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Emerging Markets Update

Emerging Markets High Yield outlook

The US consumer confidence dropped to 94.2 in April from 96.2 driven by a decline in expectations sub-index. Durable goods orders ex. transportation also came out weak declining by 0.2%m/m. Overall, we see more signs of slowdown in the US economic activity over the past two months.

  • EM HY corporate bonds continued to drift lower yesterday losing 5bps, far from what could be called a correction.
  • The market seems be on hold before the Fed’s rate decision. The Fed is not expected to change the rate, and no press conference will take place after today’s announcement, so the focus will be on the statement.
  • It would be interesting to see how the Fed assesses risks from global financial developments given the market stabilization since the past meeting.
  • We still think the bullish momentum prevails for now.


REGION SUMMARY A new wave of oil rebound to local highs may increase the market risk-on mood and provide additional demand for high-yield Eurobonds.

MACRO The National Bank of Hungary continues to ease its monetary policy in order to speed up inflation; the move should also support the country’s corporate and sovereign Eurobonds.

The National Bank of Hungary has lowered the benchmark three-month deposit rate to a record 1.05% from 1.20% on Tuesday (the second straight cut of that size), in line with analysts forecast.

Kazakhstan will receive a USD 2 bln loan credit line from the World Bank. It plans to use half of it to cover the budget deficit this year, Interfax reports, citing the national Economy Minister Erbolat Dosayev. The budget deficit is expected to reach 2% of GDP in 2016, according to the news agency.


Moody’s has downgraded the JSC NC Kazakhstan Engineering rating to B1 from Ba3. The outlook is negative. The rating action follows the downgrade of Kazakhstan’s government bond rating on April 22, 2016. Moody’s confirmed a high probability of the state support for the company, given the strategic importance of KE’s defence business to the government. However, the agency stated the KE’s standalone credit profile remains very weak.

NEW ISSUES  Severstal sold USD 200 mln of convertible bonds on Tuesday with a 0.5% Coupon. The conversion premium has been set at 17.5%, above the weighted average price of GDR on April 26.


ASIAasia 7

MACRO The headline industrial profits figure was good but the underlying data and comments from NBS indicate that profits got a boost from non-core activities meaning that it is not sustainable in nature. The problem sectors, mining and heavy industry, continued to show dire conditions.

The Chinese industrial profits increased by 11.1%y/y in March compared to a decline of 4.7%y/y a month earlier.

Westpac MNI China consumer sentiment index declined to 117.8 in April from 118.1 a month earlier.


Fortescue Metals Group has initiated repayment of FMGAU’19 bond offering to buy back the full outstanding amount of USD577m at price of 104.125.

Papua New Guinea’s Supreme Court ruled that Regional Processing Centre at Manus Province is unlawful. Australian Broadspectrum issued operational update reaffirming FY2016 outlook and announcing it has secured USD100m of new contacts in the energy sector.

LATAMimages (31)

REGION SUMMARY We do not rule out the positive move will continue in the Brazilian bond market today; however, the Fed decision may change the sentiment.


Brazilian markets positively reacted to the Brazil’s Vice President Michel Temer interview, where he told that Meirelles, who led the central bank at a time of faster growth, slower inflation and market rally, would become his finance chief should Rousseff ‘s impeachment occur.

Brazilian Supreme Court lifted a house arrest order on Andre Esteves, the billionaire founder of investment bank Grupo BTG Pactual who was jailed in November as part of a nationwide corruption probe. Esteves was BTG’s chairman and chief executive officer.


Standard & Poor’s has lowered Oi S.A.’s corporate credit rating to ‘CCC-‘ from ‘CCC‘ due to a likely debt restructuring. The rating action followed the company’s announcement on the agreement with Moelis & Company that will act as advisor for a group of bondholders to expedite discussions over a potential debt restructuring. The agency expects 30%-50% (in the lower half of the range) recovery following the default.

Expect some positive reaction of Minerva’s Eurobonds to the company’s 1Q2016 financial results, mainly due to the credit metrics improvement.

Minerva S.A., one of the South American fresh beef producers, has announced its results for the first quarter of 2016. Net revenue increased by 8.4% in 1Q16 over 1Q15 (fell 15.1% vs. 4Q2015, mainly due to the real appreciation); EBITDA grew 33.6% YoY but decreased 25% QoQ. Net Debt to EBITDA ratio improved to 2.9x from 4.1x as of Dec. 31, 2015. At the end of February, Minerva concluded its capital increase, booking R$746 million under cash. Exports accounted for 69% of the company’s consolidated revenue in the first quarter.


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