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The Daily Roundup

Saudi cancels local debt sale ahead of Aramco sukuk – NBAD reopens book on US$500mn green bond – TMO, Gap Insaat to hit the sukuk market – SA MinFin called back on Zuma’s request – Nigeria to sell dollars above market rate – Oi bondholders reject restructuring – pressure eases on Brazil’s meat industry – PBOC chief highlights role of fiscal policy – Russia to delay Eurobond

Mar 27, 2017 // 5:38PM


Middle East & Turkey

Lebanon has secured a KWD11.2mn (approx. US$36.9mn) from the Kuwait Fund for economic Development (KFAED) which will be put towards projects that boost the supply of water in a number of agrarian communities.

The Saudi government will cancel its local debt sale for the sixth consecutive month, fuelling more speculation the sovereign is keen to keep local market liquidity in a strong position in anticipation of a forthcoming Saudi Aramco sukuk sale. The state-owned oil company is looking to raise as much as SAR37.5bn (approx. US$2bn) from the sukuk, which will be denominated in riyals.

Saudi Arabia has cut taxes imposed on Saudi Aramco, the state-owned oil producer, ahead of the company's IPO. The company will now have to pay a 50% tax rate on income, as opposed to the 85% it was previously paying, according to the Saudi Press Agency.

The National Bank of Abu Dhabi (NBAD) has re-opened books for what could become the Middle East's first green bond, according to a report from Bloomberg. The bond, which is expected to be benchmark sized or roughly US$500mn, was due to be sold last year but was placed on hold due to pricing considerations. Bank of America Merrill Lynch, Citi, Credit Agricole, HSBC, Mistubishi UFJ Financial Group, and NBAD are arranging the deal.

The UAE expects to save around US$192bn from its plan to switch half of its energy production from fossil fuels to renewables by 2050, the country’s Minister of Energy Suhail Al-Mazrouei said this weekend. The GCC state plans to invest US$150bn in renewable power in the next 30 years as part of the plan to ween the economy from dependency on subsidized natural gas.

Emirates Global Aluminium has selected advisers for an initial public offering that could raise around US$3bn for the Middle East’s largest aluminium producer, Bloomberg reported citing sources. The UAE-based company is working with Bank of America Corp., Goldman Sachs Group Inc. and JPMorgan Chase & Co. on the deal, which could also see EGA carve out a niche on overseas stock exchanges – for example London, though it is yet to be confirmed.

A number of Turkish entities have secured approval from regulators to issue their debut sukuk, according to media reports. Turkey's state grain market regulator, TMO, and local construction firm Gap Insaat plan to raise TRY150mn and US$118.4mn, respectively, through the sale of Islamic bonds, according to Reuters.



South Africa's Minister of Finance Pravin Gordhan has reportedly been called back from meetings with investors and rating agencies in London, fuelling speculation that Jacob Zuma is looking to reshuffle his cabinet. Gordhan, who has repeatedly clashed with Zuma in the past, was in London with a delegation of South African business leaders on Sunday and was due to participate with investor meetings throughout the week.

Ghana's Central Bank has cuts its benchmark interest rate for the second time in as little as four months as the cedi continues to show signs of recovery. The Bank of Ghana cut the benchmark rate by a whopping 200bp, from 25.5% to 23.5%, the largest single cut in over seven years.

Nigeria Central Bank will sell dollars to private individuals at NIN360 per dollar, the Bank announced on Twitter Monday. Currently the official market rate is NIN315 to the dollar. For several weeks, the CBN has been intervening on currency markets to narrow the spread with the black market rate, which currently sits at around 520 to the dollar, following a devaluation of the naira for retail customers to 375.



Brazil is expected to report mid-March inflation at 4.73% year on year, its lowest level since 2010, and a further sign the economy is on the mend. Some analyst has said the data support steep interest rate cuts when the Central Bank meets later this week, with a recent Bloomberg survey suggesting markets are seeking a cut of about 100bp off the selic rate.

Oi's creditor have reportedly rejected a new restructuring plan proposed last week, claiming the terms of the deal were not previously negotiated with either bondholder groups. The plan, a revised version of the one presented in September last year, would have seen a grace period of four year of interest payments for class 2 creditor and a six-year grace period for class 3 creditors, in addition to offering optional equity conversions. The deal would have also seen the company issue up to BRL2.8bn in fresh bonds as well as a BRL3.9bn callable contingent convertible bond.

Brazilian pulp and paper giant Klabin hit the local markets at the end of last week to place BRL845.9mn (approx. US$262mn) in local market notes due 2022, according to a market announcement. The sale was arranged by Banco Itaú BBA S.A., BB Banco de Investimento S.A, Banco Bradesco BBI S.A, and Banco Santander (Brasil) S.A.

