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Emerging Market Credit Daily Roundup

China’s sovereign rating downgraded by Moody’s – Saudi Aramco plans US$30bn worth of investments in US-based Motiva – Oman issues US$2bn sukuk - KNPC signs a US$6.25bn loan to back its Clean Fuels project – Venezuela tries new FX auction mechanism – Creditors file lawsuit in US against Oi – BNDES investigated by authorities for loans to Brazil corporates – Nigeria’s Zenith Bank sells US$500mn bond – India looks to US for oil amid OPEC cuts

May 24, 2017 // 4:46PM

Middle East & Turkey

Saudi Aramco plans to invest of up to US$30bn in its U.S. subsidiary Motiva Enterprsies LLC, the company said in an announcement at a business summit in Saudi Arabia. The company announced that US$12bn would be the initial investment in a project to expand refining capacity at Motiva's Port Arthur refinery and to extend Motiva's operations in the petrochemical value chain, with likely additional investment of US$18bn expected by 2023.

Loan demand in the UAE increased by roughly 7.6% during the first quarter of 2017, according to a Credit Sentiment Survey conducted by the country's Central Bank. Sectorally, the survey identified strong increases in demand across the construction, manufacturing and financial services (excluding banks), transportation, and wholesale trade sectors, while there has been a softening of demand in the electricity, gas and water segments.

Kuwait National Petroleum Co (KNPC) signed a US$6.25bn loan with international banks to back its planned Clean Fuels project. The financing was backed by seven export credit agencies including Korea Trade Insurance Corporation (K-Sure), the Export-Import Bank of Korea, SACE, Japan Bank for International Cooperation, Nippon Export and Investment Insurance, Atradius Dutch State Business N.V. and UK Export Finance.

National Finance Company plans to raise OMR45.8mn (approx. US$118mn) through a new rights issue and perpetual bond sale in a bid to raise fresh funding to finance a buyout of Oman Orix Leasing Company. The bond is expected to be roughly OMR18.2mn in size and sold as a private placement, according to a regulatory filing.

Oman issued a sukuk worth US$2bn maturing in 2024 with a 4.397% coupon. Notes were sold at a price of 100% with an initial yield of 4.397%. Citigroup, Dubai Islamic Bank, Gulf International Bank, HSBC, JP Morgan and Standard Chartered Bank managed the deal.

Al Baraka Banking Group priced a US$400mn bond carrying a MS+6.014% coupon this week. The notes were priced at par. Bank ABC, Dubai Islamic Bank, Emirates NBD, KFH Capital Investment Company, Noor Bank, Qinvest, and Standard Chartered Bank managed the trade.

Turkish lender Vakifbank hit the dollar market this week to price a US$500mn bond maturing 2022. The notes priced at 99.892% to yield 5.72%. Natixis, Commerzbank, Erste Group, Goldman Sachs, HSBC,and  JP Morgan managed the sale.

Egypt, is tapping its five, 10 and 30-year US dollar bonds, according to Reuters. The Arab nation is marketing taps of its US$1.75bn 6.125% notes due January 2022 at 5.60% area, its US$1bn 7.50% notes due January 2027 at 6.85% area and its US$1.25bn 8.50% notes due January 2047 at 8.15% area.  BNP Paribas, Citigroup, JP Morgan (B&D) and Natixi are acting as bookrunners.

Africa

The Central Bank of Tunisia raised its key interest rate from 4.75% to 5%, the second hike in a month as it tries to stop the slide of its currency, which has fallen to historic lows. The central bank had previously raised the rate to 4.75% from 4.25% on April.

Nigeria's Central Bank left its monetary policy rate untouched at 14% this week, the tenth consecutive month it left the MPR unchanged. Inflation in Nigeria eased slightly to 17.24% in April, its lowest point since June 2016. The Bank said it was concerned loosening the exchange rate further "would exacerbate inflationary pressures and worsen the gains so far achieved in the exchange rate of the naira."

Tanzanian President John Magufuli asked Mines Minister Sospeter Muhongo to resign after an audit of containers of mineral sands showed exports were understated. An investigation initiated by Magufuli in March found the containers held as much as 15.5 metric tons of gold, instead of the 1.1 tons that had been declared, the president said in a speech at state house broadcast live on state television, quoted by Bloomberg.

