Weekly Credit Risk Monitor /

Weekly Credit Risk Monitor

    Stuart Culverhouse
    Stuart Culverhouse

    Head of Sovereign & Fixed Income Research

    Tellimer Research
    25 July 2019
    Published by

    In Focus: Ukraine: Zelensky wins comfortable majority in parliamentary elections; upgrade to Buy 

    President Volodymyr Zelensky’s Servant of the People Party has secured a comfortable majority in parliament after a resounding victory in the Rada elections on Sunday 21 July.

    Zelensky’s party exceeded expectations. Its solid majority will enable him to focus on his own agenda and legislation without the need to rely on others, which could be positive for policymaking and implementation. Until now, recall that his policy intentions have been vague. Now the real work starts. 

    We upgrade our view on Ukraine US$ bonds (specifically ‘28s) to Buy from Sell, with a yield of 7.1% (z-spread 517bps). Markets have already anticipated a lot of the good news about Zelensky’s reformist zeal and ability to govern, but we think further spread tightening is possible. 

    We also reiterate our Buy on the GDP warrants, our strongest view in the Ukraine sovereign landscape. These are now indicated at c82 (mid). Our fair value is estimated at 135 at these lower discount rates (assuming 10%).

    Read the full report here

    Recap of the week’s key credit developments

    Nigeria (NGERIA): On Tuesday, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously voted to keep the policy rate and other monetary policy tools unchanged, as expected. The CBN has attempted to boost lending through other tools, which are arguably more important. We continue to expect a cut in the policy rate this year. 

    Turkey (TURKEY): On Thursday, Turkey’s MPC decided to cut the policy rate by 425bps to 19.75%, the largest single cut since it adopted inflation targeting in 2002. The cut was greater than had been expected, under new governor Murat Uysal, who replaced Murat Cetinkaya earlier this month. 

    Mongolian Mortgage Corporation (MGMTGE): Moody’s has affirmed the B3 rating assigned to Mongolia Mortgage Corporation, with a stable outlook. According to the rating agency, this reflects strong asset quality, moderate capitalisation and stable profitability. 

    Kazakhstan banks: On 19 July, the National Bank of Kazakhstan (NBK) announced amendments to the lender of last resort mechanism. According to the NBK, a bank should be solvent at the time of the request for funds, amounts provided will primarily be used to cover idiosyncratic liquidity shocks, funds will be secured on high quality liquid assets and real estate (which has been valued), will be in KZT and the total term of such funding won't exceed one year. Further, the NBK may deny loans to lenders that have a high related party exposure, or where management is considered ‘ineffective’. As we’ve discussed before, each bank’s ability to address its own challenges may become more important. 

    Bank CenterCredit (CCBNKZ): S&P revised the outlook on the ‘B’ rating assigned to Bank CenterCredit to negative from stable, reflecting concerns about legacy problem loans, and the impact these exposures have had on capitalisation. S&P states that the pace of workouts has been slower than anticipated, with problem loans still accounting for 29% of gross loans at the start of the year. 

    International Bank of Azerbaijan (IBAZAZ): An Azeri court has granted the bank’s request to extend restructuring proceedings once again. The proceeding is now set to terminate on 21 January 2020. This action comes after the UK Supreme Court refused the right to appeal previous judgements upholding the rights of certain holders of the IBAZAZ 5.625% 2019 bond. We discussed this in a recent note . It is currently unclear how IBAZAZ will address the claims of bondholders following the UK Supreme Court ruling. 

    TBC Bank (TBCBGE): The Chairman and Deputy Chairman of TBC Bank Group, Mamuka Khazaradze and Badri Japaridze, both founders of the bank, have stepped down. This action follows the decision of the Georgian Office of Public Prosecution to charge both individuals over transactions carried out in 2007 and 2008. 

    Fidelity Bank (FIDBAN): The bank has disclosed plans to issue a Tier 2 security of up to NGN50bn next year. We note, separately, that Access Bank reportedly issued a NGN30bn 7-year Tier 2 security earlier this month, after raising US$162.5mn in 10NC5 Tier 2 capital from a group of DFIs. These actions suggest that some Nigerian banks may prefer to raise funds away from the eurobond market. Having said that, as previously discussed , there are signs that a resurgence in eurobond market activity may be coming. 

    Turkish banks: Fitch has downgraded its ratings on Turkish banks following similar action on the sovereign’s rating. Local currency ratings have been downgraded and Fitch has cut foreign-owned banks’ issuer ratings (including Garanti, Yapi Kredi, Kuveyt Turk and Alternatifbank) to B+ from BB-. In addition, Turk Eximbank has been downgraded to B+ from BB-. Importantly, Viability Ratings (VRs, which are standalone ratings) have not been affected. 

    Halkbank (HALKBK): Mehmet Hakan Atilla, former Deputy General Manager of Halkbank, has been released from prison in the US. There was no statement from Halkbank following his release, given that Atilla is no longer employed by the bank. 

    Ecobank Transnational (ETINL): Fitch has affirmed the B rating assigned to Ecobank Transnational Inc, with a stable outlook. ETINL is rated B2 (Neg)/B-(Stable)/B(Stable) at Moody’s/S&P/Fitch. S&P affirmed its rating following news that the IFC would sell its stake. Moody’s changed the outlook on its B2 rating to negative reflecting concerns about asset quality and about double leverage at the holdco. (Key takeaways from the Fitch Ratings update in the full report below)

    Nigerian banks: Fitch Ratings has published a peer review of Nigerian banks. The rating agency remains concerned about asset quality and doesn’t expect much improvement this year, though Fitch also notes that operating conditions ‘have eased’. Fitch sees loan growth rising to 10% in 2019, from 1% in 2018, driven by the much-discussed minimum LDR requirement. Read our thoughts on the minimum LDR here

    Petropavlovsk (POGLN): The company released H1 19 operating update posting a 12% yoy increase in gold sales. When financial results are reported on 10 September, we expect to see a corresponding increase in revenues as average realised gold prices stayed roughly flat yoy in H1 19. 

    Petra Diamonds (PDLLN): The company reported FY 19 operating results and communicated FY 20 production and capex guidance. In FY 19 (from July 2018 to 30 June 2019), the company’s revenue decreased by 6% yoy to US$464mn on the back of flat production and somewhat lower realised diamond prices. In FY 20, management expects to maintain production at 2019 levels and reduce capex by 40% yoy to US$88mn.