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Emerging Market Credit Daily Roundup

EM borrowers hit bond markets in record numbers – Gulf Navigation US$250mn sukuk moves forward – Kuwait to ease restrictions on long-term debt – South African banks, SOEs take beating from rating agencies – Nigeria struggling in IMF loan talks – Colombia launches social impact bond – Mexico’s Unifin, GAP raise local debt – China releases new green bond guidelines – Indian credit pressures start to ease – Detsky Mir closes book on local notes – Ukraine CB head resigns

Apr 6, 2017 // 5:10PM


Global Themes

Emerging market borrowers raised a record US$181bn through the sale of bonds during the first quarter of this year, according to data from JP Morgan. Sovereign year to date issuance stood at US$61.5bn, more than US$16bn over the same period in 2016, while emerging market corporates raised US$119.1bn, close to US$10bn more than the same period last year.

Global ECA-backed finance deals rose to US$124.9bn in 2016, more than double the volumes seen in 2015, according to a recently published TXF Export Finance report. The Middle East, which accounted for 30% of 2016 volumes, saw the most ECA finance activity globally, the report stated, followed by Russia. Broadly speaking, emerging markets accounted for about 54.9% of all ECA-backed deal volumes.


Middle East


Gulf Navigations plans to raise up to AED920mn (approx. US$250mn) through the sale of 5-year sukuk, the company said in a statement to the Dubai Stock Exchange. Last month the company was said to be mulling the sale of fresh securities, but it was not clear whether the Dubai-based shipper would tap the Islamic or conventional markets.

Kuwait will increase its public debt ceiling to KWD20bn (approx. $65.62bn) from KWD10bn and increase the maximum maturity of the bonds it can issue to 30 years, up from 10, the country's Minister of Finance said this week. The law, which has been in the works for weeks now, will help the sovereign tap into longer-dated debt, much like some of its peers in the region.

Kuwait looks likely to execute another bond sale this year following on from its successful US$8bn bond placement last month, its Minister of Finance said this week. We will continue to be present in the international market but in a prudent, rational way," Finance Minister Anas al-Saleh told reporters at a financial conference this week.

Qatar Investment Authority's sale of a 2.2% stake in Banco Santander Brasil SA was priced below initial estimate, Reuters reported.  Investors agreed to pay BRL25 per unit of Santander Brasil offered in the transaction, well below the BRL27 initial price tag initially suggested by the sovereign wealth fund.

Saudi Arabia has appointed banks to manage the sale of its first US dollar denominated sukuk, according to a note from the country' s Finance Ministry.  Citi, HSBC and JP Morgan are global coordinators on the planned issuance, with BNP Paribas and Deutsche Bank co-leading the sale. The sovereign will look to raise up to US$10bn through the sale of dollar-denominated sukuk this year. The news comes during a fairly active week in the Kingdom's capital markets; Saudi Aramco raised SAR11.25bn (approx. US$3bn) through its inaugural sukuk sale ahead of a planned IPO.

Hard currency bonds issued by GCC entities is outpacing syndicated loans by nearly three to one in the first few months of this year, according to data from Bloomberg. GCC issuers, mostly sovereigns including Kuwait, Oman, Bahrain, and the Kingdom of Saudi Arabia, issued US$24bn to the end of March 2017, compared to US$8.2bn in syndicated loans inked in the region. The data suggest an interesting shift in a market typically dominated by bank lending.

Some Egyptian lenders continue to struggle hitting minimum capital requirements as a result of continued currency weakness following the Egyptian pound's free float last year, according to a note from Fitch. “The currency devaluation will also weaken asset quality, with debt restructuring of loans for smaller corporates already taking place, but we expect only modest deterioration," the rating agency said this week. Fitch maintained its view that the Central Bank both has the capacity and is likely to step in and support financial institutions should they fail to meet their regulatory capital requirements.

Oman’s Bank Muscat has successfully closed an Additional Equity Tier (AET) 1 Capital transaction for the first time. The transaction was worth OMR130mn on a private placement basis, which is set to increase the capital adequacy ratio of the Bank by approximately 1.4%, further enable the bank to utilise a number of different capital instruments and enhance the capital base for supporting business growth.



Six months after the election Morocco's King Mohammed VI on Wednesday finally named a new cabinet led by the main Islamist party, the Islamist Justice and Development (PJD) party, which won elections in October. The formation of a government was delayed during wrangling with parties who critics say were too close to royalists uneasy with sharing power with Islamists. Under Moroccan law no party can win an outright majority in the 395-seat parliament, making coalition governments a necessity.

Standard and Poor’s has downgraded South Africa's banks to non-investment grade (BB+) to fall in line with its rating of the country. Banks cannot secure a rating higher than the country's foreign currency sovereign credit, which was downgraded to junk by S&P last week.