South Africa's headline consumer inflation slowed more than expected to 5.3% year-on-year in April from 6.1% in March, data from Statistics South Africa showed on Wednesday, sending the rand to a new 4-week high. On a month-on-month basis, inflation fell to 0.1% in April from 0.6% previously, Reuters reported.

South African credits have been outperformers so far this year despite a broader economic malaise and severe political volatility following the abrupt replacement of the country's Finance Minister. South Africa's 10-year local currency bonds have tightened 36bp year to date, and will continue to perform well if inflation continues falling, according to BBH.

Nigeria's Zenith Bank sold a US$500mn bond in the international markets this week. The notes maturing 2022 were sold at par to yield 7.375%. Citi and Goldman Sachs managed the sale.

The Development Bank of Nigeria (DBN) is in the market for an external loan in the area of US$1.2bn, according to reports. Acting DBN President Yemi Osinbajo is still in the process of securing the blessing of the House of Representatives to raise the funds.

The World Bank has approved a US$500mn loan for the government of Nigeria, with the proceeds going towards the country's recently revealed social investment programme. The programme includes welfare assistance for people living below the powerty line - which includes nearly a third of the country, according to recent figures.

The Zimbabwe Electricity Supply Authority (Zesa) has failed to settle up to US$80mn in debt owed to South Africa's Eskom for electricity sold to the neighbouring country, raising fears of power cuts - which could further hamper the country's economy. Local press reports suggest electricity supply could be cut as early as June 1 if Zesa is unable to fulfil obligations due 31 May.

Americas

The market could see further upside if Brazil's President Michel Temer stays in power following fresh corruption allegations, according to analysts at Deutsche Bank. "If Temer remains in power for some time (the most likely scenario) we see some USD/BRL upside (towards 3.60) although the healthy state of Brazil's external accounts and the BCB's ample room to intervene via swaps limit the extent to which the BRL will sell off in the near term," the bank's analysts claim.

Brazil's Banco Original is currently under investigation by the Central Bank for insider trading following a scandal involving meat packer JBS, according to reports. On Tuesday the lender rebuffed rumours that Central Bank sent an analyst to monitor the lender's liquidity position.

Brazilian giant Odebrecht SA expects aviation regulator Anac to approve the sale of its stake in Brazil's second busiest international airport to HNA Airport Holding Group Co Ltd within 90 days, newspaper Valor Econômico reported. The deal is part of Odebrecht's efforts to dispose of assets as it seeks to stay current on about BRL76bn of net debt.

Creditors of Brazil's Oi SA filed a motion this week in U.S. bankruptcy court to pressure the telephone operator to consider a proposal which could give lenders control of the restructured company, a source said, quoted by Reuters. The creditors believe that a U.S. filing made on Monday in the Southern District of New York will allow them the right to reject the company's reorganization plan in the United States if it is confirmed in Brazil without their input.

Brazilian Senator Roberto Rocha said on Tuesday he will request the opening of a congressional investigation into loans that state development bank BNDES has made to big corporations. Rocha, of the Brazilian Socialist Party that recently broke away from the coalition of President Michel Temer amid a corruption scandal, said he has enough votes to start the probe.

Venezuela on Tuesday announced a new foreign exchange auction mechanism to complement its currency control system. The mechanism, known as New Dicom, will offer dollars within a band determined by the central bank, Economy Vice President Ramon Lobo told a press conference, without specifying what that band would be.

Asia

Moody's has downgraded China's credit rating from A3 to A1, the first time the country's rating was downgraded in 30 years. "The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," the rating agency said in a statement. China's Finance Ministry dismissed the downgrade, arguing that the rating was based on "inappropriate methodology."

Beijing Gas Group issued international bonds for US$500mn maturing in 2022 with a 2.75% coupon. Notes were sold at a price of 99.09%. BNP Paribas, Citigroup, Haitong International securities, China Huarong Asset Management, Mizuho Financial Group, OCBC, and Societe Generale managed the deal.

India said oil output cuts by OPEC producers could prove a threat to its energy security, which together with higher prices, is pushing the world’s third-largest crude consumer towards alternative suppliers. Dharmendra Pradhan, India’s minister of petroleum and natural gas, said the south Asian country was evaluating how to buy cargoes from several non-traditional suppliers such as the US and Canada, which are “becoming very competitive”.

