Global Themes
Global banking activity weakened in the fourth quarter of 2016 as lending fell to advanced economies, especially the United Kingdom, but strong growth in the first half of the year and major debt offerings by Saudi Arabia and Qatar helped boost total cross-border lending in 2016 by US$504bn, or 1.9%, according to the Bank for International Settlements (BIS).
Non-resident capital inflows to emerging markets are expected to reach US$970bn this year, a 35% increase from 2016, the Institute of International Finance said in a report released on Tuesday. The projection follows a strong first quarter for emerging market investment that saw the strongest portfolio inflows since 2014. The IIF's projection is US$290bn higher than its estimate just four months ago, shortly after Donald Trump took office as U.S. president and the organization listed possible American protectionism as its top threat to emerging market flows. "Looking back at the first five months of the year, it is clear that near-term threats of trade conflict have subsided significantly," said Hung Tran, IIF's executive managing director, told Reuters. "All the threat of naming China as currency manipulators, the increase in tariffs, abandonment of NAFTA did not come to pass."
Middle East & Turkey
Qatar's 2026 sovereign dollar bond fell further on Tuesday to its lowest level since mid-March, while cost of hedging Qatar debt rose to near four-month highs after the Arab world's biggest powers severed ties with Doha. The 2026 dollar-denominated Eurobond fell 0.9 cents to 97.8 cents, a near three-month low, extending Monday's falls. Five-year CDS for Qatar rose 2bp from Monday's close to 74bp, according to IHS Markit data, the highest since mid-February. Qatar's three-month interbank rate fell 8bp to 4.22% earlier this week, the biggest drop since July last year, according to Bloomberg.
Egypt has allocated EGP145bn (US$8bn) for fuel subsidies and EGP80bp for electricity subsidies in its budget for the 2017-18 fiscal year beginning in July, a cabinet statement said on Monday. Egypt in November signed a US$12bn 3-year IMF loan agreement that includes sweeping economic reforms including subsidy cuts, but has not announced yet when it plans to hike fuel prices.
Inflation in Turkey dipped slightly to 11.72% in May, according to official statistics. Consumer clothing and retail prices led the increase, with prices swelling 5.97%, but this was offset by declines ints the price of food and transport. The data suggest some of the pressure to keep rates high has eased.
Turkey has chosen BNP Paribas, HSBC and UniCredit to act as joint bookrunners for an eight-year euro-denominated bond, according to Reuters. The sovereign is rated Ba1 by Moody's and BB+ by Fitch.
Africa
Zenith Bank's 5-year unsecured benchmark Eurobond garnered an oversubscription rate of more than 300%, according to a statement from the bank's management team. The notes due 2022 began generated US$2.1bn, and began trading at 101.15% with a yield of 7.375%, 50bp inside the sovereign's similarly dated notes.
Nigeria's Debt Management Office will open the FGN Savings Bond auction this week, selling two and three-year paper to retail investors. The DMO hasn't confirmed the final figure up for auction, but it was able to raise NGN790.85mn through a similar auction in April.
Nigeria has secured a US$50mn loan from the Africa Finance Corporation to develop water projects in Enugu state. The proceeds will go towards the Enugu, Nsukka Urban Water Scheme, a social investment programme geared towards boosting the water supply.
South Africa reported GDP growth of 1% year on year on Tuesday. While the figure is up year on year, the 0.7% sequential decrease from the previous quarter puts the country in a technical recession, which will likely irk global rating agencies. The manufacturing sector led declines, contracting 3.7%, shaving 0.5% off the growth rate. Mining and quarrying was up 12.8%, however, and contributed 0.9% to GDP growth.
Ghana Cocoa Board (Cocobod) has mandated a group of six banks to arrange its annual pre-export financing (PXF). Rabobank, Crédit Agricole, Natixis, Standard Bank and SMBC are the co-ordinating mandated lead arrangers (MLAs) and bookrunners, while Ghana International Bank has been mandated as the initial MLA. The 11-month receivables-backed syndicated loan is fully underwritten by the arrangers and will be structured similarly to previous Cocobod annual trade facilities. It is priced at 65bp above Libor, a decrease from the 67.5bp offered last year.
Kenya will offer US$750mn in guarantees to Kenya Airways' existing creditors to help the heavily-indebted carrier secure financing from other sources, a cabinet document showed on Tuesday. The guarantees, approved by the cabinet, will cover US$525mn owed to the U.S. Exim Bank and the rest to local lenders, Reuters reported.
