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The Daily Roundup

US Fed hikes interest rate by 0.25bp - Saudi Arabia reaffirms oil production cuts amid scepticism – GCC sovereigns to issue up to US$33bn in 2017 – Egyptian oil chief replaces oil and gas company heads – Lukoil prepares to issue new bond - Banco del Estado de Chile issues US$100mn 7-year note - Argentina's Central Bank issues US$18.18mn in short-midterm local currency debt – China mulls linking mainland and Hong Kong bond markets

Mar 15, 2017 // 6:01PM

U.S. government debt prices were higher on Wednesday after the Federal Reserve announced an interest rate hike. The Central Bank raised rates by 0.25bp and signalled two more hikes this year. Wednesday's hike moves the overnight funds rate to a target range of 0.75% to 1%. Following the announcement, the yield on the benchmark 10-year Treasury notes, which moves inversely to price, was lower at around 2.529%, while the yield on the 30-year Treasury bond was also lower at 3.121%.

Middle East & Turkey

Moody's has revised its outlook on the Saudi Arabian banking sector from 'negative' to 'stable' this week, with credit volumes expected to remain broadly stable; but the rating agency also said it expects non-performing loans to edge up to 2.5%, up from 1.4%. "Despite low oil prices, which we expect to fluctuate between $40 and $60 a barrel over the next 18 months, and cuts in oil production, the Saudi economy will gradually recover, supported by government spending. As a result, Saudi banks' liquidity and funding conditions will improve. Although profitability and loan performance will continue to soften, Saudi banks will maintain robust capital and loss absorption buffers compared to regional and international peers over the outlook horizon," said Olivier Panis, a Vice President at Moody's in a statement.

Saudi Arabia told OPEC this week that it raised output back above 10 million barrels a day in February, reversing about a third of the cuts it made the previous month. The sovereign boosted production by 263,300 barrels a day last month, which fell short OPEC's initial estimates of the cuts made.

The unemployment rate in Turkey worsened to 12.7% in December according to official statistics, up from 12.1% in November 2016, and the highest since March 2010. The data suggest the Turkish economy is still struggling to rebound after steep currency losses led to a drastic rise in the price of imports.

Turk Eximbank has secured a 1-year €400mn (approx. US$425mn) loan from a syndicate of 22 banks, the Turkish Finance Ministry revealed this week. The deal, led by Bank of Tokyo-Mitsubishi UFJ, will see the bank pay LIBOR+110bp on the loan.

GCC sovereigns could issue as much as US$33bn this year, led by Oman, Kuwait, and Saudi Arabia, according to a report from Moody's. The rating agency expects issuance to be slightly more subdued than the US$38bn GCC sovereigns raised in bond sales during 2016.

Bahrain’s low FX reserves and Oman’s large current account deficit are putting pressure on the two Gulf state’s currency pegs, Moody’s research shows. According to the agency, Bahrain and Oman have the weakest balance of payments in the Gulf and could be forced to revalue their respective currencies – the dinar, worth USD2.65, and the rial, standing at USD2.6.

Qatar's Finance Minister Ali Sherif Al-Emadi told reporters this week that the country may not tap the bond market this year if oil prices continue to improve. The sovereign last raised US$9bn from international capital markets last year, and has secured permission in the 2017 budget to issue slightly less than that, but may abstain as the budget deficit continues to shrink on the back of higher oil prices.

Lebanon’s net borrowing is likely to be relatively small despite the country's bid to sell fresh Eurobonds, according to a new report from Standard Chartered Bank. "While Lebanon will also be looking to issue $1.5-$2 billion worth of bonds in March, we expect the total net issuance size to be small," the report said, adding that the country's success in boosting FX reserves and stimulating capital inflows could reduce the scale of anticipated borrowing.

Etisalat is insisting its wants its Nigerian subsidy to have its debt restructured before the Abu Dhabi-based telecom group sells its stake in the firm, according to multiple reports. Etisalat owns a 45% stake in Etisalat Nigeria, which recently defaulted on a US$1.2bn loan and is currently in talks with a trio of Nigerian banks to develop a restructuring plan.

Africa

Rwanda's economy grew by 5.9% last year, less than the 6.9% growth recorded in 2015, the statistics office said on Wednesday.

Egyptian Oil Minister Tarek al-Molla has replaced the heads of state oil company EGPC and state gas company EGAS, the Ministry of Petroleum said in a statement on Tuesday, reported by Reuters. Abed Ezz el-Regal will replace Tarek al-Hadidi, appointed in April 2016, as head of EGPC while Osama Al Bakly will take over from Mohamed al-Masry as head of EGAS.

East African Breweries Ltd. will look to raise up to KES6bn (approx. US$58.5mn) in fresh five year bonds, according to data from Bloomberg. The 5-year notes are part of a wider KES11bn bond programme and will pay a fixed interest rate of 14.67%. This is the first corporate bond to be issued in Kenya since October 2015.

Latin America

Chilean lender Banco Consorcio issued UF4mn (approx. US$120mn) in subordinated local debt in the local capital markets, according to a note on the Santiago Stock Exchange. The issuance was split evenly between a 21-year tranche paying 3.3% and a 24-year tranche paying 3.4%.

