Weekly Credit Risk Monitor /

Sri Lanka, Belarus elections; Argentina, Ecuador restructuring deals

  • In Focus: Belarus election doesn’t threaten the investment thesis; Buy

  • Other highlights: Sri Lanka election update, debt restructuring deals in Argentina and Ecuador, DNO Q2 review

  • Chart of the week: Interest rates on overnight swaps for Turkey's lira hit the highest since March 2019

Sri Lanka, Belarus elections; Argentina, Ecuador restructuring deals
Stuart Culverhouse
Stuart Culverhouse

Chief Economist & Head of Fixed Income Research

Kiti Pantskhava
Patrick Curran
Luke Richardson
Tellimer Research
6 August 2020
Published byTellimer Research

In Focus: Belarus election doesn’t threaten the investment thesis; Buy

  • President Lukashenko is highly likely to win a sixth term in the 9 August election, despite mounting opposition

  • Economy hit hard by coronavirus, but V-shaped recovery expected, helped by the oil agreement with Russia

  • Sound liquidity and funding sources limit near-term risks to debt service; recent repayment experience is good

Read the full report here.

Recap of the week’s key credit research

Sri Lanka election: President's ruling party ahead in vote count

We reiterate our views on the election from our previously published research Sri Lanka: Uncertainty breeds opportunity

  • Sri Lankan President Gotabaya Rajapaksa’s ruling party on Thursday took an early lead in vote counting and looks set for a landside win. Rajapaksa’s Sri Lanka Podujana Party (SLPP) was leading in nine out of 13 electoral districts from which early counting trends were available, according to Reuters. There are 22 districts total.

  • It is unclear if the SLPP will use its strengthened mandate to pursue reforms and an IMF programme or to double down on pro-growth policies that have led to higher fiscal deficits and debt. If the SLPP achieves a supermajority, there is also a risk that it reverses the 2015 constitutional amendment that limits the powers of the presidency and accelerates slide to authoritarianism.

  • While the emergency nature of RFI funding could provide a loophole to secure funding without the usual requirements for reform, the fact that its provision has been continually delayed suggests that the IMF is wary to lend to Sri Lanka without some clarity on its policy priorities and debt sustainability. We await the 2021 budget in the coming months for clarity on the government’s fiscal stance.

Read the full report here (published 10 June).

Argentina reaches a deal on debt restructuring

  • On Tuesday, Argentina reached a deal with its biggest creditors on terms for a restructuring of US$65bn in foreign bonds, after a breakthrough in talks 

  • Achieving debt restructuring is a necessary but insufficient condition for Argentina to return to a growth path

  • Debt restructuring is only the first step to regaining confidence and breathing space for monetary policy

Read the full report from our research provider Capital Markets Argentina here.

Ecuador: Bondholder approval for international debt restructuring

  • Ecuador announced on Monday that it had gained sufficient support for its consent solicitation and exchange offer after the failure of a last minute legal challenge

  • The government got 98.15% support in aggregate from bondholders and 95.42% support for the 2024 bond

  • The deal will see Ecuador exchange 10 existing bonds, amounting to US$17.4bn, into new bonds maturing 2030, 2035 and 2040; principal payments deferred until January 2026

See our recent report here.

DNO: Cash flows to improve into year-end

  • Q2 20 results came in expectedly weak, reflecting oil price shock and lower production

  • Recovery of oil prices, cost cutting, incoming tax refund and regular payments from the KRG point to stronger H2 20

  • Strong liquidity and long-term debt profile to mitigate increasing leverage; we reiterate Hold

Read the full report here.