South Africa's junk rating could cost the country up to US$10bn in investment, according to Reuters. Earlier this week S&P cut the sovereign's external debt rating to 'BB+', one notch below junk. Moody's followed the rating cut by placing the country on review for a downgrade.

Ratings firm Moody's said on Wednesday it was placing South Africa's state power firm Eskom's credit rating on review for a downgrade, citing the risk of the country's institutional, economic and fiscal strength deteriorating after President Jacob Zuma dismissed a respected finance minister last week. On Monday, S&P cut South Africa's credit level to junk status over growing concerns of political and policy instability following Zuma's midnight cabinet reshuffle.

Namibia is unlikely to hold its investment-grade credit rating due to political instability in neighbouring South Africa and a challenging inflation outlook, according to Cirrus Capital. “Firstly, our own cost of borrowing will continue to increase, and we will start to face some challenges regarding our unhedged foreign currency debt. Secondly, we will experience heightened inflation. Thirdly, we will likely see either an increase in interest rates, or a decrease in bank lending should the marginal net-interest margin of the commercial banks come under further pressure,” Rowland Brown, an economist and founder of Cirrus Capital said in an interview with local press.

The IMF has warned that talks with Nigeria over a crucial US$1.4bn loan could be jeopardised by the slow pace of reform in the country. The IMF said the country needs to lift foreign exchange restrictions and scrap its dual exchange rate regime, two things the Nigerian government seems unwilling to compromise on in the near term - despite a wide-reaching reform programme introduced last month. The country is hoping the reforms will help pull it out of one of the worst recessions in decades.

Nigeria plans to raise NGN135bn (approx. US$429mn) in bonds at an auction planned for 12 April, the country's debt management office (DMO) said this week. The government said it plans to sell NGN25bn in notes due 2021, NGN50bn in notes due 2027 and NGN50bn in notes due 2037.

Nigeria will easily achieve its target of US$3.5bn foreign borrowing in 2017 as improved oil output helps the economy to recover from last year’s contraction, Moody’s Investors Service said. “The international financial institutions are ready to support Nigeria,” Aurelien Mali, a vice president and senior analytical adviser for Africa at the ratings company, said, cited by Reuters. “As long as its project-based lending, the funding will be available from lenders such as the African Development Bank, and the budget support from the World Bank will come on top of that.”

Kenya’s largest opposition group, the National Super Alliance, has proposed former Prime Minister Raila Odinga as its presidential candidate and Kalonzo Musyoka, an ex-deputy president, as his running mate, the local media reported on Thursday. Musyoka was Odinga’s running mate at the last vote in 2013. This year’s ballot will be Odinga’s fourth bid at the presidency should the group ratify the proposal.



The Colombian and Swiss governments are backing a COP2.2bn (US$765,000) “Social Impact Bond” (SIB) with the purpose of offering skills training to 514 vulnerable, poor and unemployed people in cities of Bogota, Cali and Pereira. The Colombian SIB’s investors include three foundations: Mario Santo Domingo, Bolivar Davivienda, and Corona. Investors will be repaid over the two-year bond based on participants a) obtaining and b) sustaining employment for at least three months. Investors receive a 10% bonus pay out for retention rates of six months or longer.

Union workers are holding a general strike in Argentina as conservative President Mauricio Macri prepares to host international leaders and business people for an economic forum. The strike raises pressure on Macri as he struggles to help Argentina recover from recession ahead of mid-term legislative elections in October.

Extremoz Transmissora do Nordeste (Extremoz) is readying a BRL170mn debenture, according to a regulatory filing. The electricity transmission company is looking to sell up to BRL170mn in notes due 2029. The notes carry a provisional rating of 'AA+' from Fitch.

Mexico's Grupo Aeroportuario del Pacífico (GAP) raised MXN1.5bn (approx. US$79nm) in floating rate notes maturing March 2022, according to a note to the BMV. Banorte and Scotiabank managed the sale.

Unifin raised MXN3bn (approx. US$159mn) in 5-year money through the local capital markets this week, part of the Mexican lender's MXN10bn issuance programme. Actinver, Banorte, Citibanamex, Santander and Scotiabank managed the sale.

Banco de Mexico (FIRA) raised MXN440mn (approx. US$23mn) in 6-month commercial paper this week. Actinver, BBVA Bancomer, Banamex and Scotiabank managed the sale of the notes maturing 21 September 2017.

Moody's Investors Service on Wednesday lowered ratings on US$13bn of Puerto Rican bonds, including debt from the US territory's now-defunct former fiscal agent, the Government Development Bank. Moody's said it downgraded bonds from six Puerto Rican issuers, but affirmed ratings on the island's largest classes of debt - general obligation bonds guaranteed by its constitution, and so-called COFINA debt, backed by sales tax revenue.



