Emerging Market Credit Daily Roundup: 30 June 2017

Investor concerns over Egypt rise despite fresh inflows – MAF acquires Geant stores – Naspers prices US$1bn issuance – Nigeria looks to finalise loan – Argentina’s Cordoba prices new notes – Banco Mercantil del Norte, Grupo Kuo tap the market – Rural Electrification Corp hits international markets

Jun 30, 2017 // 5:35PM


Middle East

Investors have raised concerns that rising fuel prices and prolonged austerity measures could prompt a backlash in Egypt. Win Thin, Head of EM Strategy at BBH in New York said that while price pressures in the country have started to ease, new structural reforms are needed. "There are growing concerns that the austerity measures contained in the program will feed into civil unrest.  Indeed, the government has raised pensions and approved a cost-of-living bonus for public employees. It also gave some exemptions for low-income taxpayers whilst increasing subsidized food programs," he explained in a recent note. "Revenues should be underpinned by the VAT passed last year, but expenditures need to be controlled better.  Even with this week’s hike in fuel and cooking gas prices, Oil Minister Tarek El-Molla said fuel subsidies will still cost the government about EGP105 bln annually.  The budget deficit was an estimated -10% of GDP in FY2016/17, down from -12.1% in FY2015/16.  Under the IMF program, the deficit is expected to narrow to -8.3% in FY2017/18 and -5.9% in FY2018/19."

The Istanbul Metropolitan Municipality has secured €88.3mn to finance the expansion of the city's metro line. The funding was provided by the EBRD, with the total cost of the line's expansion is estimated to be approximately €338.3mn, with the Municipality looking to more than double the length of the existing line.

Majid Al Futtaim has acquired 26 Geant hypermarket stores in the United Arab Emirates, Bahrain and Kuwait from BMA International, the company confirmed in a statement. The company - which already operates the Carrefour franchise in the region - is signalling a significant expansion into the region in the coming years, with all of the acquired stores rebranded as the French retailer. The deal did not include Geant franchising rights.



Myriad International Holdings B.V., owner of South African media giant Naspers successfully issued a US$1bn bond in the international capital markets this week. The notes due 2027 were priced at par to yield 4.85% and are due to be listed on the Irish Stock Exchange. Investec led the transaction.

Economic growth in Nigeria is likely to improve as access to hard currencies eases and the price of oil recovers through 2017, according to analysts at Moody's. "The economy is also likely to see further benefits arising from a more timely implementation of the 2017 budget and in particular a higher realisation of capital spending on infrastructure," the rating agency said in a recent report. "The existing scarcity of dollars -- worsened by the soft capital controls imposed by the Central Bank of Nigeria -- is likely to be persistent and therefore negatively affect important sectors of the economy such as services and manufacturing."

Nigeria's central bank sold NGN31.94bn (US$104.76mn) in treasury bills on Friday in a bid to tighten liquidity in the money market while overnight lending rate fell.  According to Reuters, traders said the bank sold NGN31.52bn of 349-day treasury bill at 18.59% and NGN440mn naira of 160-day treasury bill at 17.98%. Cost of borrowing among commercial banks however fell to around 5% on the interbank market from around 8.5% last week.

Nigeria's government is still looking to finalise a US$774mn loan from China in a bid to finance ambitious road works throughout the country. The East-West Highway will link five major oil-producing states in Nigeria -  Delta, Bayelsa, Rivers, Akwa Ibom and Cross River - but the government has yet to finalise a financing deal, potentially jeopardizing the project - which has stalled since 2007.

Kenya is selling an additional KES1bn (US$9.64mn) worth of bonds via mobile phone after an initial KES150mn sale earlier this year. The country started selling a three-year infrastructure bond, called M-Akiba, on March 23, becoming the first country in the world to issue a mobile phone-based bond without any need for a bank account.

Morocco’s central bank has postponed its announcement of the first phase of liberalising its currency, an important IMF backed reform for the North African country.  The announcement was set to take place on Thursday at a news conference with the central bank governor and finance minister. But the central bank in a brief note to reporters said it had been delayed, however, no reasons were given.

The government of Mozambique is moving forward with a financing agreement with the African Development Fund to help fund the first phase of road works construction in the north of the country. The project will see a 100km road built between Mueda and Negomano, connecting Mozambique to Tanzania. The project is expected to cost close to US$146mn.