The Asian Development Bank sold green masala bonds worth Rs3bn (approx US$46mn) this week. Proceeds from the sale will help fund the development of more than 700 MW of solar and wind power generation capacity in India. The notes carry a 3.75-year tenor and a 6% coupon.

India has so far pledged up to US$8bn in credit lines to 44 African countries, Indian President Narendra Modi revealed at the annual meetings of the African Development Bank (AfDB). India, which is part of the AfDB as a non-regional member, has seen its exports to Africa rise to US$23bn in 2017-17, while its imports from Africa stood at US$28bn.

China Longyuan Power Group Corp Ltd completed a CNY2bn (approx. US$290mn) green bond issuance last week, the company said. The 5-year notes carry a fixed-rate coupon of 4.9%, with the proceeds going towards wind power projects and refinancing existing liabilities.

China Construction Bank placed a US$1.2bn bond in the international markets this week. The notes due 2020 carry a MS+0.77% coupon and priced at par. Bank of China, Bank of America Merrill Lynch, CCB International, China Minsheng Banking, Citigroup, Credit Agricole CIB, National Bank of Abu Dhabi, ICBC, KGI Securities, Mizuho Financial Group, Societe Generale, Standard Chartered Bank, and Wells Fargo managed the sale.

The Central Bank of Thailand maintained its key interest rate at 1.5%, a record low, in an effort to support economic growth.

Russia, CIS & Europe

Hungary' s Central Bank maintained its benchmark interest rate at 0.9%, as widely expected. In statement following the move the Bank said it was "ready to ease monetary conditions further using unconventional, targeted instruments." Inflation touched 2.2% in April, down from 2.7% in March.

Ukraine requested more time to submit proposals for coal and gas projects to China in order to secure funding worth up to US$3.65bn, Deputy Prime Minister Stepan Kubiv told Reuters. Ukraine signed a loan agreement with the China Development Bank (CDB) in 2012 but has repeatedly pushed back deadlines by which it needs to submit plans for how the money will be used, because of disagreements within Ukrainian government. Ukraine needs the money to revamp its energy infrastructure as its economy is emerging from a deep recession and is being supported by a US$17.5bn aid programme from the IMF.

Kazakhstan's Central Bank will investigate the acquisition by the state-managed pension fund of US$250mn worth of bonds in the state-owned International Bank of Azerbaijan (IBA) after the lender announced it would not repay some of its debts in full. Azerbaijan's largest bank, has suspended payments on some liabilities and is seeking support from creditors to restructure more than US$3bn of debt.

Russian miner Alrosa announced the purchase of a stake in Angola's Luaxe diamond deposit on Tuesday, providing the company with access to a production base outside Russia. Alrosa and Endiama, the National Diamond Company of Angola, have signed a contract to secure 50.5% of what is Angola's largest diamond deposit for Catoca, which is 32.8% owned by the Russian company. No details were given about the cost of the stake, but, according to Alrosa estimates, Luaxe includes a kimberlite deposit worth more than US$35bn.

Russia's largest oil producer Rosneft has raised its damage claim in a lawsuit against business conglomerate Sistema AFK to RUB170.6bn (US$3.03bn) from the initial RUB106.6bn. Rosneft CEO Igor Sechin said last week the claim, concerning Rosneft's purchase of oil producer Bashneft, was likely to rise, taking into account currency fluctuations. Sistema maintains that Rosneft's claim is "groundless" and is from “an area of quasi-science fiction”, according to its spokesman Sergei Kopytov.

Russia has named VTB Capital as the organiser of the country's next Eurobond. The Ministry of Finance suggested the placement is likely to happen between May and June, according to Konstantin Vyshkovsky, Head of the Ministry's State Debt Department. The country could look to issue up to US$7bn in the market this year.

Russia's economy could see growth of 1.3% in 2017 and by 1.4% in 2018 and 2019, the World Bank said this week. Crucially, the World Bank's outlook depends to a great extent on oil hitting the US$55 per barrel.

Bonds & Loans is a trusted provider of news, analysis, and commentary that helps illuminate the most significant issues, events and trends impacting the global emerging credit markets.

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