Weekly Credit Risk Monitor /

Weekly Credit Risk Monitor

    Stuart Culverhouse
    Stuart Culverhouse

    Head of Sovereign & Fixed Income Research

    Tellimer Research
    19 September 2019
    Published by

    In Focus: Mexico – dark clouds for the economy 

    Earlier this week, Dr Carlos Urzua, Mexico's former Minister of Finance and the first to hold that post under the Lopez Obrador (AMLO) administration, published a note in a local newspaper with the title: “Dark Clouds for the Economy”.

    In the article, Urzua emphasises the low economic growth that was expected, and has now been confirmed by the budget assumptions sent to Congress.

    It is worth reminding investors that AMLO promised average growth of 4-6% (depending on his audience), something that clearly will not be achieved and that is most likely being closely monitored by the ratings agencies.

    It is also true, as Dr Urzua states, that state-owned enterprises (such as Pemex and the Federal Electricity Commission or CFE) take in a big portion of the budget, highlighting their stand-alone deficiencies and inefficiencies. 

    At some point, the government will have to do what we have been saying all along. Either: 

    1. A cost-benefit analysis on whether it is worth jeopardising the health of the federal finances by continuing to support PEMEX and the CFE in order to avoid (or delay) negative ratings actions on these two entities at the expense of possible ratings downgrades on the sovereign, or 
    2. What we have been recommending, which is to return to the policies established in the Peña administration's Energy Reform and allow private investment (like the halted farm-outs at Pemex) and maintain the sovereign rating intact.

    After all, a sovereign downgrade affects roughly half a trillion dollars, whereas Pemex's debt is cUS$108bn.

    Which will it be?

    Read the full report here.

    Recap of the week’s key credit developments

    Afreximbank (AFREXI): Afreximbank has placed a 10-year US$750mn bond at par/MS+230bps. The initial price talk was in the MS+265bps area. 

    Zenith Bank (ZENITH): Zenith Bank announced that it bought back almost US$393mn of its 2022 bond. This leaves cUS$107mn outstanding.  

    Privatbank (PRBANK): A 17 September report in the Financial Times quoted Ukraine’s Prime Minister, Oleksiy Honcharuk saying that authorities were seeking a “compromise” with Igor Kolomoisky on Privatbank. This report was later denied by Honcharuk. 

    Turkish banks: Turkey’s Banking Regulation and Supervision Agency (BRSA) has disclosed that, following an asset quality review process, TRY46bn in loans primarily made to construction and energy companies are to be classified as non-performing. The BRSA disclosed that as a result of this, the sector-level NPL ratio will rise to 6.3% from 4.6% and the total capital ratio will fall by 50bps to 17.7%. 

    Pakistan (PKSTAN): On Monday, the State Bank of Pakistan (SBP) kept its policy interest rate unchanged at 13.25%, as expected: in a Bloomberg survey of 43 economists, 38 expected the rate to be held. After eight consecutive rate hikes, this was the first MPC meeting in over a year at which rates have not been increased. 

    Brazil (BRAZIL): As expected, the Central Bank of Brazil (BCB) cut its policy (Selic) interest rate by 50bps for the second time this year, to 5.5%. The monetary policy committee (Copom) was unanimous in its decision, and this follows recent monetary stimulus in major developed economies.