake (60%) in two companies importing Russian gas to Turkey — Enerco and Avrasya. The bank owns a 40% stake in Promak.



The French Development Agency is said to be working in collaboration with the Nigerian National Petroleum Corporation (NNPC) on the creation of a fund aimed at stimulating further growth in Nigeria's oil and gas sector. The fund is aimed at encouraging French investors invest in the Nigeria oil and gas sector. Total, a large France-based multinational oil and gas company, is the largest French petrochemicals firm operating in the country.

The Etisalat Nigeria saga took a turn for the worse this week, with banks involved in the dispute claiming the Mubadala-appointed CFO of Etisalat Nigeria diverted over US$700k from proceeds of the sale of its towers it earned when it sold to IHS, a Nigerian towers and telecommunications infrastructure provider, according to reports in AllAfrica. The US$1.2bn loan was used to finance the acquisition of the towers through Chinese OEM Huawei for Etisalat Nigeria's backbone network. Hard currencies generated from the sale were reportedly converted in naira and used to pay down existing local-currency debt.



Peru is looking to award the next stages of the Lima Metro development sometime in 2018, according to reports in local press. Metro de Lima lines 3 and 4 are likely to cost an estimated US$11.2bn, according to bankers positioning themselves for the lucrative financing contracts, with construction on both lines expected to be carried out simultaneously.

Telefonica Colombia announced fresh plans to invest over US$175mn in new infrastructure development throughout the country. The company did not confirm how the new initiative was likely to be financed. Part of the investment may go towards improving energy savings and bolstering its use of renewable energy throughout its infrastructure footprint. Earlier this month the company announced it would switch to 100% renewable energy to power its infrastructure and offices.

Brazil's Central Bank is mulling whether to cap the period during which banks' clients can use overdraft protection, a move aimed at reducing interest rates paid by customers and expanding credit growth. The Central Bank has cut its 2017 projections for credit growth in the country to just 1%, down from 2%. Total credit volume in Brazil dropped by 0.2% in May compared to the previous month, according to official statistics. At the same time, loan defaults have hit new records in May, with loans overdue by 90 days or more climbing to 5.9% of outstanding credit, compared with 5.7% the month before.

Comision Federal de la Electricidad, a utilities Mexican company, is set to tap the local markets with a dual -tranche bond worth MXN16bn. Each tranche will be worth MXN8bn and will have a 5-year and 10-year maturity date respectively. Banorte Ixe, BBVA Bancomer and Santander managed the transaction.



Chinese sovereign and corporate debt has finally tipped past the 300% of GDP mark this year, according to fresh data from the IIF. Household debt to GDP in China is at an all-time high of 45% in the first quarter of 2017, about 10% higher than the emerging market average. Global debt hit an eyewatering US$217tn, the latest figures show. "Total debt in emerging markets (excluding China) has increased by some $0.9 trillion to over $23.6 trillion in the first quarter of 2017—mainly driven by Brazil (up $0.6 trillion to $3.6 trillion) and India (up $0.2 trillion to 2.9 trillion)," the IIF said in its latest Debt Monitor report.

Chinese property developer Fantasia Holdings Group Co placed US$300mn in fresh notes in the international markets this week. The notes due 2022 priced at 99.767% to yield 8.16%. Credit Suisse, Guotai Junan Securities, Haitong International securities, and UBS managed the trade.

China Gold International Resources Corp placed US$500mn in fresh notes this week. The notes due 2020 priced at 99.663% to yield 3.26%. CCB International, China International Capital Corporation (CICC), Citigroup, Industrial Bank, and Standard Chartered Bank managed the sale.

Chinese internet search provider Baidu tapped the international markets with a dual-tranche bond worth US$1.5bn. The first US$900mn tranche matures in 2022 and carries a 2.875% coupon. While the US$600mn tranche matures in 2027 has a 3.625% coupon. Goldman Sachs, HSBC and JP Morgan managed the transaction.

Beijing Capital Land issued international bonds for US$100mn maturing in 2020 with a 3.7% coupon. Notes were sold at a price of 100% with an initial yield of 3.7%. CITIC Securities International, China Everbright Bank, ICBC and Industrial Bank acted as joint bookrunners.

China State Construction Engineering Corporation issued a dual-tranche international bond worth US$1bn. The first US$500mn tranche mature in 2022 and carried a 2.9.%. While the notes maturing in 2027 carried a 3.5% coupon.  BNP Paribas, Bank of China, CCB International, Citigroup, Credit Suisse, Goldman Sachs, HSBC, ICBC and UBS managed the transaction.

Analysts have raised concerns over the viability of input tax credits to be introduced under the new GST system in India. Input tax credits are applied to the various good and services that are required to create end products, but the tax credit system to be introduced in India will require the end goods to be sold within the state jurisdiction where they were manufactured in order to qualify, which could significantly limit the scope of the credit's application.

Reliance Industries has refinanced a US$2.3bn in syndicated and club loans, according to a statement from the company's Chairman. "During the year, our company has successfully refinanced long-term financing of $ 1.75 billion syndicated loan and $ 550 million club loan aggregating to $ 2.3 billion resulting in substantial interest savings over the remaining life of these loans. This was the largest amount syndicated by RILBSE -0.46 % since 2007," he said in a recent company report. The proceeds from the original loans were used to finance the company's Reliance Jio venture.

The Asian Development Bank (ADB) has raised INR14bn (approx. US$217mn) through the sale of rupee-linked bonds. Sale of the notes due 2022 was led by HSBC and TD Securities, the lender said. "Today's fundraising represents ADB's largest single offshore Indian rupee bond issue to date," the ADB said in a statement. This is the third rupee-linked transaction from the ADB in 2017.

Hindustan Petroleum is looking to raise up to US$500mn from the international bond market. The state-run refiner is will likely be a Reg S senior unsecured transaction, and could launch as early as Friday.

The Philippines could be looking to place up to US$500mn in treasury bonds in the international markets next year, the country's Finance Secretary has said. The country tapped international investors for a US$500mn 25-year transaction in January, which was relatively well received by the market despite concerns around policy continuity and the country's President, Rodrigo Duterte, who has been likened to "the Donald Trump of Asia" by some investors.


Russia, CIS & Europe

Russian fintech company SimpleFinance hit the international capital markets to place a US$30mn 3-year bond. The notes carry a 10.5% coupon and were sold at par. Renaissance Capital acted as sole lead on the trade.

The Russian Finance Ministry sold US$1bn in 10-year bonds at a rate of 4.25% and US$2bn in 20-year notes at 5.25%, largely to US investors. The move highlights persistently strong demand for Russian debt in the face of growing US-Russia tensions and fresh sanctions. The Russian government said demand for the notes topped US$9bn.

Russia's Rosbank has completed the sale of RUB2.8bn in local market bonds, according to a regulatory filing. The lender last tapped the market in April this year, selling RUB5bn in December last year.

Norilsk Nickel and BASF have struck and agreement that will see the two companies partner on the development and sale of raw materials for the production of lithium-ion batteries sold in Europe. As part of the deal, BASF plans to invest up to €400mn in a bid to build new production plants for cathode materials involved in the production of the batteries, with Norilsk Nickel providing raw materials for the batteries.

Polish energy company TAURON Polska Energia S.A. hit the international markets this week to place a €500mn bond. The notes maturing 2027 carry a 2.375% coupon and priced at 99.438% to yield 2.44%.  JP Morgan, Mitsubishi UFJ Financial Group, and Banco Santander managed the sale.

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