Singaporean property developer City Developments is marketing a 2-year green bond, the country's first green bond. The move comes just weeks after the country introduced a grant programme for green bond issuers, enabling them to receive subsidies for green certification and monitoring costs.

The China Securities Regulatory Commission (CSRC) released new guidelines on the issuance of green bonds. The Asian giant is world’s largest green bond market, accounting for 39% of global issuances. Key policies in the Guidelines include CSRC adopting the categories of projects eligible for funding with green bonds, a requirement to deliver a “commitment letter” to CSRC relating to the green attributes of the issuance, and a prohibition in principle on issuances of green bonds by non-green issuers.

Chinese property developer Jingrui Holdings hit the international markets this week to sell a US$400mn bond maturing 2020. The notes were priced at 99.345% to yield 8.15%. BOSC International, China Huarong Asset Management, Guotai Junan Securities, and Haitong International securities managed the sale.

Sinopec raised US$1.4bn from international investors this week through the sale of a dual-tranche bond. The Chinese petroleum giant sold US$1.1bn in notes maturing 2022 at 99.917% to yield 3.018% and US$300mn in notes maturing 2047 at par to yield 4.25%. Agricultural Bank of China, Bank of China, Bank of America Merrill Lynch, Citigroup, CCB International, DBS Bank, Goldman Sachs, ICBC, HSBC, JP Morgan, Mizuho Financial Group, Morgan Stanley, Societe Generale, Standard Chartered Bank, and UBS managed the sale.

China’s state-owned Chinalco said it would step up investment at its flagship project in Peru, as the country becomes an increasingly important supplier of copper to China. Wu Jiangqiang, president of Chinalco China Copper, said the company’s Toromocho mine would produce around 180,000 to 190,000 tonnes of copper this year, an increase of 13%. Last year the company failed to meet its copper output target of 182,000 tonnes, with output reaching 168,376 tonnes, according to Peru’s customs statistics, quoted by the FT.

Korea South-East Power, a division of KEPCO, raised US$300mn in the international markets this week. The notes maturing 2020 were priced at 99.816% to yield 2,45%. Citigroup, HSBC, and UBS managed the trade.

Credit quality pressures in India have eased slightly, with the volumes of debt being downgraded trimming back to INR1.7tn in fiscal year 2017 from INR3tn in 2016, according to ICRA, a local rating agency. “While incremental downgrade pressures have subsided, the prospects of a definitive improvement in credit quality are not reassuring as yet. The pace of improvement would only be gradual as businesses adjust to and recover from balance sheet stress, tracing the recovery in business growth and improvement in capacity utilization,” it said in a credit note.

Indian non-banking financial company Capital First plans to raise Rs700 crore (approx. US$107mn) in non-convertible debentures this week. The company's board approved the placement of Rs500 crore 3-year local debenture coupled with a Rs200 crore 5-year greenshoe option to be issued through a private placement.


Russia, CIS and Europe

Russian toy seller Detsky Mir has closed the book on its RUB3bn (approx. US$53.5mn) bond issuance this week. Initial guidance on the 3-year notes was set at 9.85-10.10%, and proceeds from the sale will towards refinancing its current loan portfolio. VTB Capital, Raiffeisenbank, and Sberbank CIB managed the sale.

Sberbank of Russia will sell its subsidiary in Ukraine at a price below its capital, Sberbank CEO Herman Gref told journalists in Moscow. "There it's not being sold for one [times] capital, but less than capital, of course. The banks are not worth capital today," Gref said when asked about the amount of the deal in terms of Sberbank (Ukraine) capital. Reports last week suggested the bank reached an agreement with a consortium led by Said Gutseriev, the son of Russian oil and banking magnate Mikhail Gutseriev, to sell the subsidiary for an undisclosed price.

Sberbank will not be able to join R3 because of sanctions against Russia, the bank was told unofficially at the stage of submitting an application. According to a report by Russian newspaper “Kommersant”, referring to a source familiar with the situation, R3 blockchain consortium has indicated to Sberbank that its application to join the consortium will not be approved, the reason for that being anti-Russian sanctions.

The head of Ukraine's Central Bank has resigned this week, capping off nearly a month of rumours and speculation. Ukraine Valeriya Hontareva announced her resignation just one day after the Central Bank introduced foreign currency reforms, part of planned regulatory changes to help unlock critical funding from the IMF. Meanwhile, a note from the IMF released on the heels of its most recent funding programme review suggested the country will be able to access the Eurobond market this year if it continues its current reform path. The multilateral lender said Ukraine could place 5-year notes in the 9% area. 

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