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Emerging Market Credit Daily Roundup

Saudi Arabia opens books on USD sukuk – UAE banks concerned by VAT charges – AFC issues US$500mn Eurobond – Venezuela’s FX reserves hit 15-year low – BBH analysts sceptical of Brazil’s rebound – Fitch downgrades El Salvador’s local currency debt to RD – India extends US$4.5bn credit line to Bangladesh - Russia’s Tatfondbank declared bankrupt – Romania prices a EUR1bn bond

Apr 11, 2017 // 3:56PM

Middle East & Turkey

The IMF has come out in support of Qatar's fixed exchange rate, citing it as an added source of stability at a time of macroeconomic uncertainty. "The Qatari authorities believe that the fixed exchange regime continues to be a source of stability for the Qatari economy. They agreed with us that gradual fiscal adjustment is appropriate. They underscored that efforts to safeguard Qatar’s wealth for inter-generational equity had started before the recent decline in oil prices,” the IMF noted in its latest report on the country.

UAE based Aster DM Healthcare has agreed a US$295mn credit facility with India's Axis Bank, the healthcare company said in a statement. Aster had a US$276mn loan outstanding with a consortium of eight banks, and it had drawn US$176mn out of that facility, it said.

Saudi Arabia opened the books on its debut US dollar sukuk, according to Reuters. The sovereign is marketing a five-year tranche at 115bp area over mid-swaps. It also marketing a 10-year tranche at plus 155bp area. Citi, HSBC and JP Morgan are the global coordinators. They are joined as leads by BNP Paribas, Deutsche Bank and NCB Capital.

PASHA Yatirim Bankasi AS, a subsidiary of Azerbaijan's PASHA Bank OJSC in Turkey, made its capital markets debut this week, placing TRY27mn in the local markets. The move comes just one week after the bank secured permission from the country's regulator to purchase and sell currency derivatives.

UAE-based property giant Damac is out to market with price talk on a 5-year benchmark size US dollar denominated sukuk. The company is looking at the "mid 6% area" according to a report in Reuters. The company expects to price the notes as early as today.

Banks in the UAE may be faced with VAT charges that they could struggle to recover under forthcoming taxation legislation due to be introduced in the country, an analyst at Deloitte has warned. "The likely result is that banks will be faced with VAT costs that they have a limited ability to recover. Banks may react by increasing fees or by changing their product structure to allow them to charge higher fees - both these scenarios will allow them to recover more VAT on their costs. It is also possible that banks will consider absorbing these additional VAT costs, without passing them on to end consumers," explained Elliot Severs. Senior Manager, Indirect Tax at Deloitte in a recent interview with the Khaleej Times.



South Africa's credit rating downgrade may have dented the confidence of some, but analysts at Citi reckon foreign portfolio investors have ploughed about ZAR20bn into the country's assets over the past week and a half. Research analysts from Citi note that investors bought about ZAR9.84bn in assets last week alone, after it had been revealed the country's Minister of Finance Pravin Gordhan and his deputy would be relieved of their posts.

Africa Finance Corporation (AFC) has issued a US$500mn seven year Eurobond. The senior, unsecured Eurobond which carries a coupon of 3.875% was priced to yield 4% and matures in April 2024.

CBA Group has agreed to make a market for Kenya's debut mobile phone-based bond, guaranteeing investors an exit whenever they need it. Kenya raised US$1.45mn with the three-year bond, called M-Akiba, becoming the first in the world to issue a government bond exclusively via mobile phone.

S&P downgraded the foreign and local currency credit rating of South African state-owned logistics carrier Transnet from 'BBB-' to 'BB+' and from 'BBB' to 'BBB-', respectively, and downgraded state-owned utility Eskom's foreign and local currency credit rating from 'BB-' to 'B+'. The move follows the sovereign credit downgrade last week, a move catalysed by the sacking of the country's Minister of Finance.

Zambian Opposition Leader Hakainde Hichilema was detained this week and his home raided, though police have so far refused to comment on their motive. Hichilema, who lost out to Edgar Lungu in the presidential elections last August, has previously voiced concerns over the legitimacy of election results and was last year charged with sedition. Some critics suspect the move is intended to silence Hichilema.

Nairobi is hosting a two-day summit to explore how Kenya can best tap into the global KES230tn Halal or Islamic economy market. Local, regional and international industry experts are expected to converge in the city for the East Africa Islamic Economy Summit, now in its second year, to discuss opportunities presented by the multi-trillion Halal market and how it can be accessed to provide boost the region’s economies.

The Nigerian arm of Abu Dhabi telecom group Etisalat is yet to agree a deal on restructuring a US$1.2bn loan with local banks after it missed a payment, Reuters reported citing source. Etisalat Nigeria reportedly announced last month that it was in talks with lenders to restructure the loan, but, according to sources, Etisalat and the group of 13 Nigerian lenders were yet to agree on a debt restructuring proposal.

