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Argentina

September 16, 2021

Flash Note: This Country Never Sleeps

The opposition’s outperformance in the PASO elections continues to make waves in the Argentinian politics.

12 ministers aligned with VP Cristina Kirchner resigned to their posts in the government, even if the President has so far not consented.

There is also an ongoing scandal due to a leaked private audio in which a known Kirchner loyalist speaks extremely critically of both President Fernández and Minister Guzmán.

ARGENT 0 1/2 07/09/30 Price

Lebanon

September 14, 2021

Flash Note: Episode IV, A Not So New Hope?

Najib Mikati was designated as the Lebanese prime minister, after more than a year without a government.

The new cabinet is made up of 24 ministers, 2 former IMF officials and only one woman.

Mikati could lead a transitional government to run the next parliamentary elections that will take place on May 6, 2022.

LEBAN 7 03/20/28 Price

LEBAN 7 1/4 03/23/37 Price

Venezuela

September 14, 2021

Strategy Viewpoint: Bondholders v. Venezuela Pt. 2

There are 20 cases concerning Venezuelan defaulted debt in NY courts. Litigation for PDVSA debt has been limited: 3 cases involve the company’s promissory notes, 2 the PDVSA 20 collateral and only 3 involve other PDVSA bonds. There are 13 cases involving sovereign bonds.

The most litigated bonds so far are VENZ 25 (28.7% of the bond’s total outstanding), VENZ 20 (25.9%), and VENZ 18O (21.4%).

The 6 cases that have already concluded favorably to the bondholders have taken an average 16 months from initial complaint to final judgment.

The 11 ongoing cases have also taken 16 months on average, so far. In several, the bondholders are facing significant problems w...

VENZ 9 1/4 09/15/27 Price

VENZ 7 03/31/38 Price

Bolivia

September 13, 2021

Country Report: Firing Up the Old Money Printing Machine

The Bolivian parliament recently approved a USD 2,202 mn (BOB 15,107 mn) loan from the central bank to the government.

The funds will be used to pay part of the short-term liquidity loans contracted during 2020 with the monetary institution.

The operation will allow the government to reprofile its debt, pushing maturities from 1 to 30 years.

The non-financial public debt owed to the central bank rose to USD 13,165 (31.6% of GDP), a growth of 6.4% YTD.

BUY: Bolivia offers an interesting risk/reward proposition, with relatively strong fundamentals for the high yield on offer. We don’t see the credit under short-term pressure and believe it still has room to com...

BOLIVI 4 1/2 03/20/28 Price

Ecuador

September 12, 2021

Flash Note: The Lasso Effect

In August 2020, Ecuador reached an agreement with the International Monetary Fund (IMF) for a USD 6,500 mn Extended Fund Facility (EFF).

A staff-level agreement to modify the EFF’s terms was reached this month, unlocking USD 800 bn in a new disbursement.

President Lasso stated that the IMF EFF-related transfers would be enough to cover most of the country’s financing needs for 2021 and 2022.

ECUA 0 1/2 07/31/30 Price

Sri Lanka

September 10, 2021

Flash Note: FX Problems

The government has imposed a limit on the amount of money that can be sent overseas due to the foreign currency shortages in banks.

The plunge of the rupee (LKR) has caused a massive spike in food prices.

The Ministry of Finance (MoF) issued a request for a Foreign Currency Term Financing Facility (FCTF).

The Finance Minister says the country is facing a “severe foreign exchange crisis”.

Sri Lanka

Suriname

September 10, 2021

Country Report: The IMF is MIA

It’s been four months since the IMF reached a Staff-level agreement with Suriname but the Executive Board has yet to approve it

USD 500mn from IDB loan will be confirmed after the IMF’s Executive Board approves the EFF program

The Surinamese government has started implementing the agreed reform plan despite not having IMF financing yet.

Fiscal spending measured in US dollars decreased by 12.2% YoY in 2020 and accumulates a fall of 44.0% YoY until May

SELL: Current prices reflect an extremely positive view of the forthcoming bond workout that clashes with demands from the official sector and make the risk/reward balance going into the event unattractive....

SURINM 9 1/4 10/26/26 Price

Argentina

September 09, 2021

Strategy Viewpoint: Hope Against Hope

On September 12, Argentina will go to the polls for this year’s open primaries to determine the final candidates for the November elections.

Polls suggest a very tight result between the ruling-party candidate, Tolosa Paz, and the opposition candidate, Diego Santilli.

We don’t believe that a ruling party victory would affect bonds much, as they are trading at very low levels. An opposition victory, on the other hand, would be bullish.

