Weekly Credit Risk Monitor /

Weekly Credit Risk Monitor

    Stuart Culverhouse
    Stuart Culverhouse

    Chief Economist & Head of Fixed Income Research

    Tellimer Research
    13 June 2019
    Published byTellimer Research

    In Focus: Barbados government presents new restructuring terms

    The government published revised restructuring scenarios for its external debt (ie US$ bonds and loans) on 11 June. These follow the first set of indicative restructuring scenarios presented in November (see our research here ). In this note, we assess the new proposal and provide estimated recovery values.  

    The new US$ discount bond (Scenario 1) presented in the revised scenarios has slightly better terms than before, and we think implies a slightly lower PV haircut, but it is still quite large (c40%). 

    We retain our Hold recommendation on the existing bonds. At a conservative 12% exit yield, we estimate a PV of the new US$ discount bond at 51.7 per unit of existing principal. The estimated recovery value rises to 59.1 per unit of existing principal at a 10% exit yield. This compares with the market context of mid-60s for the existing BARBAD bonds before the news. The existing bonds may therefore appear a bit rich – or current prices can only be justified on a more aggressive exit yield assumption, but given limited liquidity conditions in the bonds, we reiterate Hold.

    Read the full report here

    Recap of the week’s key credit developments 

    Argentina (ARGENT): It was an important week in Buenos Aires. On Tuesday came the news that President Mauricio Macri had picked a moderate Peronist, Senator Miguel Pichetto, as his vice-president running mate. The move was seen as positive by markets as it could widen Macri’s support base outside Cambiemos and draw disaffected Peronists. Then on Wednesday, Sergio Massa finally confirmed his alliance with the Alberto Fernández-Cristina Fernández (F-F) Peronist alliance (PJ, UCR and some other smaller parties). Meanwhile, a third alliance emerged out of the effective collapse of the Alternativa Federal movement, as ex-economy minister Roberto Lavagna agreed an alliance with Salta governor Juan Manuel Urtubey under the banner Federal Consensus 2030. Our view: On balance, we think these developments might temper the rally that greeted Macri’s announcement of his Peronist VP, as markets digest what these alliances mean for voting behaviour and different election scenarios.  

    Ukraine (UKRAIN): Ukraine (Caa1/B-/B-) announced plans to issue a 7-year EUR-denominated bond, its first issue since October and the first EUR-issue since 2005. IPT was 7.125% but guidance was subsequently refined to 6.875%-7%. Our view: The timing of the issue is interesting, coming amid the political uncertainty after the dissolution of parliament as new President Zelensky seeks early elections and as the IMF discussions on the first review of the SBA stall, pending the forthcoming elections. 

    Pakistan (PKSTAN): Pakistan’s PTI government presented the much anticipated, first full budget for FY 20 (which runs through June 2020) on Tuesday. It targets a fiscal deficit of 7.1% of GDP (little changed from 7.2% in FY 19e), based on real GDP growth of 2.4% (3.3% in FY 19) and inflation of 11-13%. Our view: We believe that there should be a significantly higher emphasis placed on overall fiscal consolidation over the 7.1% deficit that is currently being proposed. While this is a slight improvement over the 7.2% deficit in FY 19, it certainly will not be enough to stabilise the country’s debt trajectory. 

    ForteBank (ALLIBK): S&P upgraded ForteBank to B+ from B on 6 June. The bank’s subordinated debt was raised to B- from CCC+. The outlook on the new ratings is stable. The upgrade reflects ForteBank’s improved competitive position.  

    Renaissance Credit Commercial Bank (RCCF): Following the redemption of a US$100mn subordinated bond in May, RCCF has placed a EUR50mn 5-year subordinated security. The bond was issued at par, with a 10% coupon, and is worth noting given the dearth of issuance from Russian banks since sanctions were first imposed on state-owned lenders in 2014.

    Turkish banks: The Turkish banking regulator has increased the maximum number of monthly card instalment payments on purchases of furniture, accommodation, household appliances and other goods and services. The minimum payment rate has also been lowered. These changes came in the same week in which the Turkish Treasury announced further support for Turkish companies, in the form of a TRY25bn loan scheme, which will benefit from an 80% repayment guarantee. 12 Turkish banks are expected to participate in the scheme.

    Dubai Islamic Bank (DIBUH) and Noor Bank (NOORBK): The Board of Dubai Islamic Bank has recommended acquiring Noor Bank. The banks disclosed that they were in talks in April. DIBUH is clearly the larger of the two lenders, with AED224bn in total assets at end-2018, versus AED51bn at Noor Bank. The Investment Corporation of Dubai owns stakes in both banks.

    Privatbank (PRBANK): In yet another busy week for headlines regarding Privatbank, it was reported that (a) the bank has made a UAH4.5bn dividend payment to the state, and will make another UAH7bn payment by the end of June, (b) according to the Deputy Chairperson of the Board, Privatbank lost US$9bn due to the annexation of Crimea, (c) deposit outflows reached US$300mn after the nationalisation of the bank was ruled unlawful, and (d) Privatbank won a case against a company associated with the former shareholders in Ukraine’s Supreme Court.

    TBC Bank (TBCBGE): Georgia’s largest bank by total assets has placed a debut 5-year US$300mn bond. At the time of writing the bond was up versus the re-offer level of 98.934. Bank of Georgia (GEBGG) is clearly the closest comparable.  

    MHP (MHPSA): The company reported weak Q1 19 results, negatively affected by high cost inflation. Revenues were US$436mn (+13% qoq and +42% yoy), EBITDA was US$83mn (-6% qoq and -7% yoy) and the EBITDA margin decreased to 19%. The company continued to deliver revenue growth backed by new chicken meat capacity and will stay on this track, adding capacity organically and through the acquisition of Perutnina Ptuj (PPJ).