Zambia’s copper output will climb by about 4% to a record high this year as operators are close to finding a resolution with the government over power prices, according to the Chamber of Mines in Africa’s second-biggest producer of the metal, Bloomberg reported. Production will increase to about 800,000 metric tons, said Nathan Chishimba, president at the lobby group, exceeding the previous record of about 790,000 tons in 2013.
VTB has signalled it is ready to work with Mozambique on restructuring the country's debt, and has provided the information necessary for a forensic audit of previous undisclosed loans, according to a report in Reuters. An audit of the loans is seen as crucial for the IMF to restore its funding programme. VTB and Credit Suisse were the main lenders behind hundreds of millions in loans to EMATUM, Proindicus and Mozambique Asset Management (MAM), which came under scrutiny last year because they were not disclosed. The move prompted the IMF to pull out of a loan in April last year, leading the country to default on its debt.
Americas
Colombia reported May CPI Monday, which rose 4% year on year compared with 4.66% in April. Overall inflation in 2017 stood at 3.2%, its lowest levels since 2015.
The Chilean Central Bank has downgraded its growth forecast to between 1% and 1.75%, down 25bp from the previous range. The Bank said a lag in the mining and construction sector was the main reason for the forecast downgrade. The bank also said that it's unlikely it would move the benchmark interest rate after cutting by more than 100bp.
Brazil’s Central Bank announced it might reduce the pace of interest cuts in July, due to rising uncertainty in the country´s financial markets. Last week the nine-member monetary policy committee decided to lower its benchmark Selic rate by 100bp to 10.25%.
JBS, the world’s largest meatpacker at the centre of Brazil’s political scandal which has President Michel Temer on edge, said it was selling its subsidiaries in neighbouring Argentina, Uruguay, and Paraguay to its competitor Minerva for a total of US$300mn. The proceeds from the sale will go to reduce JBS’s debt, which has skyrocketed after the company agreed to pay fines of BRL10.3bn (US$3.16bn) over 25 years, part of a plea bargain deal on a series of corruption investigations.
Mexico’s peso hit its highest level since November, buoyed by projections pointing to a narrow victory for the ruling party in the country’s biggest state after polls had earlier predicted a tight race. The preliminary result generated a strong rally, pushing the currency 1.7% upwards to trade as high as 18.32 pesos and beyond the May 25 level of 18.34, its previous high of the year.
Venezuela has failed to pay up to US$1bn in debt obligations to Russia, the Russia accounting chamber has revealed, after speculation flowed on the news that a classified portion of the country’s budget included US$1bn that was unaccounted for. According to the government body’s press-release, the two sides originally agreed on a debt restructuring process whereby the ailing Latin American economy would be allowed to pay back the US$530mn of the US$2.84bn of overall debt it owes Russia before 2019-2021. The remaining US$2.2bn was agreed to be settled within 5 years following March 2017.
Venezuela is looking to resell up to US$5bn in bonds at a steep discount through a Chinese brokerage in order to help avert financial ruin, according to a report in the Wall Street Journal. The effort, sign of increasing desperation from the Latin American country, is reportedly not netting many buyers, as the oil-dependent economy continues to struggle to shore up critical financing.
Asia
The Chinese yuan touched its highest level in 7 months, reaching CNY6.75 to the US dollar this week. The shift came after China's Central Bank set the yuan midpoint at its strongest level since November 2016. Meanwhile, corporate and government bonds have hit their highest yields since 2014.
Investigators have raided the home of Prannoy Roy, the founder of NDTV, a leading Indian television channel, in connection with a loan from ICICI Bank. According to local press reports, the country's authorities are investigating Roy for an outstanding balance pertaining to a loan take from ICICI in 2008.
The creditworthiness of Indian corporates has eroded over the past year, with credit rating agencies downgrading a total of 116 companies while only upgrading 55, according to data from the Securities and Exchange Board of India (Sebi). According to the capital markets authority, 97 companies held junk ratings at the end of 2016.
Russia, CIS and Europe
Russia’s Novorossiysk Commercial Sea Port (NMTP) announced the formation of a subsidiary, NMTP-Capital, with the sole purpose of issuing NMTP’s debt. According to the press-release, the financing agent will be allocated RUB1.59bn of share capital, which is financed with RUB262.9mn “treasuries” held by the port giant.