Asset managers holding Mozambique sovereign bonds are calling on the country to reject government guarantees on commercial loans made by VTB Bank and Credit Suisse following an audit of the undisclosed debt. Creditors say a recently released audit of the government's loans to a number of state-backed companies suggests the government is under no obligation to honour the loans, which were secured by the previous administration. Last year, the country defaulted on US$762mn in bonds and failed to repay up to US$1.2bn in loans to Credit Suisse and VTB.

Sanlam Investment Holding announced it is teaming up with European institutional investors to establish a new fund specialising in green projects and infrastructure investment in emerging markets. The Climate Investor One fund will also provide technical expertise, focusing largely on solar and hydroelectric power projects. The anchor investors in Climate Investor One include the Directorate-General for International Cooperation in the Ministry of Foreign Affairs of the Netherlands, Atradius Dutch State Business, De Nederlandse Waterschapsbank N.V. (NWB Bank), Aegon Asset Management, FMO, KLP, Sanlam Investment Holdings and the Royal Borough of Windsor & Maidenhead Pension Fund.



Argentina’s province of Cordoba tapped the international markets with a US$450mn bond, which is set to finance the construction of a gas pipeline that had been on hold since last year due to the Odebrecht scandal.  The 10-year notes carried a 7.125% coupon, while HSBC and J.P Morgan managed the transaction.

Argentina has increased its dollar-denominated Bonar 2024 sovereign bond to US$4bn, the government said in its official gazette on Friday, as conservative President Mauricio Macri boosts public spending ahead of a crucial mid-term election. The bond was originally sold in 2014 for US$3.25bn with a 8.75% coupon.

The Brazilian Development Bank (BNDES) is doubling down on offering financial support to medium and small scale solar PV projects. The Bank has approved a new methodology for the accreditation of PV modules and other technical elements associated with solar PV projects in a bid to streamline the funding application process for small and medium-sized companies looking to develop these projects.

Venezuela’s controversial bonds are now trading in the markets, as multiple Wall Street banks are quoting the notes from PDVSA, the state oil company, at bid prices of about 33.5 cents on the dollar and they’ve started to change hands over the past couple of days, according to Bloomberg. The securities, due in 2022, were originally sold by PDVSA to the central bank in 2014 and then picked by Goldman Sachs Asset Management by a value of US$3bn, with Nomura Holdings Inc. picking up a much smaller portion, paying a price of 31 cents on the dollar to a broker.

Banco Mercantil del Norte, a Mexican lender, placed a dual-tranche bond worth US$900mn in the international markets. The first tranche was a for US4350mn with a 5Y UST Yield coupon. While the second one was for US$550mn with a 10Y UST Yield coupon. Morgan Stanley and UBS managed the transaction.

Mexico’s finance ministry said it would cut the amount of 3 and 5- year bonds it will sell in the third quarter 2017, while increasing the amount of 10, 20 and 30-year notes placed in that same period.

Mexican conglomerate, Grupo Kuo issued international bonds for US$450mn maturing in 2027 with a 5.75% coupon. Notes were sold at a price of 100% with an initial yield of 5.75%. Bank of America Merrill Lynch and Credit Suisse managed the transaction.

Colombia’s Ecopetrol announced it will pre-pay one of its syndicated loans in full. The credit has a nominal value of US$ 1.9bn, due is February 2020, however it will be paid June 30, a company explained in a filing.

Mexico's Ministry of Finance said it plans to use the surplus funds transferred to the state from the Central Bank in 2016 to pay down up to MXN5.62bn (approx. US$311mn) in sovereign debt during the third quarter of this year. It said it may look to do the same next year in a bid to cut foreign currency debt, potentially up to US$4.1bn.



India's Rural Electrification Corp issued international bonds for US$450mn maturing in 2027 with a 3.875% coupon. Notes were sold at a price of 99.263% with an initial yield of 4%. ANZ, Barclays, BNP Paribas, HSBC and Mizuho Financial Group acted a joint bookrunners.

The Kuwait Fund for Arab Economic Development (KFAED) has agreed to provide a US$51mn loan to Bangladesh, with the proceeds going towards infrastructure development. The loan will be used for among other things the construction of about 400km of suburban road infrastructure.

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