The West African Economic and Monetary Union has ruled out devaluation for the CFA franc and said it has five months of foreign reserves sufficient to support the currency, Ivory Coast President Alassane Ouattara said on Monday.

Mozambique's Central Bank cut its benchmark lending rate by 50bp to 22.75%, it said on Monday.



Moody's has upgraded the credit rating of Brazilian state-owned oil giant Petrobras from BA2 to BA1 citing more effective cash management. The rating agency said Petrobras' "management has shown commitment to its financial and operating targets, as shown in recent debt refinancing transactions, disciplined use of cash, increasing crude production and declining costs."

Venezuela's foreign currency reserves have hit US$10.3bn, a 15-year low, as it looks to repay just over US$2.1bn to holders of PDVSA bonds. Venezuela's foreign currency reserves peaked in 2009, when they hit US$42bn - largely as a result of record high oil prices. Analysts believe that while the government should be able to make good on its bond payments this week, the country is quickly running out of space to manoeuvre around any potentially shocks or spikes in volatility. 

Fitch has downgraded El Salvador's foreign currency credit rating from 'B' to 'CCC' and the country's local currency rating from 'B' to 'RD', citing continued challenges in meeting the country's financing needs in 2017.

The Inter-American Development Bank (IDB) hit the Paraguayan market for the first time to price a PYG1bn (approx. US$180mn) bond, the first local currency trade registered by a multilateral in the country. The move came shortly after the bank hosted its Annual Meetings in Asuncion, and priced its largest US dollar bond to date - a US$3.75bn trade maturing in 2020.

Two Energias do Brasil (EDP) subsidiaries raised new debt in the local markets this week, according to regulatory filings. EDP Sao Paulo Distribuicao de Energia SA and EDP Espirito Santo Distribuicao de Energia SA raised BRL150mn and BRL190mn in fresh debentures.

Analysts at BBH, a fund manager, remain skeptical on Brazil's rebound despite improving headlines and progress on the fiscal tightening front. "The 2018 central government primary deficit is now seen at -BRL129bn vs. -BRL79bn previously.  This is little changed from the 2017 forecast of -BRL139bn. In February, the 12-month total for this series was -BRL151.3bn," explained Win Thin, BBH's Head of Emerging Market Strategy in a recent note, adding that Brazil's government bonds have outperformed so far this year - bested only by neighbouring Argentina. "We urge caution ahead for investors with exposure to Brazil, as asset prices appear too rich given growing risks."



Pakistan is looking to amend its sukuk regulations in a bid to simplify the issuance process and reduce costs for borrowers. The Securities and Exchange Commission of Pakistan (SECP) plans to reduce the number of mandatory underwriters on debt issuances and waive mandatory underwriting when issuers look to refinance existing maturities, the body said this week.

India has extended a US$4.5bn line of credit to Bangladesh to fund a raft of development projects in the country. The countries also announced a separate US$500mn fund to be put towards defence-related sectors.

India’s Flipkart has announced a US$1.4bn capital injection from Tencent, eBay and Microsoft, as the country’s largest e-commerce company accepted a reduced valuation in order to boost competitiveness against Amazon. The funding round valued Flipkart at US$11.6bn, it said on Monday, according to Financial Times – significantly down from the US$15bn valuation it enjoyed when it raised funds in September 2015. The announcement comes as Flipkart is locked in talks with Japan’s Softbank, the major backer of Flipkart’s struggling rival Snapdeal, over a possible merger deal.

Russia, CIS and Europe

Romania priced a EUR1bn bond this week. The notes maturing 2027 carry a coupon of 2.375% and were priced at 99.683% to yield 2.41%. Barclays, Citigroup, Erste Group, ING Wholesale Banking London, and Societe Generale managed the sale.

X5 Retail has lowered the coupon guidance for 3-year rouble-denominated Eurobonds to 9.25-9.375% from 9.5%, as demand for the notes exceeded RUB30bn. The company held a road show on April 5-7 in Russia and Europe, with Goldman Sachs, UBS and VTB Capital are the organizers.

Russia’s court of Arbitration has declared the ailing Tatfondbank bankrupt, thus satisfying the demands of the Russian Central Bank. Earlier the regulator stripped the bank of its licence as the estimate of the Tatar Republic bank’s liabilities was raised from previous RUB96.7bn to RUB118.3bn (US$2.07bn). Now the Deposit Insurance Agency (DIA), which was appointed by the bankruptcy administration, will start the process of resolving depositors claims and restructuring the bank’s debts.

Kazakhstan's Central Bank left its base rate at 11%, citing inflation within the target range, growing business activity and stable domestic financial markets. The National Bank of Kazakhstan last cut its rate by 100bp in February as part of an easing cycle that has seen rates cut by a total of 600 points since May 2016. Kazakhstan's inflation rate eased further to 7.7% in March for the eighth consecutive month of decelerating inflation, since hitting 17.7% in July last year.

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