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For the past year, U.S. government executive orders have safeguarded Citgo from creditor attachment.
However, the defensive edifice is beginning to crack.
In the Crystallex trial, the upcoming fortnight will be key to decide the future of CITGO, according to the schedule set by Judge Leonard Stark.
The judge has moved to allow think the sale process through but has avoided giving the green light to the actual sale.
The Guaidó administration has just one last bullet in the chamber to protect Citgo.
We take a look at the parties’ proposals on how to sell the PDVH shares.
We estimate that less than half of the Citgo shares would have to auctioned to satisfy the Crystallex claims.
Continue ReadingJune was another month of recovery for EMFI countries, with all of them (except Lebanon) showing positive returns. However, we are still not out of the woods.
Argentina and Ecuador are in different stages of restructuring, while countries such as Angola and Pakistan are pleading to the goodwill of bilateral creditors to avoid default.
Our EMFI Core Index went up for the second time this year. The biggest winners were Angola, Sri Lanka and Suriname, while Lebanon went against the general risk-on mood
The macro and fiscal situations remain dire for all countries covered, and we took a deep dive into the efforts our countries are making to cope with the aftermath of the crash
Continue ReadingLast Wednesday, Suriname posted a Consent Solicitation seeking to modify some key terms on its 2023 bond.
The request involves a rescheduling of the missed June 30 amortization, currently on its grace period.
We view this as a positive development for bondholders because it opens the door for Suriname to deal with its liquidity and solvency problems in an orderly way.
The request is essentially a standstill and would help prevent a hard default.
The proposal also signals a turn in economic policy by incorporating the possibility of an IMF package from the outset.
Continue ReadingIn April 2020, the total assets of the financial system amount to USD 12,604 mn or 250% of GDP. The size of the financial system is not a good or bad characteristic per se. We analyzed three criteria, looking for financial instability risks.
Credit to the private sector fell from 82.5% of GDP in 2015 to 78.2% of GDP in March 2020.
Liquid assets in commercial banks have increased from 12% in 2011 to 27% in April.
We calculate that the Barbadian banking sector concentration would be between 2200 and 2700 according to Herfindahl-Hirschman Index (HHI)
We can conclude that the financial system is in a stable situation regarding the main systematic risks.
Barbados is not a credit that we see in immediate peril, but neither do we see much room for spread compression in the short-term.
Continue Reading2019 was a particularly good year in touristic terms revenues amounted up to USD 34.5 bn with 51 million of arrivals.
In March Turkey received 718 thousand people, generating USD 514 mn in revenues, a 51% fall compared to March 2019.
In April, central bank data showed no tourism revenues, for the first time in Turkey’s history
The current account deficit for the period January-April was USD 12.8 bn. For the same period in 2019, it was just USD 885 mn, a y-o-y increase of 1,353%.
Turkish gross external financing needs are up to USD 148.6 bn, equivalent to 20.3% of GDP.
Considering we don’t expect further spread compression, high-coupon bonds that provide interesting current income in a buy and hold strategy.
Continue ReadingToday the new members of the Assembly took office. An extraordinary meeting was held in which the new president and vice-president of the National Assembly were elected.
Ronnie Brunswijk from ABOP was elected as president of the National Assembly and Dew Sharman from VHP as vice-president
The new coalition wants to make the government transition quickly. According to the DWTonline newspaper, the new coalition agreed with Bouterse that the new government would take office in mid-July
Chan Santokhi of VHP was nominated officially as Suriname's presidential candidate.
Continue ReadingGiven deflationary trend signaled by recent months’ prints, we could expect the BOJ to hold the rate steady
The BOJ expects inflation to close the current year at 3.8% and the FY 2020/21 at 4.5%.
At EMFI securities we project that inflation will decelerate to 2.7% at the end of the year, while we expect a depreciation of the FX rate of 1.9% and that it will close the year at JMD 136.8/USD.
Overall, Jamaica is 5.1% down from the beginning of the year, which means it has retraced almost all of March’s losses.