Mexico's Central Bank is expected to follow the US Federal Reserve this week and hike rates by 25bp to 6.5% when it meets later this week. March CPI rose to 5.29% year on year, increasingly above Banxico's 3% target.

China, Chile, and Egypt have started to lifted sanctions placed on Brazil's meat industry. Imports from the Latin American country came under fire after allegation emerged that inspectors were bribed to approve the sale of spoiled meat.

Peru's Central Bank lowered its growth expectations last week, saying that it expects the economy to grow 3.5% instead of 4.3% this year and 4.1% instead of 4.2% in 2018. The slowdown has been attributed to a number of external factors, including the need to rebuild parts of the country damaged by recent El Nino storms and flooding, as well as the ongoing graft scandal.



S&P has lowered its credit rating on China Hongqiao Group Ltd. to 'B+' from 'BB', in part due to increasing risks around the company's financial reporting practices and liquidity concerns. The company is said to be applying for a waiver for a large syndicated US dollar loan.

Zhou Xiaochuan, chief of the People's Bank of China (PBOC) has argued in favour of using fiscal policy levers to address structural inhibitors to growth. "After so much quantitative easing in monetary policy, we may have reached an end of this period," he said, speaking at a conference over the weekend, according to Chinese press. Xiaochuan also cautioned against overreliance on monetary policy to achieve growth and consumption targets.

Indonesian construction firms Hutama Karya, Wijaya Karya, Waskita Karya and Adhi Karya are all looking at tapping into the bond market over the next few weeks, according to a report in Reuters citing DCM bankers, with total bond supply reaching up to IDR30tn (approx. US$2.2bn) over the next couple of months.

Indian mortgage lender Housing Development Finance Corporation (HDFC) said it raised Rs3,000 crore through the issuance of masala bonds last week. According to a filing with bourses, the company said it raised the capital by issuing notes maturing in 2020 at a yield of 7.35%.

The Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.5%, with inflation coming down 20bp from 1.6% in January to 1.4% in February.

South Korean prosecutors are demanding an arrest warrant for ex-president Park Geun-hye for her alleged role in the ongoing corruption scandal that led to her impeachment earlier this month. December’s impeachment vote by the National Assembly, stripping South Korea’s leader of the presidency and immunity from prosecution, was upheld by the country’s Supreme court earlier in March.

Indian sovereign bonds climbed this week, pushing the benchmark 10-year yield down to lowest rate since November, while the rupee continued its rally with a fifth straight weekly advance on Friday. Overseas holdings of local-currency government and corporate notes rose by INR135.7bn rupees (US$2.1bn) last week, the most since October 2015, according to the National Securities Depository Ltd.

Pakistan's Central Bank kept its monetary policy rate at the largely expected level of 5.75%, stating that improving domestic demand will define inflation in the coming 2018 fiscal year while expanding economic activity has translated into a significant rise in imports, pushing up the account deficit.


Russia, CIS and Europe

The Russian rouble retreated past the RUR57 per dollar mark on Monday, following a series of mass protests that took place this weekend in over 100 cities and towns across the country, including Moscow and St Petersburg. The US state department and its EU counterparts issue statements condemning Moscow for the arrest of protestors and opposition leader Alexey Navalny, whose investigation into alleged corruption of Prime Minister Dmitry Medvedev and other state officials ignited the opposition rallies.

Russia’s Ministry of Finance is likely to delay the Eurobond sale it planned to launch this spring, the national news agency TASS reported citing government sources. According to the report, the hold-up resulted from complications in setting up the procedure for assigning organizers for the issuance. The sources have not provided any clues as whether a new date has been set for the debt sale.

Inflows to emerging markets remained buoyant this week, with the latest week seeing another 0.8% increase in assets under management (AUM), split equally between hard currency and local currency funds, according to data from ING Bank. Overall, EMs have seen inflow growth of around 13.6% on the previous year, with most of that being put into hard currency funds.

The Central Bank of Hungary is expected to keep rates unchanged when it meets Wednesday, though it may trim the deposit cap in what analysts call a "symbolic move". Inflation rose to 2.9% year on year in February, the highest in nearly four years but still below the bank's 3% inflation target.

Croatia is preparing new legislation the country's lawmakers say will protect the economy from corporate distress on a scale seen by one of its largest corporates, Agrokor. The law, designed to help stabilise faltering companies and insulate the economy from contagion, will apply to companies with more than 8,000 employees and debt of at least US$1.1bn, according to the country's Economy Ministry.

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