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Emerging Market Credit Daily Roundup

OPEC members close in on new cuts agreement – EM corporates rebound – Ezdan looks for new syndication – Iran mulls Eurobond issuance – NBK prices US$750mn 2022s – Nigerian recession worsens despite easing FX challenges – Kenya teases Eurobond – Tanzania struggles to fund crucial East African railway project – Brazil mulls whether to scrap payroll tax breaks – Mexico boosts growth estimates – RBI outlines distressed debt resolution plans – TCS Bank preps perpetual issuance

May 23, 2017 // 5:33PM


Global Themes

The MSCI emerging market benchmark index rose 0.9% earlier this week, its largest daily gain in a month, on the back of higher oil prices. The improvement was seen despite a deepening crisis of confidence in Brazil or a broader asset selloff in Asia.

OPEC and its allies are closing in on an agreement to continue their production cuts for another nine months after Iraq backed an extension, removing one of the last remaining roadblocks to the deal. Representatives of 24 nations need to ratify the extension in a meeting in Vienna on Thursday.

Emerging market corporates are on the rebound, with just 1 bond default recorded in the first quarter of 2017 – compared with 8 recorded during the same period last year, according to figures compiled by M&G.


Middle East & Turkey

Qatari real estate developer Ezdan is in the market for a new syndicated loan, according to sources. The size of the loan ranges between US$350mn-500mn.

The government of Iran will hit the international bond market after a material improvement in risk, according to the Governor of the Central Bank. Valiollah Seif told the Fars News Agency this week that the country will issue bonds in the international markets "when we become certain that there is demand for our debt."

Inflation in Turkey reached 11.9% in April according to official statistics, up from 11.3% a month earlier. That's the highest rate since 2008, and well above the CBRT's 3-7% target range, adding further pressure to tighten policy when the Bank next meets June 15. Foreign reserves have fallen to lows of US$85bn, the lowest since 2012.

Bahrain's Al Baraka Group has tightened pricing on its benchmark perpetual sukuk to 8-8.125%, according to a document from one of the banks leading the transaction. Orders for the notes reportedly reached US$1.25bn, according to a report from Reuters.

National Bank of Kuwait issued international bonds for US$750mn maturing in 2022 with a 2.75% coupon. Notes were sold at a price of 99.491% with an initial yield of 2.86%. Citigroup, National Bank of Abu Dhabi, HSBC, JP Morgan, NBK Capital and Standard Chartered Bank managed the deal.

Egypt's budget deficit for the first nine months of the 2016-17 fiscal year dipped to 8% of GDP from 9.4% during the same period last year, bringing the government forecast for the next fiscal year down to 9.1% from April’s expectation of 10.9%. Egypt is implementing sweeping reforms that include cutting subsidies and raising taxes as part of a three-year US$12bn IMF lending programme. 



Nigeria’s economy contracted for a fifth consecutive quarter in the three months through March as oil output declined. GDP in Africa’s most populous nation shrank 0.5% in the first quarter from a year earlier, according to Bloomberg, compared with a revised 1.7% fall in the final three months of 2016.

Kenya’s Treasury is considering selling a Eurobond this year starting in July to refinance maturing debt, according to Bloomberg. The Eurobond is among a number of options being considered as a two-year, US$750mn syndicated loan falls due in October and the same amount in five-year Eurobonds matures in June 2019.

Kenyan budget carrier Jambojet expects government approval this month to start flying to destinations outside the country and will lease more planes to start the flights in the next two years, its chief executive said this week.

Tanzania is said to be struggling to find financial backers for the standard gauge railway project. The project will carry a proposed price tag of US$1.2bn. Some MPs have suggested the government commit to alternative sources of finance in place of concessional loans, including a potential long-term infrastructure bond.

Namibia’s state-owned power utility NamPower has inked an agreement with Standard Bank that will see it pay the bank directly for power produced in Zimbabwe as part of a US$160mn loan for Zimbabwe Power Company (ZPC). The loan proceeds will be used for the rehabilitation of the Kariba South Hydro Power Station and Hwange Thermal Power Station, according to local press reports.

Ghana's government will ask the IMF to extend its support programme by 8 months to December 2018, from April 2018, according to a local press report. Under the programme, the country was initially set to receive US$918mn over 3 years.

Gambian authorities have seized assets including 86 bank accounts and 131 properties linked to former president Yahya Jammeh as a crackdown on the former leader escalates. He has been accused of stealing up to US$50mn from the state, according to the country's Justice Minister.



Brazilian equities continued their declines this week following revelations of a possible bribery scandal implicating the country's president Michel Temer. S&P revised Brazil's outlook to "CreditWatch negative," which means it can downgrade the country over the next three months. The Ibovespa index tumbled 2.85% since the close of trading Friday, and down nearly 8.5% since news of the scandal broke last Wednesday. Yields on 10-year government notes spiked from 10.012% on Wednesday to 11.757%.

Increased political uncertainty triggered by recent corruption allegations involving Brazilian President Michel Temer will further pressure the operating environment for banks while potentially raising asset quality risks over the medium and long terms, says Fitch Ratings. "The deterioration in Brazil's political environment should not cause a sharp and immediate deterioration in Brazilian banks' asset quality or any significant losses through securities' exposures. However, as this implicates the presidency, the heightened political risk could increase policy and legislative uncertainty," the rating agency said in a recent note.