Continue ReadingPayment on the 2023 bond, which comes due on Tuesday 30, is in peril due to liquidity constraints. The country owes a total of USD 23 mn between principal and coupons.
The central bank had been using private citizen money to cover imports and exchange operations, resulting in net reserves falling to a negative USD 100 mn.
In April, the government increased its long-term debt with the central bank by SRD 4.9 bn (USD 653 mn), a very large amount for the country.
Basic liquidity metrics are somehow positive at face value, but they hide some of the subtle problems with the country.
Our debt assessment is pessimistic given the delicate liquidity situation. Further upside in the bonds is unlikely until we have details on the next administration’s plans.
Continue ReadingContrary to the external medium and long term debt, the government does not need the authorization of the Legislative Assembly for the issuance of short-term debt.
Since December 2019, short-term debt has increased by 101%, reaching USD 1,882 mn.
This form of financing has become increasingly expensive for the government. In March, interest rates peaked at 9.48% and dropped to 7.57% in June.
We remain wary of Bukele’s turn to populism and on his souring relationship with the legislative branch.
Continue ReadingThe pandemic changed the monetary policy stance.
The SBP has lowered the policy rate by 525 basis points (bp) so far this year, reaching 8% in May.
The banking system has focused its resources on credit to the government, crowding out private sector credit.
The SBP has started to increase slightly its financing to the government, but it remains low compared to monetary financing in 2018.
Continue Reading36 of the 77 eligible countries have applied for the G20’s Debt Service Suspension Initiative (DSSI).
Chinese debt has grown significantly, but has remained highly opaque. The recently released World Bank dataset is a big step forward in this regard.
Countries that would benefit the most from DSSI owe on average 42% of their 2020-2021 and 41.1% of their 2022-2025 debt service to China.
So far, DSSI only extends for payments scheduled for 2020, but there are many voices calling for an extension to 2021.
To put it bluntly, a program of debt relief or a generalized standstill on official debt would go nowhere without China’s participation.
Continue ReadingIn this report you will find:
Background: Legacy in Peril, an assesment of Lenín Moreno's presidential period.
The Word on the Street, a recount of declarations on the restructuring from the administration's allies and enemies.
Moving Forward: Debt Sustainability, our own in-house debt sustainability analysis.
The Offer and the Deal, our expectations for a potential exchange offer and projected recovery values.
Continue ReadingOil production stayed stable around 1,400 tbd until March 2020, despite OPEC insisted on Angola to cut its production to around 1,100 tbd.
In May, Angola reported production of 1,251 tbd, the lowest level of the last 10 years.
Angolan active rigs went from 7 in April to 0 in May. After the French oil company, Total, announced a standstill in drilling operations.
Angola still has the “fortune” that oil prices cover the cost of production per barrel, which is currently at 7.53 USD/bl.
The country was struggling to comply with its oil payments to China, which accounts for 67% of total oil exports.
Continue ReadingOn June 17, the government halted the phased reopening of its economy due to the spike in new coronavirus cases in the last weeks.
Abinader’s vote intention is 47.4%, while Castillo’s is 33.7% and Fernández 14.4%.
Abinader’s lead over Castillo averages 13.7 pp, 7.5 pp less than in our previous report (21.2 pp).
Given the current trend, we see a runoff as very likely with the final victory of the opposition candidate Luis Abinader
Dom Rep has been one of the region's debts in which investors have returned capital more quickly
Continue ReadingAfter months of renegotiating, debt talks between Argentina and its creditors have come to a halt.
Argentina has made important ammendments to its first offer in order to reach a deal with creditors, and bondholders have also revised their pretensions.
If we look at the proposals from a valuation standpoint, it is hard to see this deal falling through.
The real problem in this negotiations is the legal fine print of the proposals, which in this case has numerous angles and is becoming more complex.
One of the key barriers to a deal is the re-designation clause, which Argentina has included in its first offer.
The Banking Association proposes to avoid default on internal debt to restore the confidence of foreign depositors. We don't think this is a strong argument, investor confidence in Lebanon was already falling before the government announced its debt default in March.
