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Caretaker Prime Minister Najib Mikati was appointed as PM to form a new cabinet, while Nabih Berri was re-elected as the Parliament Speaker.
Lebanon’s political leadership is thus represented by the same three individuals that were in power prior to the parliamentary elections.
On May 20, the cabinet approved a recovery plan to address the financial sector losses. However, the ABL remains opposed to the proposal as it considers the distribution of losses to be unfair.
We do not think PM Mikati will be able to breathe new life into the reform agenda this year, as a fractured parliament and the elite capture of institutions will cause political deadlock.
BUY: P...
The positive mid-term election results in September 2021 and the IMF agreement in March 2022 were insufficient to boost bond prices due to negative investor sentiment towards the country.
The recent domestic debt sell-off could affect the government’s financing options, particularly given an inflation rate that is pushing to a 30-year high of 60.7%.
We analyze restructuring scenarios for 2024, finding that maturity extensions are likely but coupon or principal haircuts aren’t.
We maintain our BUY recommendation as fundamentals justify higher prices if a more market-friendly party takes office by end-2023.
The annual inflation rate rose to 27.6% in May, its highest level in the last decade.
We do not think demand is putting excessive pressure on prices, as economic output has been close to its potential over the last year.
But external imbalances are causing a sharp depreciation in the exchange rate that is boosting domestic inflation (pass-through effect).
The exchange rate fell by 22.6% YTD to 7.95 GHS/USD.
With bonds trading at 55.8 cents on average we like the risk/reward profile and maintain our BUY recommendation for the name.
As a commodity-producing country, Trinidad and Tobago’s GDP is heavily dependent on the energy sector’s performance.
As of the third quarter of 2021, the GDP was showing promising signs of recovery, nevertheless, it will be insufficient to reach its pre-pandemic levels.
The oil and natural gas production reported a slight recovery; however, we expect output levels to remain unchanged throughout the year.
Considering that assumption, alongside a modest recovery from the non-energy sectors, we expect that the GDP will grow by 6.1% in 2022.
The high debt/GDP ratio after the pandemic and low GDP growth rate in the last 10 years, make the 8-year yield (6.5%)...
Eurobonds have lost between 10-14 pts in June, as Ecuador underperforms comparables due to nationwide indigenous protests. The yield on ECUA 5% 30 has soared by 409 bps.
So far, CONAIE has ignored Lasso’s calls for dialogue, despite the latter making several social policy concessions to appease the protestors.
Fiscal fundamentals, as well as solvency and liquidity ratios, remain strong thanks to the tailwind from international oil prices.
The president can afford to backload adjustment to appease social discontent with the sight on restoring political stability.
The Armed Forces supported Lasso, describing protests as “a serious threat to democracy&rdqu...
Costa Rica's YoY inflation continues straying from the Central Bank target of 3% +/- 1 p.p. and reached a 13-year-high of 8.7% in May.
The main drivers of inflation were transportation and food and non-alcoholic beverages, the groups most affected by the rise in commodities.
Monetary authorities have raised interest rates; however, the real rates remain in negative territory.
We believe that the price increases will stabilize in the 2H2022, given the BCCR policy measures to control inflation.
SELL: Bond yields are unattractive in relative terms, as the country has significantly outperformed peers over the past 6 months.
The government has relied on the domestic market to fund a larger share of the fiscal gap after it defaulted on its external debt.
While the domestic banking system has become one of the government’s main creditors, its funding capabilities are limited by its relatively small size.
Holdings of government securities of the banking system soared to USD 2.7 bn at the end of Q1-2022, a 7.5% YTD expansion, causing a crowding-out effect on the credit supply to the private sector.
Financial soundness indicators at the end of 2021 show robust numbers in every category.
We maintain our SELL recommendation given an asymmetric risk-reward distribution.
At the end of 2021, Barbados' FX reserves rose by 713% from their minimum in January 2018, while reserves in The Bahamas and Jamaica showed an increase of 66% and 28% in the same period.