Brazilian authorities are mulling whether to scrap a payroll tax break for dozens of industries in order to shore up the country's fiscal accounts, sources claim. The timeline for such a move is unclear, however, particularly given the recent turmoil.

Brazil state lender BNDES will not extend any new loans to meatpacker JBS SA, holding company J&F Investimentos or other companies involved in a corruption investigation, according to sources quoted by Reuters. The source added that the companies will be barred from receiving any loans or investments from BNDES at least until they sign a leniency agreement with Brazilian prosecutors.

The spread between Argentina’s bond yields and the EMBI index reached 400bp for the first time since 2007, according to a report recently published by the Central Bank of Argentina (BCR). The reduction of the country’s risk spread has allowed the South American sovereign to reduce the cost of its funding in dollars and has allowed it to place longer-term debt, which has also improved the conditions for corporates in the international markets, the report mentioned.

Mexico’s finance ministry on Monday raised its 2017 growth estimate to 1.5-2.5% from its previous range of 1.3-2.3%, reflecting on better-than-expected economic performance, but noting that “risks of volatility persist.

The IMF on Tuesday reaffirmed Mexico's access to a flexible credit line worth about US$86bn that the country could use to stabilise its currency in cases of extreme volatility. The IMF said Mexico expressed that it treated the 2-year- line approved last year as "precautionary."

Tocumen S.A, Panama’s airport operator, will request for a US$100mn syndicated loan from local financial institutions, Finance Minister, Dulcidio de la Guardia told the local press. This will allow the state-owned company to secure the remaining funding to complete the expansion of the airport, without tapping the financial markets again. The loan will be repaid in full with proceeds from rents of the commercial space inside Tocumen International Airport.



Singapore reports April CPI today, which is expected to rise 0.5% year on year compared with 0.7% in March. Despite fairly low price growth, the MAS is unlikely to depart from its highly accommodative monetary policy until 2018, when it hopes to resume tightening.

Indonesia sold bonds for IDR14tn, which was above the indicated target of IDR12tn. The T-bills maturing in February 2018 had a weighted average yield of 5.60900%. The weighted average yield for bonds maturing in May 2027 was 6.92116%. The bonds maturing in August 2032 had a weighted average yield of 7.35253%. This was the first auction after Standard & Poor' upgraded Indonesia's sovereign bond ratings to investment grade.

India's Central Bank has outlined its plans to help resolve heightened levels of distressed debt held by the country's banks. The RBI estimates the country's total stock of bad debt to be roughly US$150bn. Among the measures being explored is whether to have the RBI assign ratings for the debt, which would be financed by a centralised fund created by the bank.


Russia, CIS & Europe

Russia's TCS Bank is said to be mulling whether to issue fresh perpetual US dollar denominated notes, according to local press reports. The size of the Tier 1 issuance is yet to be determined, but analysts anticipate a deal size of roughly US$300mn.

Russia might offer a Eurobond in the upcoming weeks Bloomberg reported. The Eurobond placement will be organised by domestic banks, as foreign banks refused to participate amid the E.U. and the U.S. sanctions. The volume of the offering was not provided. In April, Finance Minister Anton Siluanov said that VTB Bank could act as an organiser and Sberbank could also take part in the organisation of the offering.

Moody's raised its forecast on Russia’s real GDP growth, stating it will increase by 1.5% per year in 2017 and 2018, with private consumption and investment spending supported by gains in household real incomes and gradually easing monetary policy. Still, an ageing population is among the constraints expected to prevent Russia's potential growth from expanding in the absence of fundamental structural reforms.

International Bank of Azerbaijan held investors meeting regarding debt restructuring today. Analysts believe the meeting is crucial for the bank's ability to solidify and rescue its credit profile. Earlier this month the struggling lender sought US court protection as it looks to restructure about US$3.3bn in debt. As part of several options, the bank is mulling whether to allow creditors the option of swapping into longer-tenor sovereign bonds.

The Kazakh sovereign wealth fund Samruk Kazyna plans to borrow up to US$3bn from the China Development Bank, the fund's chief executive said this week. Umirzak Shukeyev said the deal would be finalised in June.

A return to growth in Belarusian bank lending is still some way off, according to a note from Fitch. "We expect new lending (excluding exchange-rate effects) to be at best flat in 2017. Volumes will be constrained by the still-contracting economy and banks' deteriorating asset quality, although the decline that began in 2015 could end this year. The banking sector's new lending fell 4.6% in 2015 and 7.9% in 2016," it said. " Corporate lending will remain limited by borrowers' generally high leverage, while the government will focus on the clean-up of state-owned banks' balance sheets to support their capital and performance."

The Hungarian National Bank (MNB) is looking for opportunities for cooperation with China on the much-talked about One Belt and Road Initiative, one of the bank's representatives said this week. "In order to promote the further use of the Chinese currency renminbi, the Chinese central bank has made several swap agreements with foreign central banks, including the Bank of England, the European Central Bank and MNB," Daniel Palotai, general manager at the MNB told Xinhua. "The professional cooperation with China has become a very important issue for Europe, that is why 16 CEE countries, including Hungary, are trying to tighten their economic and cultural relations with China."

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