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Emerging Market Credit Daily Roundup

Alargan completed bond buyback – Egypt plans US$1bn sukuk later this year – Turkey loan growth hits 21.2% - Zambian opposition leader arrested for treasonous road blockage – World Bank cuts Kenya growth forecast – Argentina boldly hikes policy rate – Saneamento Ambiental Aguas do Brasil, Cremer ready debentures – Brazil rocked by fresh political scandal – Yida China Holdings, China Oil And Gas Group hit Eurobond market – Indian government rejects loan waiver calls – X5 makes capital markets debut

Apr 12, 2017 // 4:51PM


Global Themes

The euro has consistently trended lower since 2014 and has weakened against the yen for the 11th consecutive trading session this week, according to data from Bloomberg. Analysts at BBH reckon the shift signals growing political anxiety surrounding the West. "The euro-yen cross may express geopolitical axis.   The anxiety ahead of the French presidential election, the US missile strike in Syria, and heightened tensions on the Korean peninsula all seem to favor the yen. The French election and widening premium that is being demanded of the French is seen as broadly euro negative," explained Marc Chandler, who heads up FX strategy at BBH. "The pressure on the euro-yen cross pre-dates the heightened political concerns. We suspect that interest rate developments are more important than geopolitics in explaining euro-yen movement."


Middle East & Turkey

Kuwait-based Alargan International Real Estate Company announced it finalised a bond repurchase this week, buying back KWD17.4mn (approx. US$57.4mn) in bonds maturing this year, and originally issued in 2012. The move was in line with the company's deleveraging strategy.

Egypt is planning to issue a US dollar sukuk worth US$1bn later in the financial year 2017/2018, the Deputy Finance Minister for Public Treasury, Mohammed Meit, announced. The sovereign has been moving toward a sale of sukuk ever since the government was led by former president Mohamed Morsi, whose administration initially planned to boost the Shariah-compliant industry.

Abu Dhabi sovereign wealth fund Mubadala issued a US$1.5bn bond in the international markets this week. The sale consisted of a 7-year US$850mn tranche carrying a 3% coupon and priced at par, and a 12-year US$650mn tranche priced at MS+140bp to yield 3.752%. Barclays, HSBC, Natixis, National Bank of Abu Dhabi, SMBC Nikko and Standard Chartered managed the trade.

Turkey’s annual loan growth quickened to 21.2% at the end of March – on par with January levels – following the government’s attempts to incentivise lending in the country ahead of the coming referendum. The measures introduced by the state included state-guaranteed loans, tax cuts and looser banking provisions to help revive the nation’s economy after a failed coup attempt in July.



Zambian opposition leader Hakainde Hichilema has been charged with treason for failing to move off the road to make way for the president's motorcade over the weekend, according to multiple reports. The arrest is the latest confrontation between Hichilema and the current president, Edgar Lungu, who has repeatedly labelled Hichilema a dissident; Hichilema also contested last August's election results, arguing electoral fraud precipitated the outcome.

The World Bank cut Kenya's economic growth forecast for this year by half a percentage point on Wednesday to 5.5%, citing drought, sluggish private sector credit growth and rising prices of oil. The country is estimated to have expanded by 5.9 percent last year, but the outlook has been hit by months of dry weather and a substantial fall in annual private sector credit growth, from 17% to 4% since 2015.

Kenya is selling two 10-year bonds worth US$4291mn to fill a budget deficit before the close of the fiscal year in June. The bonds will be up from April 10 to 18 at the Central Bank of Kenya (CBK) and will later be listed at the Nairobi Securities Exchange's secondary market from April 25.

South African downgrades are likely to influence investing throughout the rest of Africa due to its position as a gateway to the continent, explained Johannes Möller, President of AgriSA, an agricultural trade body, in a statement this week. “On the investment front, the country’s downgrading and also those of major local banks will most certainly not be conducive towards obtaining international funds for on lending into Africa nor can expansion of the banks into Africa be expected.”

Algeria's economy grew 4% in 2016, up from 3.8% the previous year, driven by a slight improvement in the energy sector, the Central Bank governor said on Wednesday. The energy sector rose by 5.6%, up from 4% a year earlier, Central Bank Governor Mohamed Loukal told parliament, while annual inflation last year was 6.4% versus 4.8% a year earlier.

Uganda's Central Bank cut its benchmark lending rate to 11% on Wednesday from 11.5%, saying core inflation would remain around the bank's mid-term target over the next 12 months. The cut was the seventh in succession since last April as policymakers rein in borrowing costs from a peak of 17%, following a surge in inflation.

Namibia's Central Bank maintained its benchmark repurchase rate at 7%, saying this rate "remains appropriate to support growth, while maintaining the one-to-one link between the Namibian Dollar and the South African rand." The Bank of Namibia added that domestic growth slowed in 2016 from 2015 and early indications show this downturn has continued in the first two months of this year due to "bleak performance in the mining sector, particularly diamond production.



