Africa and Middle East · Asia Pacific · Banks · Brazil · China · Country News · Credit · Economic Outlook · Emerging Markets · Europe · Fixed Income · Global Economy · LATAM · OIL · Ratings · Risk · Russia · Saudi Arabia

Emerging Markets Watch

EM Fixed Income Insight & Intelligence

The Saudi Arabian and Russian oil ministers meeting increases the chance of a deal between major exporters to cut production. However, the negotiations are far from the final phase. The news will positively affect bond markets.

• The decision to revoke the sanctions against the Belarus government officials may have a positive effect on the sovereign Eurobond, as it increases the chance of receiving support from the IMF or European financial institutes.

• We expect the recent Azeri rate hike to have little effect on the amount of hard currency deposits; however, it may negatively impact the economic recovery and demand for the USDdenominated bonds.

• The Indonesian trade deficit declined in January. However, the decrease was driven by a sharp fall in import, and only marginal export improvement shows the data is not as positive as the headline figure may suggest.

Data on new loans in China is positive only from the standpoint that it provides hope and indicates on continued support for the economy from authorities.

• We expect 2016 to be very challenging for Anton Oil with the potential cash generation improvement later.

Oi’s credit rating was downgraded by S&P. We don’t expect any substantial market reaction to this announcement.

• The JBS’ management denies claims it had negotiated a takeover bid with Natura. We don’t expect any market reaction, as it was indifferent to this speculation flow

. • The possible assets sale by Usiminas could become a positive trigger for the company’s bonds. Brazilian steel industry entering in high risks territory.

Main Drivers:

Mario Draghi’s comments could reduce investors’ concerns. At the same time, it is difficult to predict future dynamics of the European economy.

Yesterday, ECB president announced his strategy in the European parliament. According to Mario Draghi, ECB would act if the market turmoil negatively influences the real economy. Special attention would be payed to the effect from low energy prices on the economy. ECB next meeting is scheduled on March, 10. Such a statement could to some extend calm down investors. At the same time, it is difficult to predict future dynamics of the regional economy.

Oil prices are supported by the expected meeting between the Saudi Arabian and Russian energy ministers who may discuss the oil market today. Currently, there are no details or comments from the officials about the main target of this meeting. More investors are betting the deal could be reached by the key world oil producers. We warn our investors about the latest oil rebound that was fundamentally unfounded and based on speculations. Oil price volatility will stay high in the nearest future.

 

CEEMEA :ceemea_map_big

REGION SUMMARY  The market may continue its rebound today, as investors hope Russia and Saudi Arabia may agree on oil production cuts.

MACRO  The Saudi Arabian and Russian oil ministers meeting increases the chance of a deal between major exporters to cut production. However, the negotiations are far from the final phase. The news will positively affect bond markets.

The decision to revoke the sanctions against the Belarus government officials may have a positive effect on the sovereign Eurobond, as it increases the chance of receiving support from the IMF or European financial institutes.

The European Union governments lifted sanctions imposed on Belarus leaders. As reported, asset freeze and travel bans against 170 officials, including President Alexander Lukashenko, were revoked by the EU ministers on Monday. EU rewarded the Belarus leader for freeing political prisoners and playing a role in mediating the cease-fire in Ukraine. The Belarus government expects the IMF will take decision on USD 3 bln 10-year loan by the end of March.

We expect the recent Azeri rate hike to have little effect on the amount of hard currency deposits; however, it may negatively impact the economic recovery and demand for the USDdenominated bonds:

The Azeri Central bank hiked its key rate for the first time in almost 5 years as it struggles to support the national currency. The benchmark will rise to 5% from 3% as of Monday to encourage savings in manat. The move also intends to help to “improve monetary policy tools”, the regulator said in the statement. Manat lost around 50% against the USD in two devaluations last year.

 

ASIAasia 7

REGION SUMMARY  The Indonesian Eurobonds are marginally higher today, while Malaysia Eurobonds and Chinese local bonds are trading in a slightly negative territory.

MACRO   Indonesia trade deficit decreased in January. However, the decrease was driven by a sharp fall in import, and only marginal export improvement shows the data is not as positive as the headline figure may suggest. The current market focus is on the Bank of Indonesia policy meeting that will take place on Feb., 18. The central bank is expected to cut its interest rate.

Data on new loans in China is positive only from the standpoint that it provides hope and indicates on continued support for the economy from authorities. How successful will these attempts be and how significantly will they help growth remains to be seen, as this will take time:

New loans issued in January increased to CNY 2.5trl  which is the highest on record. The aggregate financing reached CNY3.4trl over the same period. Separately it was reported that commercial banks NPLs increased to 1.67% at end-2016 from 1.25% a year earlier. Special mentioned loans accounted for additional 3.79% at end-2015.

CORPORATE  Anton Oil’s liquidity position is very tight and the company is dependent on external financing to fund its debt servicing needs. So far, Anton was able to arrange credit support but more may be needed in 1H16. This exposes the company to a high risk of liquidity squeeze:

Fitch Ratings has downgraded Anton Oilfield Services to ‘CCC’ from ‘B-‘. According to the agency, “the rating action reflects Anton’s elevated refinancing risk amid a deteriorated operating environment. Fitch expects the industry conditions to remain weak due to significant near-term pressure on oil prices. There is thus limited potential for Anton to meaningfully improve its operating cash flows in the near-term. The company will continue to be highly reliant on rollover and maintenance of credit facilities to fund its operations”.

 

LATAM   images (31)

REGION SUMMARY  The regional market was flat yesterday due to a holiday in the US. We expect the regional bond market to go up today, as oil price growth somehow changes in sentiment.

CORPORATE   Oi’s credit rating was downgraded by S&P. We don’t expect any substantial market reaction to this announcement:

Oi’s credit rating was downgraded by S&P from BB+ to BB- with a negative outlook. The agency commented that weak market conditions and Brazilian currency depreciation would negatively affect its cash generation and debt levels. S&P expects the company’s debt to LTM EBITDA above 6.0x in the next two years. The agency pointed that possible deal with Letter One could substantially change the situation for the company, but it’s difficult to estimate its probability. Oi’s liquidity for the next 12 moth is adequate, as sources of liquidity will exceed uses by more than 1.2x. Nevertheless.

There were some market speculations the JBS plans to buy Natura. The company’s management commented it had never been in negotiations with Natura and didn’t have any plans to buy the company.

Brazilian steel producer Usiminas hired banks for potential unit sale. The company faced a very difficult situation as it has a huge USD-denominated debt and its cash generation dropped due to current price environment in Brazilian steel industry. The possible sale of some assets could become a positive trigger for the company’s bonds. Such a dynamics underlines an extremely challenging situation in the Brazilian steel industry. The other two main market players Gerdau and CSN faced the same difficulties Hihg risks

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s