Our three countries pass the three suggested reserve adequacy measures.
The Bahamas and Barbados reserves are above 200% of the ARA metric, and Jamaica is in line with 137.5%.
Jamaican authorities are working more actively to ease the impact of external shocks.
The selloff in risky assets is compounding on an unattractive risk/reward proposition for names in the Caribbean. We retain our SELL recommendation for Bahamas and Jamaica and our HOLD rating for Barbados.
Nationwide protests erupted on Monday and have intensified after the arrest of Leonidas Iza, head of the indigenous confederation (CONAIE).
While Iza has already been released, CONAIE is calling for no retreat.
So far, the Ecuadorian commercial sector has reported USD 26 mn in losses due to the blockade of 87 roads.
Exported oil volumes plunged due to operational difficulties during the month, despite production still showing robust growth.
OPEC Secondary Sources data has production at 717 tbd (+41% YoY) in May and 693 tbd (+37% YoY) YTD. Direct Communication data came at 735 tbd (+26% YoY) in May and 756 tbd (+44% YoY) YTD.
The volume of oil exports fell 24% MoM to 378 tbd, according to Bloomberg, and 39% MoM to 391 tbd, according to Reuters.
Despite the setback, the value of oil exports remains 64% up YoY for Jan-May and we expect volumes to bounce back over the next two months as operational difficulties dissipate.
Egypt is seeking to attract capital inflows as the external figures continue to deteriorate because of the Russia-Ukraine conflict.
Therefore, the government outlined a privatization program hoping to attract USD 10 bn in the next four years, increasing private sector participation in the economy.
According to official data, the private sector has a share of over 70% of the GDP, yet it only represented 26.3% of total investments in the FY 2020/21.
Likewise, the private sector cumulates 18 consecutive months of contraction, despite the strong growth of the GDP.
One of the main constraints to the private sector is the state’s role in the economy, thus, deep ref...
After bouncing up significantly over the past few weeks, ELSALV bonds are shedding 1.6 pts to trade at 35.5-40.0 cents amidst a generalized sell-off in risky assets.
At current prices, we estimate that most bonds need only half a coupon (3 months) to break even once we deduct our expected 36.0-43.4% Recovery Values.
To estimate a fair value for each bond, we formulate 7 scenarios and weight the value of bonds under each by our assessed probabilities.
We find the bonds very attractive on a probability-weighted basis and switch our recommendation to BUY.
Our preference is for ELSALV 29, 34, and 35, as they offer attractively short break-evens, the lowest downside in ...
The main political parties defined their presidential candidates for the upcoming 2023 general elections.
Former governor and senator Bola Tinubu won the ruling All Progressive Congress Party presidential primary.
Former vice president and 2019 presidential election runner-up Atiku Abubakar became the nominee of the Peoples Democratic Party.
Both candidates are quite controversial, and their political career fails to offer a glimpse of hope in terms of Nigeria's economic outlook.
HOLD: The country faces tightening international financial conditions and seemingly low-stake presidential elections, but debt ratios remain neutral to positive.
Egypt has been badly affected by the Ukrainian war due to its high dependency on wheat imports.
Net international reserves fell to USD 35.5 bn in May, after approximately USD 2 bn in payments to bondholders and the IMF, among others.
Pressure on the exchange rate and accelerating inflation has diminished the attractiveness of local debt.
After a decrease in roll-over rates, the government responded by shortening duration, resulting in an important improvement.
The monthly CPI recorded 1.1% in May (13.5% YoY), while the Core inflation was of 1.6% (13.3% YoY).
We modify our recommendation from BUY to HOLD, given that the risks and rewards on the credit look bal...
Guadalupe Llori is no longer the president of the National Assembly after a controversial removal process with plenty of irregularities.
The removal of Llori will bring greater power to the opposition forces, as she was a roadblock to several of their initiatives.