ARGENT 0 1/2 07/09/30 Price

El Salvador

September 06, 2021

Flash Note: Reelection Unlocked

President Bukele will be able to run for reelection in 2024 after a surprise ruling of the Constitutional Court

The international community has rejected the ruling of the Constitutional Chamber

We believe that allowing presidential reelection using unconstitutional strategies poses a high risk to democracy and the rule of law in El Salvador

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Ghana

September 06, 2021

Country Report: Seizing the Moment (Sort Of)

Oil and gold export volumes contracted during H1-2021.

However, the sharp increase in prices offset the volume losses, pushing exports to USD 7,593 mn in H1-2020, a +2.7% YoY increase.

The current account balance stood at USD -921 mn in H1-2021, on track to match our forecast of USD -1,907 mn for the year (2.5% of GDP).

The March issuance of USD 3.0 bn worth of Eurobonds by the government helped to fund the current account deficit, and boosted international reserves.

HOLD: Ghana’s debt offers an attractive yield, but solvency and liquidity indicators are weak.

GHANA 7 5/8 05/16/29 Price

GHANA 8.627 06/16/49 Price

Bolivia

September 03, 2021

Strategy Viewpoint: Good Yield for the Fundamentals

Bolivia's debt offers attractive yields given strong fundamentals. The country is the highest-yielding “B” issuer (Bloomberg Composite ratings), after Belarus.

We compare Bolivia's macro fundamentals to Costa Rica and Nigeria, which offer lower yields with significantly worse metrics.

BUY: With real GDP growth at 6% and a low short-term debt burden, we think the room to compress in BOLIVI 28's yield makes the risk/return attractive for the medium-to-long term.

BOLIVI 4 1/2 03/20/28 Price

Global

September 03, 2021

EMFI Monthly Review – August

Our EMFI Core Index rallied in the last two weeks of August, posting a 1.7% rise for the full month, and moving above its mid-June peak after a couple of months of lateral movement.

The action was positive across the board, as 14 names gained ground and 6 held steady, while no names posted losses.

Political factors drove outperformance this month, with ZAMBIN gaining an impressive 21.2% in the aftermath of Hakainde Hichilema’s victory in the presidential elections.

Other significant outperformers included ARGENT (+6.7%), SURINM (+5.0%), LEBAN (+4.1%) and ECUA (+3.0%), while the month’s underperformers were GHANA (-0.5%), COSTAR (-0.3%) and NGERIA (-0.2%).

...

Global

Jamaica

September 02, 2021

Country Report: The Sun Shines After the Storm

The Jamaican economy grew by 12.9% YoY in 2Q21 and 2.3% YoY in 1H21.

The services industry led the recovery and grew by 14% YoY in 2Q21 due to rebounded tourists arrivals

Tourist arrivals to Jamaica stood on average at 34.5% of pre-pandemic levels in 2Q21

Considering the 2Q21 results and the new restrictions, we modified our growth forecast for 2021 from 1.1% to 3.4%

JAMAN 6 3/4 04/28/28 Price

JAMAN 7 7/8 07/28/45 Price

Nigeria

August 30, 2021

Country Report: Picking Up Steam

The real GDP grew 5.4% year-on-year in Q2-2021, and 2.8% in H1-2021.

The result matched the expectation generated by high frequency indicators like the Purchase Managers Index, which has expanded non-stop during 2021, reaching 18 months high in July.

The result was driven by the non-oil sector, with a 7.1% increase in Q2-2021.

The oil output has been limited by the OPEC+ agreement, averaging 1.4 mn b/d in Q2-2021, -10.5% YoY fall.

NGERIA 6 1/2 11/28/27 Price

NGERIA 7 5/8 11/28/47 Price

Argentina

August 30, 2021

Flash Note: Every Story Has an End

The Buenos Aires Province reached an agreement with creditors ending a 16-month dispute.

The exchange will have a recovery value of 49.2 for the A series, 41 for the B and 38.7 for the C at a 17% exit yield.

Settlement is expected for September 3.

ARGENT 0 1/2 07/09/30 Price

Argentina

August 27, 2021

Country Report: Burying the Head in the Sand

The monetary base has grown 17.5% YoY, putting even more pressure on the already high inflation rate (51.7% YoY up to July).

The government has been unwilling to cut subsidies to narrow its fiscal deficit, and we believe any policy change will have to wait until after the elections.

Currency depreciation is the other major factor pushing inflation up.

We update our macro forecasts and now expect an official depreciation of 27.4% in 2021, alongside a 49.3% inflation rate.

BUY: Argentina received the USD 4.35 bn SDR disbursement from the IMF, which will boost liquidity in the short-term. Macro indicators are poor but severely depressed prices ...

ARGENT 0 1/2 07/09/30 Price

Lebanon

August 26, 2021

Country Report: One Step Forward, Two Steps Back

PM Mikati appears to have advanced more in the formation of government in one month than Hariri did in nine months

The most controversial decision Mikati has made so far was to agree that the Energy Ministry will be part of the president's share.