"Reputational and conduct risk will remain key issues for Panamanian banks in 2017 as the country continues to get swept up in a broader series of corruption scandals in Latin America, according to a note from Fitch. ""Panama's role as a regional financial hub is being increasingly challenged by the persistent corruption and money laundering events as well as competition from other centres. Over 30% of general license bank deposits in Panama come from abroad, mostly within Latin America, underscoring the potential for Panamanian banks to receive funds without clear origins,"" the rating agency said."

Chilean lender Banco del Estado de Chile issued CHF100mn in notes maturing 2024. The notes were priced at par to yield 0.575%. Credit Suisse was the sole bookrunner on the trade.

Colombian President Juan Manuel Santos in a video posted on Twitter acknowledged that his 2010 presidential campaign accepted illegal contributions from Brazilian builder Odebrecht, but insisted he was unaware of the illicit funding. Colombia’s leader reaffirmed that he "absolutely rejects" the payments and apologized to Colombians, calling the revelation "an embarrassing episode… that I have just learned about."

Colombian Finance Minister Cardenas and the country's Central Bank co-director Ana Fernanda Maiguashca were named in investigation related to cost overruns in Ecopetrol, according to local press reports. The two are being investigated for their roles during the renovation of state oil company Ecopetrol's refinery Reficar, which saw about US$6bn in cost overruns.

Odebrecht is rumoured to be close to selling the 60% stake in Rio’s airport operator RioGaleo to PSP Investments, according to local press reports. The company's outstanding debt with the government, said to be around BRL4bn, could be a barrier to any potential deal materialising.

Argentina's Central Bank issued US$18.18mn in short and medium term local currency debt on Tuesday, set a yield for 35-day bonds at 22.25%, compared to 22.75% last month and below the bank's benchmark policy rate of 24.75%. The Central Bank is now issuing the so-called Lebac bonds on the second Tuesday of every month.

Asia

India’s Central Bank has been forced to intervene after the rupee’s rally got out of control following Minister Narendra Modi’s resounding victory in key state elections. According to Bloomberg sources, state-run banks bought dollars, probably on behalf of the Reserve Bank of India, as the Indian currency rose 0.4% to 65.53 per dollar, its strongest level since Nov. 3, 2015.

Indian Bank is currently mulling whether to raise fresh capital, according to a note submitted to the Bombay Stock Exchange. A number of Indian banks are currently mulling whether to raise new capital as Basel III capital requirements emerge on the horizon.

Chinese leasing subsidiary Bank of Communications Financial Leasing hit the market for a whopping US$2bn triple-tranche bond this week. The company priced a US$700mn 2020 tranche at 99.792% to yield 3.07%, a US$1.05bn 2022 tranche at 99.478% to yield 3.62%, and a US$250mn 2027 tranche at 99.485% to yield of 4.32%. The sale was led by ANZ, Bank of Communications, CICC, Haitong International securities, HSBC, JP Morgan, and Standard Chartered Bank.

China Overseas Grand Oceans, a large residential property manager, has secured a HKD1.3bn (approx. US$167mn) 3-year facility from an undisclosed lender, it said this week. The company was rumoured to be in talks with banks over a potential HKD600mn facility, with the option of increasing to HKD1bn.

China's fiscal spending increased 17.4% year on year in the first two months of 2017, according to government statistics. Central government spending increased 8.1% from the same period a year earlier, with much of the funding bound for infrastructure projects and public housing.

Bank of Nanjing has secured regulatory approval to go ahead with a planned green bond issuance. The bank has permission to issue up to CNY5bn in green bonds over the next year, it said.

Chinese Premier Li Keqiang said on Wednesday that forecasts of a hard landing for the world's second largest economy should stop, though domestic and external risks remain and meeting the target of 6.5% growth for this year won't be easy. Keqiang also announced that the government aims to cut taxes and fees for companies by CHY1tn (US$144.65bn) this year, Premier Li Keqiang said Wednesday.

Hong Kong is mulling whether to link the mainland and Hong Kong debt markets, Premier Li Keqiang said this week. "This year, we are considering for the first time establishing a bond market connect between the Hong Kong and the mainland, allowing foreign capital to buy mainland bonds from overseas and Hong Kong will be the first to benefit from such an arrangement," Li said as quoted by Reuters. The proposed link would work in a similar way to "Stock Connect", which allows foreign equity investors to buy into the China A Shares market through Hong Kong exchanges.

Russia, CIS & Europe

Russian oil giant Lukoil plans to issue U.S. dollar-denominated Eurobonds, Reuters reported on Wednesday, citing banking sources. Societe Generale and Citi were chosen as the organizers of the deal. The last time Lukoil borrowed on the foreign market was in October 2016, when it placed U.S. US$1bn 10-year Eurobonds with a yield of 4.75%.

The Russian parliament on Friday will discuss proposed legislation to repeal Personal Income Tax on revenues generated from bonds issued between years 2017 and 2021.

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