UNES, PSC, and the radical wings of Pachakutik and the Democratic Left were crucial to the success of the removal.
Although this group has not become an official block, we expect them to keep blocking the government’s agenda.
Virgilio Saquicela (independent) assumed the presidency of the Assembly, while PSC and the radical wing of Pachakutik will fight for the first vice-president position.
BU...
Public debt stands at 81.3% of GDP, domestic debt at 44.8%, and external debt at 36.5%.
External debt has risen by USD 600 mn and domestic debt by USD 500 mn since March 2021.
Two Eurobond issuances are expected for the immediate future, one guaranteed by the IADB at a AAA rating and a non-guaranteed one at a B+.
Solvency indicators are negative, as debt continues rising and we see a possible default ahead.
SELL: Global headwinds, current credit spreads, and poor solvency indicators create an unattractive risk/reward proposition for the name.
LEBAN Eurobonds are trading cheaper than VENZ for the first time since the March 2020 default.
Both countries are in seemingly intractable political crises, but the macro debacle has been much worse for Venezuela.
VENZ bonds are burdened by broad economic sanctions, a ban on trading by US persons, and the rapid approach of the statute of limitations. On the flip side, the country’s oil gives it more growth potential.
For LEBAN, a short-term IMF program and external debt restructuring look more feasible, which means the investment horizon is likely to be shorter.
We have BUY recommendations on both credits, but favour LEBAN at current prices.
The National Assembly finally approved the supplementary budget for 2022 on May 19.
The government reduced the budgeted fiscal deficit from -2% to -1.1% of GDP, while the primary deficit remained at 1.7%.
Budgeted revenues depend on high oil and gold prices.
We believe that it is unlikely that the government will succeed in introducing VAT next month.
SELL: Bonds remain stable between 70-72 cents, which caps the upside even if the restructuring is conducted on favorable terms to their holders.
Despite being one the oldest oil producers in the world, Trinidad and Tobago’s energy sector has been reporting downward production trends.
Oil output stands at around barely 60 thousand barrels per day.
Natural gas production is still recovering from a sharp drop during the pandemic, and it is still behind the 2022 budget goal of 3,300 mmcf per day.
The Energy Minister said that the country could be one of the countries that could relieve pressure in European markets because of the energy crisis set by the Russian war.
Authorities published a new resolution forcing state-owned enterprises to repatriate capital invested abroad.
The controversial regulation aims to boost reserve assets. Since the publication of the resolution, international reserves have grown 3.8% to USD 4,686 mn by May-24.
However, reserve adequacy metrics and upcoming debt service payments keep raising concerns about the current size of the external buffers.
Public external debt service projected for 2022 rose to USD 2,285 mn.
BUY: High yields (7.1% on average) and high forecasted profits from gas in 2022, which would be enough to repay all outstanding Eurobonds, make the credit an attractive risk/reward proposi...
Our EMFI Core Index fell for the 5th consecutive month, registering a 0.8% loss during the month and accumulating a 13.4% decline since the beginning of the year.
UKRAIN (+17.8%) posted the highest gains as the government reasserted its willingness to pay despite the ongoing war. VENZ (+3.5%) gained on renewed optimism on sanction relief, while EGYPT (+2.4%) and ECUA (2.0%) bounced up from oversold positions.
LEBAN (-21.8%) posted the largest losses as mixed election results put the success of IMF-led reform in question, while SRILAN (-10.0%) and GHANA (-6.8%) continued falling on political and fiscal deterioration.
During the month, our Research Team focused on the impa...
The significant movement in the political field in recent weeks has ended with the appointment of Ranil Wickremesinghe as the new PM and MoF.
Wickremesinghe started his mandate with strong proposals to reduce the powers of the president and give more power to the parliament.
Meanwhile, he is actively engaged in talks with the IMF and bilateral organizations such as the World Bank and the ADB in search of funding to deal with the current crisis.