Lebanon has started receiving fuel from Iran. Although it is a private transaction promoted by Hezbollah, an FPM energy minister could turn it into a state policy

We believe that forming a new government represents a step forward. However, its cost would be related to giving more control to President Aoun and his party.

LEBAN 7 03/20/28 Price

LEBAN 7 1/4 03/23/37 Price

Ecuador

August 24, 2021

Strategy Viewpoint: Betting on an Oil Boom

Guillermo Lasso is still enjoying a happy honeymoon, with approval ratings sky-high due to a successful vaccination program.

As expected, Lasso is emphasizing supply-side reforms over potential tax hikes or other revenue-enhancement measures.

Lasso plans to double oil production over his 4-year period to 1,000 tbd from the current 493 tbd. The target is to raise production by 40 tbd (8%) by the end of the year.

There is also an emphasis on growing mining exports, which are expected to rise about 74% to USD 1.6 bn from USD 921 mn in 2020.

Lasso’s big bet on oil and mining is set to influence his approach to the EFF renegotiation with the IMF, which is ex...

ECUA 0 1/2 07/31/30 Price

Zambia

August 23, 2021

Country Report: A Pot of Gold at the End of the Electoral Rainbow

Opposition candidate Hakainde Hichilema won the presidential election by a landslide.

Despite initial claims of irregularities, President Lungu later conceded the defeat and committed to complying with a peaceful transition of power.

The United Party for National Development (UPND) also won control of the parliament with 82 out of 157 seats.

The unexpected result boosted the local currency, which has appreciated of 13.2% since the elections.

HOLD: The bonds are trading at two-year highs, as Hichilema announces that he will prioritize a transparent agreement with the country's creditors.

ZAMBIN 8.97 07/30/27 Price

Ecuador

August 20, 2021

Flash Note: Harder Better Faster Stronger

New authorities have succeeded both in controlling the spread of the virus and in deploying a massive vaccination plan.

The 7-day average of new cases went from 2,273 on April 5 to 277 by August 18.

The 100-days plan outlined by President Lasso has paid off and 56.5% of Ecuadoreans have received at least one dose (up from 9.1% before the plan was put in motion).

ECUA 0 1/2 07/31/30 Price

Venezuela

August 20, 2021

Flash Note: PDVSA Swaps REFIDOMSA Shares for Bonds

The Dominican government acquired PDVSA’s 49% share in joint-venture REFIDOMSA in a debt-for-equity swap valued at USD 88 mn.

If the bonds were received at market value by the Venezuelan government, it could have reduced its total debt by as much as USD 3.3 bn.

On the other hand, if the bonds were received at face value, it could have sold its stake in REFIDOMSA for as little as USD 7.5 mn.

Neither scenario looks reasonable, and we would expect the valuation to lie somewhere in between both cases.

We don’t think this operation can be scaled-up much more, as the stock of available external assets is limited.

We estimate the value of Venezuelan gove...

VENZ 9 1/4 09/15/27 Price

VENZ 7 03/31/38 Price

Global

August 20, 2021

Strategy Viewpoint: The Rise of Green

In recent years, green, social and sustainability (GSS) bonds have had a surge that the pandemic deepened.

Issuences in GSS bonds reached 330.5 bn last year, compared to 71.9 bn in 2019.

As expected, sovereign issuers are beginning to consider this alternative to seek moderately cheaper financing.

But their benefit should not be overstated and investors must be wary of issuers with debt sustainability concerns.

In November, Ghana expects to launch its first 2 bn social bonds, becoming the first African sovereign to issue GSS debt.

The result of this issuance may open the door for future African sovereign issuers, as a way to diversify investors and lower, eve...

GRENAD 7 05/12/30 Price

Egypt

August 19, 2021

Country Report: Getting Off the Hook

The Egyptian economy managed to avoid a recession last year, and we expect its good performance to continue looking forward.

The IMF is fully supporting the country’s recovery as it returns to the growth path.

Egypt recorded tourism revenues of USD 4 bn in the first half of 2021, as the country received 3.5 mn tourists.

We believe the country has already turned the page and expect GDP to grow 2.7% in FY 2021.

EGYPT 6.588 02/21/28 Price

EGYPT 7.903 02/21/48 Price

El Salvador

August 19, 2021

Country Report: Is Bukele the Salvadoran Chavez?

The Bukele administration is pushing for constitutional reform, which involves changing 215 of the 274 articles

The reform introduces changes in the presidential term, reduces the waiting time needed to opt for presidential re-election, and establishes popular referendums as a mechanism to modify the Constitution

We do not rule out that Bukele could have the same authoritarian intentions as Hugo Chavez, the late Venezuelan strongman.

We believe that the constitutional reform proposal poses a high risk to the rule of law and creates incentives for the promotion of populist policies and governments

HOLD: Investor expectations deteriorate as the agreement with the IMF...