The Banking Association argues that avoiding default on internal debt would prevent further collapse of the economy. However, the researchs cited in the document do not show causality between default of the domestic debt and GDP growth.
We do not positively evaluate the recovery plan proposed by the government, because it does not promote economic growth, but the Banking Association plan proposes a continuation of the financial scheme that led to the crisis in Lebanon.
The longer this goes unresolved, the worst the outcome for bondholders, both because of time-value of money reasons and because the local economy and its capacity to repay will continue to deteriorate.
Continue ReadingEmerging debt continues to be in trouble given current market conditions.
So far debt relief proposals by the G20, IMF and World Bank have only included private creditors on a voluntary basis.
It seems more costly to deal with relief or restructuring of Eurobonds than to advocate for this type of request in bilateral and commercial debt.
Multilateral organizations are also constrained from granting debt relief by its potential impact on their own credit profiles.
Continue ReadingThe maturity structure of domestic debt has worsened so far in 2020.
Most of the domestic debt issuances come from short and medium-term instruments.
The Central Bank was the biggest buyer of government securities in the domestic debt market in March.
The funds raised through domestic debt issuance during the first half of 2020 were lower than those of last year.
Solvency and liquidity indicators look bad across the board, and we find even the 2020 bond unattractive at current prices.
Continue ReadingRodrigo Chaves departure due to "irreconcilable differences" with the president caused a lot of noise in the market. As we have been saying, the greatest risk for a worsening of our fiscal estimates comes from politics.
April’s IMAE result showed a deceleration in its seasonally adjusted m-o-m contraction from -5.4% to -4.7%, when all the containment measures were underway.
We do not see any significant deterioration on our previous fiscal estimates and we maintain a projection of a fiscal deficit of 9.6% of GDP in 2020
We estimate that financing needs amount to USD 9.1 bn (15.3% of GDP), of which 62.6% have already been identified (USD 3.1 bn in multilateral loans and USD 2.6 bn in domestic debt).
The announcement of domestic debt restructuring could play in favor of the external bondholders as it would allow the government to decrease the burden of debt in fiscal expenditures
Continue ReadingOn June 3, President Lenín Moreno announced that Ecuador will report a USD 12 bn deficit because of the plunge in oil prices and lower tax collection.
Ecuador’s oil production reached 333 tbd in May, a MoM recovery of 60.2%, but still representing a decrease of 36.8% compared to the same month in 2019.
April exports reached a historical low for at least 15 years, just USD 74 mn (5,261 kb).
While the country has less and less oxygen, the situation forced the government to issue a new presidential decree on May 19 which practically remove subsidies on automotive sector.
We estimate that subsidies expenditures will be around USD 9 mn per month (0.01% of GDP), while last year this print was usually over USD 100 mn (0.13% of GDP per month)
Ecuador released a presentation to investors that details ambitious debt-relief requests involving short-term relief and lower long-term coupons.
Continue ReadingWith the inflow of funds from global quantitative easing, investors turned to EMs in search of yields.
In just one month, the average yield of the bonds of 69 countries dropped 133 bps, but the same average is still 154bps above their levels by the end of 2019.
Brazil and Colombia came out victorious of last month’s rally, having placed bonds at lower yields than those seen before COVID-19.
On the performance side, Sri Lanka and Ecuador saw the steepest reduction in yields, while the worst performers were Dubai and Fiji.
Following the rally, there are fewer opportunities in the EM universe, especially considering that most of those with space for further upsides are at risk of default or facing debt restructurings.
Continue ReadingLow interest rates and the hunt for yields of the last decade has left broad swaths of EMs overindebted and vulnerable.
The first half of 2020 is not yet over and we already have 3 countries in default.
The recent record of most defaults on Eurobonds on a single year was 4 in 2017, so 2020 is not far from setting new records.
Eurobond restructuring processes are usually among the most complicated due to the variety of holders and the different interests they represent.
Suriname, Zambia, Belize, Sri Lanka and Angola are in the most risk to engross the default-statistic for the year.
Continue ReadingSince 2017, Ukraine has implemented reforms to build the domestic debt market. As a result, the portfolio of non-residents has increased markedly since 2018.