We believe that his proposals will go nowhere as protests are unlikely to subside until President Gotabaya steps down.
HOLD: Eurobonds lost almost 4 pts over the past month as the curve consolidates. Prices are m...
Exports hit a historic maximum of USD 60.4 bn in 1Q22 from USD 49.4 in 1Q21.
Nevertheless, the current account reported a deficit of USD 18.07 bn from USD 7.5 bn in the same period of last year.
The external deficit was mainly driven by the severe increase in imports, especially energy imports, ahead of higher oil prices and the global commodities rally.
We estimate that the lira was overvalued by 41.6% on a PPP basis in April, as inflation continues to rise unabated.
SELL: Despite manageable debt ratios, we believe the worsening macroeconomics will continue to keep pushing prices down.
Public approval of the Fernández administration is at its lowest level.
The future of the agreement with the IMF, and whether compliance with it continues or not, will shape the agenda for the new government taking office in 2024.
The Fernández administration is also under friendly fire, as Kirchnerism, headed by vice-president Cristina Kirchner, tries to sabotage the agreement with the fund.
BUY: Bonds are pricing an extremely aggressive restructuring, in our view underestimating the chances for a new market-friendly administration taking office in end-2023 and proposing a more friendly debt exchange.
Guyana's oil production is growing steadily thanks to the start-up of Liza Phase 2.
We estimate that the average oil output will double this year.
The government is considering creating a state oil company to get higher profits from the oil sector.
At first glance, it seems like a risky measure due to the country's little experience in the oil sector and the poor performance of state oil companies in Latam.
As Russian forces concentrate their offensive in eastern Ukraine, more than two million Ukrainian refugees have returned to their country.
Finance Minister Serhiy Marchenko, confirmed that the monthly financing needed to cover the war-caused deficit is estimated at USD 5 bn.
Ukraine has no plans to restructure its debt for now, and as long as the West continues to support it, it is possible to honor its commitments, including September’s payments.
The U.S. is currently Ukraine's largest financial, humanitarian and military supporter, and the additional USD 40 bn in assistance will mean it has provided three times as much as the EU and all other bilateral and mu...
Fiscal mismanagement drove Ghana to its current critical situation, and its fiscal outlook remains negative.
The fiscal deficit stood at GHS 10,244 mn (-2.1% of GDP) in Q1-2022, 940 mn less than what had been officially forecasted.
However, the lack of external financing sources, mixed with the rising cost of issuing new domestic debt, forced the government to rely on the Bank of Ghana to fund its deficit.
We forecast an overall balance of -6.8% of GDP for 2022, 0.2 p.p. better than the budgeted target, but still a worrisome result in terms of debt sustainability.
BUY: With such low prices, we like the risk-reward metric for the country. While market pricing ...
After its exit from the country 10 years ago, mining giant De Beer will return to Angola through two new joint ventures with Angolan state company Endiama.
The company declared that Angola is one of the most attractive countries globally for the diamond industry.
According to the Angolan oil and resources minister, 60% of the basins are still unexplored.
Angola is one of the few diamond mining countries reporting an increase in its production.
Official estimations suggest that export inflows of rough diamonds will be around USD 1.3-1.5 bn, or 1% of the GDP in 2021, but with the potential to increase to at least 2% of the GDP.
HOLD: High oil prices imply healt...
We maintain our 0.4% of GDP fiscal forecast for Jamaica
We reduce our forecast for Barbados from -2.7% to -3.2% due to the worse than expected results in FY2021/2022
Due to the better-than-expected performance of revenues and economic activity, we reduce our deficit projection for The Bahamas from -6.7% to -5.3% in FY2021/2022 and from 5.8% to 4.6% in FY202/2023
We recommend to SELL The Bahamas and Jamaica due to weak fundamentals, deteriorating debt indicators and relatively low yields.
For Barbados, we maintain our HOLD due to significantly better external liquidity.