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Bolivia

August 17, 2021

Country Report: Wave After Wave

Total exports in H1-2021 rose to USD 4,956 mn, a 54.3% YoY increase.

The commercial balance stood at USD 832.2 mn in H1-2021, the largest positive balance since 2014.

Natural gas exports decreased -1.6% despite the recovery in local output and rising international prices.

The mining industry, led by gold and zinc exports, was the main driver behind the positive result in the trade balance.

HOLD: While external accounts are turning positive and reserves cover 90% of interest and principal payments for the next years 2 year securing the short term, Bolivia offers an attractive risk/reward balance for the long term.

BOLIVI 4 1/2 03/20/28 Price

Zambia

August 16, 2021

Flash Note: Third Time's a Charm

On August 12, Zambia celebrated general elections, featuring the third face-off between incumbent President Edgar Lungu and opposition candidate Hakainde Hichilema.

UPND opposition candidate Hichilema went on to win the presidential election by a landslide.

Total turnout was one of the highest ever recorded in the country with 71%.

President Lungu conceded the defeat and committed to complying with a peaceful transition of power.

ZAMBIN 8.97 07/30/27 Price

Suriname

August 12, 2021

Country Report: All That Glitters is Not Gold

The growth in exports in recent years seems to be driven mainly by the increase in the price of gold and not by an increase in production

The main partner of Rosebel, Iamgold, announced that the company’s gold production was 88,000 oz in 2H21, 30.2% less than the 2H20

Newmont announced that the Merian mine's output was 216,000 oz in 2H21 (6.5% less than 2H20)

As economies recover, the price of gold has lost some ground, posing a downside risk to Suriname's external accounts and tax revenue.

SELL: Current prices reflect an extremely positive view of the forthcoming bond workout, which make the risk/reward balance unattractive, in our view.

SURINM 9 1/4 10/26/26 Price

Ghana

August 09, 2021

Country Report: Tightrope Walking

In the latest IMF’s Article IV review for Ghana, the country was categorized as being at high risk of debt distress.

However, despite the increased repayment risk, the IMF expressed confidence in the ability of the country to fully meet its debt obligations.

In June, total public debt reached USD 58.1 bn (77.2% of GDP), an increase of USD 7.2 bn YTD.

We believe the total debt stock could rise to USD 64,8 bn by the end of 2021, 86.2% of GDP.

HOLD: The dire fiscal situation in Ghana is worrying, but the social bond remains an interesting opportunity to buy.

GHANA 7 5/8 05/16/29 Price

GHANA 8.627 06/16/49 Price

Sri Lanka

August 09, 2021

Strategy Viewpoint: Is Capacity Still There?

Sri Lanka repaid a principal payment of USD 1 bn, ending the imminent risk of sovereign default.

But the nation has yet to repay another USD 1.5 bn next year, and another USD 1 bn in 2023.

Although the Rajapaksa government has struck some deals that improve liquidity, sustainability remains very difficult.

The high levels of debt give us little hope that the country will be able to emerge from the current crisis without a debt restructuring, even if it does obtain financing from the IMF.

SRILAN 6 1/4 07/27/21 Price

SRILAN 7.55 03/28/30 Price

Barbados

August 06, 2021

Country Report: A Shiny (but Tiny) Spark

Barbados showed a recovery of 5.5% YoY in 2Q21. However, GDP fell 9% YoY in 1H21.

The recovery in tourism in Barbados is lagging the rest of the region

Barbados government's commitment to maintaining fiscal discipline is remarkable, achieving a primary surplus of 1.5% during the first quarter of the FY 2021/2022

We estimate that debt burden will increase to USD 6,572.8 mn or 140.5% of GDP by the end of the FY2021/2022

HOLD: As Barbados recovers from the strong impact of the pandemic, the Delta variant is putting the recovery of tourism at risk. We expect activity to normalize in the medium-to-long term, helping the Island stabilize.

BARBAD 6 1/2 10/01/29 Price

Venezuela

August 05, 2021

Strategy Viewpoint: The Asset Hunt Heats Up

Several developments in the last few weeks indicate that the race for Venezuelan assets abroad is heating up.

Banco San Juan Internacional (BSJI) recently received authorization from a Portuguese court and an OFAC license to seize funds from an account at Novo Banco, which holds around USD 1.8 bn.

ConocoPhillips is also trying to seize funds held by the Jamaican government in escrow accounts to the name of PDVSA, which could amount to USD 115 mn.

US courts are allowing FARC victims to seize Venezuelan government assets without requiring an OFAC license. The efforts have been very successful, and public documents have identified more than USD 400 mn in US-based bank accou...

VENZ 9 1/4 09/15/27 Price

VENZ 7 03/31/38 Price