Argentina's Central Bank raised its policy rate by 150bp, bringing interest rates to 26.5% after government data showed consumer prices rose a higher-than-expected 2.4% in March. The March figure, published by the official National Institute of Statistics and Census of Argentina (Indec) on Tuesday, was little changed from February's 2.5% rise in consumer prices.

Brazil's political elite were rocked by yet another series of corruption allegations linked to the Odebrecht bribery scandal. The new allegations, derived from statements given by over 100 employees, implicate 8 cabinet ministers - a third of President Michel Temer's cabinet, dealing a massive blow to the current government and its ambitiuos reform agenda.

Brazilian waste water treatment firm Saneamento Ambiental Aguas do Brasil S.A. is readying a BRL50mn debenture, according to a regulatory filing. The sale is being led by Banco ABC.

Dental equipment supplier Cremer SA is prepping a BRL55mn debenture this week, according to a regulatory filing. The sale is being led by Banco Santander Brasil SA.



Chinese real estate developer Yida China Holdings hit the international market this week to sell a US$300mn bond. The notes maturing 2020 were priced at par to yield 6.95%. MTD Asset Management Limited, Bali Securities, Bank of America Merrill Lynch, China Securities (International) Finance, CLSA, China Minsheng Banking, Deutsche Bank, GF Securities, Haitong International securities, Sun Hung Kai & Co., UBS, and Zhongtai International Securities managed the sale.

Regional natural gas player China Oil And Gas Group Limited sold a US$350mn Eurobond this week. The notes maturing 2022 were priced at par to yield 4.625%. Deutsche Bank and Morgan Stanley managed the sale.

Schroders is adding Chinese onshore bonds in its ISF RMB Fixed Income fund, according to a report in CityWire, yet another sign of foreign investors looking to bolster their exposure to the world’s third largest bond market. The fund will now be able to invest directly into onshore debt through the China Interbank Bond Market, and there will be no restrictions on the minimum credit rating required for investable securities.

India has launched its cheapest solar power project to date with Engie SA’s local arm winning a tender for as 250 megawatt development, at just INR3.15 per kilowatt-hour. Power Minister Piyush Goyal confirmed the results on Twitter, saying the prices bid were a record low in the auction in the southern state of Andhra Pradesh.

India’s inflation rose less than expected in March, taking pressure off the Central Bank for more action after it unexpectedly tightened monetary policy last week. Consumer prices rose 3.81% in March from a year earlier, the Statistics Ministry said in a statement from New Delhi on Wednesday.

India's central government has rejected calls to offer waivers for farm loans extended amidst one of the worst crop yield seasons in years. The government has already announced a Rs36,000 crore package to help ease the plight of farmers whose crops have failed. Analysts suspect the poor yields will lead to a rise in non-performing loans in India's banking system.

Russia, CIS and Europe

Russia's Central Bank does not expect a large capital outflow in future, and the current account surplus will decline, Central Bank official Alexander Morozov told Reuters. The Russian official was answering a question as to whether the Central Bank would raise its capital outflow forecast for this year after fresh data showed a larger than expected capital outflow in the first quarter.

X5 Retail Group made its capital markets debut this week, pricing a RUB20bn bond maturing in 2020. The notes were priced at par to yield 9.25%. Goldman Sachs, UBS, and VTB Capital managed the sale for the Russian retail consortium.

The Russian government could gain control of two US refineries and pipelines if Venezuela's PDVSA defaults on a US$1.5bn loan extended to it by Rosfnet. As collateral for the loan, the Venezuelan oil company put up its 49.9% equity stake in Citgo Petroleum - which owns several refineries in the US and a broad network of transmission and distribution pipelines in the country. The concerns were expressed in a letter from Congressional representatives Jeff Duncan (R., S.C.) and Albio Sires (D., N.J.) in a letter to the Treasury last week. Rosneft was recently partly privatised when the government sold its 19.5% stake in the oil giant.

Czech koruna’s release from an intervention regime last Thursday has not yet materialised in an extended rally, but a growing number of long positions held by investors on the koruna means a repeat of the Swiss franc story may yet happen. The koruna traded at 26.63 on Wednesday, 1.4% percent stronger that the 27 level the Central Bank held for over three years. While that figure is less than what many investors were hoping for, the current rate is under pressure from the Central Bank’s EUR70bn worth of interventions.

Khazak state-owned oil & gas company KazMunayGas issued a US$2.75bn triple-tranche bond in the international markets this week. The issuance included a US$500mn tranche maturing 2022 which priced at 99.663% to yield 3.95%; a US$1bn tranche maturing 2027 which priced at 99.02% to yield 4.875%, and a US$1.25bn tranche maturing 2047 which priced at 98.247% to yield 5.875% Citigroup, Deutsche Bank, Halyk Finance, SkyBridge Invest, and UBS managed the trade.

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