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Emerging Market Credit Daily Roundup

Turkey’s Central Bank hikes interest rates to limits of monetary framework – Saudi Arabia picks hybrid structure for debut international sukuk – Cape Town prepares debut green bond – Nigeria cabinet approves US$1.3bn loans from international lenders – South Africa’s Director General of the Treasury Lungisa Fuzile resigns – Borets International issued US$330mn international bond

Apr 5, 2017 // 5:06PM

Middle East

Moody’s Investors Service placed the ratings of Turikiye Halk Bankasi on review for a possible downgrade after one of its executives was arrested in the U.S., accused of using his position to facilitate the evasion of US sanctions on Iran. The review will focus on the extent to which the investigation may affect confidence in Turkey’s biggest listed state-owned bank may cost of the lender’s funding and its access to the wholesale markets.

Turkey’s Central Bank has pushed interest rates to the upper reaches of its monetary framework. As of Tuesday, the bank’s average interest rate was 11.47%, near the mathematical limit of its current funding mix. That leaves the regulator almost maxed out should the lira come under renewed pressure before next Sunday’s referendum, when Turks will decide whether to abolish the prime minister’s role and greatly expand the powers of President Recep Tayyip Erdogan.

Saudi Arabia has chosen a hybrid structure for its debut international sukuk, Reuters reported. This format widely used in the Saudi local debt market, but is not the most popular for sovereign issues. The Islamic bond, expected to go up to US$10bn, will be the country's second international debt. Saudi Arabia will start meeting fixed income investors for the sukuk, a dual-tranche Islamic bond with five- and 10-year maturities, early next week. Citigroup, HSBC and JP Morgan are the global coordinators mandated to arrange investor meetings ahead of the sukuk offering. They are joined by BNP Paribas, Deutsche Bank and NCB Capital as lead managers and bookrunners.

Turkey is taking steps to give its Central Bank the right of first refusal on domestically produced gold, Reuters reported, allowing it to boost reserves of the precious metal without depleting foreign currency holdings.  This comes after the IMF recommended that Turkey bolster its foreign reserves to shield itself from external volatility.

Islamic Development Bank priced at par a US$1.25bn senior unsecured five-year sukuk with a 2.39% profit rate, Reuters reported. The triple-A rated Saudi Arabian based institution started marketing the sukuk on Tuesday with an initial price guidance in the low- to mid-40bp over mid-swaps range, to finally set the final spreads at 40bp over mid-swaps today.

Saudi Aramco raised SAR11.25bn (US$3bn) in its debut sukuk issuance. The Islamic bond, part of a SAR37.5bn programme, is the oil giant's first fundraising exercise aimed at diversifying its revenues, impacted by low international oil prices. The floating rate local currency sukuk has a seven-year maturity and offers 25bp over the six-month SAIBOR.

Africa

Cape Town is set to issue its first green bond on 1 July 2017 with an outstanding value of ZAR1bn, and is due to be certified by the Climate Bonds Standard. The South African city has secured a lead arranger, though the formal roadshow for the instrument will target mostly South African companies, including some international firms listed on the German stock exchange.

Fitch Rating warned that some Egyptian banks are still at risk of struggling to meet minimum regulatory capital requirements as a consequence of currency weakness after the Egyptian pound was floated earlier on November 3rd, given their high exposure to foreign-currency loans. The agency also mentioned that Egyptian sovereign debt accounts for 30% -50% of banks' balance sheets and is the main credit risk for banks. Any change in Egypt's sovereign rating (B/Stable) would probably be reflected in Egyptian banks' Issuer Default Ratings.

Foreign holdings in Egypt debt grew by more than US$1bn in less than a month, a sign that investor confidence isn’t waning five months after authorities floated the pound and secured an IMF loan. Overseas holdings of government securities reached EGP79bn (US$4.4bn) as of April 4.

The director general of South Africa’s Treasury Lungisa Fuzile announced that he is set to leave the government as soon as May, one year before his contract expires for “family reasons.” Fuzile said that his departure was unlikely to trigger an exodus of other top officials and that he might stay longer if its required to ensure a “smooth” transition.

Nigeria's cabinet has approved US$1.3bn of loans from international lenders to fund the newly licensed Development Bank of Nigeria, the finance minister said. The loan money is made up of US$500mn from the World Bank, US$450mn from the African Development Bank, US$200mn from German state bank KfW and US$130mn from France's state development agency. The new bank aims to support small businesses with loans at lower interest rates than are now available as Africa’s largest economy enters its first recession in 25 years.

Asia

Premier Oil says it will sell its operations in Pakistan for US$66mn in cash as the company tries to cut its debt. The business is to be sold to Al-Haj Group, a Pakistani conglomerate with interests in logistics, energy, car-making and textiles. Premier said the move was part of its strategy to dispose of non-core assets and the proceeds would be used to cut its debt.

India’s largest state has announced it will forgive Rs364bn – around US$5.6bn – worth of loans to nearly 10 million farmers. The loans will be forgiven for 9.6 million small and marginal farmers, 700,000 of whom have already been judged to have non-performing loans by their lending banks. India’s banks have been struggling under the weight of high levels of bad debt for many years.

An upswing in Taiwan’s manufacturing sector appears to have returned based on the latest reading from a closely-watched gauge. The Nikkei-Markit Taiwan manufacturing purchasing managers’ index came in at 56.2 in March, up 1.7 points after dipping in February and pushing higher above the 50-point mark that delineates expansion from contraction.

Latin America

Standard & Poor's raised Argentina's credit rating, from B- to B, saying Latin America's third-largest economy was on the verge of exiting recession. The rating agency also predicted that Argentina would return to economic growth of 3% this year. Meanwhile, Argentina's government said on Tuesday US$116.8bn in assets were declared, mostly from abroad, in a record tax amnesty it hopes will help spur domestic investment and economic growth.

A new crisis in Venezuela has initiated a sell-off in bonds issued by sovereign and the state-owned oil company PDVSA. The country’s benchmark 2027 bond fell 3% to a 10-month low of 44.6 cents on the dollar. Bonds issued by PDVSA also took a hit, with the note due in 2035 down 2.7% at 43.1 cents on the dollar.  The sell-off in Venezuelan bonds comes as PDVSA faces a US$2.05bn bond repayment on April 12 and a further US$3.5bn in payments in October and November. By contrast, the country’s foreign reserves stand at just US$10.4bn, according to the latest Central Bank data, while the cost of insuring PDVSA debt against a default has surged more than 668bps to 4,558.501 – the highest level since December 2016.

Banco do Brasil received non-binding bids of more than US$1.35bn for Banco Patagonia SA, the company’s Argentina unit, as lenders seek to close a deal in coming weeks, Bloomberg reported. Itau Unibanco Holding SA, Banco Bilbao Vizcaya Argentaria SA and Banco Macro submitted the highest bids for Patagonia, who currently has a market value of US$1.97bn and will move on to the final phase with binding offers.

Russia, CIS and Europe

Borets International, the Russian manufacturer, issued international bonds for US$330mn maturing in 2022 with a 6.5% coupon. Bonds were sold at a price of 100% with an initial yield of 6.5%, with Goldman Sachs, HSBC, Sberbank CIB acting as bookrunners.

Romania's Central Bank left its benchmark interest rate unchanged at a record-low 1.75%, as expected, balancing low inflation against underlying pressure from rising wages. Inflation edged up 0.2% on the year in February, but the central bank estimates it will reach 1.7% by the end of the year.

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