Since early 2020, these capital inflows have been reversed due to the Covid-19 outbreak and the UAH depreciation.
The Government has been issuing a larger number of T-Bills at a short-term maturity to cover its financing needs in 2020.
Nearly 85% of the T-bills issued until June 9 are of short-term maturity, which will increase the debt service costs in the short-term.
Continue ReadingCurrent gasoline production stands at around 35 kbd, representing a drop of 84.9% compared to the 2008 peak.
We expect that after the demand peak of the first week of the new price system, fuel demand will drop in the following weeks, so Iranian gas could last a month.
If the Maduro government fails to import more gasoline or reactivate the refining plants soon, we will once again see shortages like those of April and May.
Prospects for the economy remain grim, with a projected drop in GDP of 21.2% and inflation of 5,648% in 2020.
Continue ReadingLast month, the Central Bank of Egypt announced that foreign currency reserves lost USD 3.7 bn in April. Just today, authorities declared another fall of USD 1.0 bn.
Since the Covid-19 pandemic started, the total drop reaches USD 9 bn, which represents a fifth of the reserves stock reported just in February.
The Egyptian pound has remained stable at EGP 15.7 /USD, fueling concerns of another currency shortage episode, like the country experienced in 2014/15.
In EMFI Securities we do not think that this is an alarm sign yet.
The general picture is completely different than the offered in 2015: Egypt's external finances are in better shape now and the economy far less imbalanced.
At this point, EGYPT 7.625 2030 is just 7.3 cents below its price at the end of 2019, and we don’t see much room for further price recovery.
Continue ReadingWe assessed the bonds of 5 different Caribbean countries, and conclude that Bahamian debt has significant upside potential.
Additionally, Bahamas has almost the highest yields of all its regional peers, in addition to high coupons.
On the economic side, the COVID-19 outbreak will impact every Caribbean country analyzed, which leads us to compare relative strengths in credit indicators.
With no major differences within credit indicators, Bahamas’ mix of high coupons and yields makes it attractive.
Even though the upsides will likely materialize in the medium term, Bahamas could benefit from the authorities’ willingness to return to a fiscal consolidation path.
Continue ReadingWe estimate that net international reserves fell 17% compared to April, standing at USD 7,538 mn on May 23.
To put this figure in context, between April and May the BCRA sold USD 1,317 mn (17% of net reserves) in the official FX market.
Given the low levels of net reserves, it is unlikely that the BCRA will continue to be a net buyer of USD in the medium term.
The strategy of offering hedging along the forward curve complements all of the other measures taken by the government to take the pressure off the precious FX reserves.
All the necessary ingredients for a devaluation of the FX rate and an acceleration of inflation are served in a post-lockdown scenario.
Continue ReadingMay was one of those months that feels like a year. We had a default in Argentina, a tense election in Suriname, a deadly pandemic still spreading around the world, and yet, it was a good month for emerging market debt
Our EMFI Core Index went up for the first time in 6 months. The biggest winners were Argentina, Angola and Ecuador, while Venezuela, Suriname and Sri Lanka were among the negative outliers that went against the general risk-on mood
The macro and fiscal situations deteriorated further for all countries covered, and we chronicled the dramatic economic crash in our Country Reports
We’ve been preparing for a wave of sovereign defaults since the start of the year, and in May’s Strategy Viewpoints we took a look at the big picture and analyzed how bad defaults can get when things go south
Food for thought for the EM aficionado: we introduce here a new section called EMFI Digest, where we’ll be sharing a selection of stuff we’ve been seeing, listening and reading
Continue ReadingPresident Erdoğan’s opposition to working with the multilateral is well-known, as he’s accused the Fund of being “the biggest usurer around the world”.
However, under the current circumstances, an agreement with the multilateral looks tempting: for the rest of the year, the country has pending debt service of up to USD 53.1 bn.
Our estimations suggest that the fiscal deficit will stand at 7.4% of GDP, while the primary deficit will amount to 4.7% of GDP.
The gross financing needs are up to USD 84.0 bn, equivalent to 12.43% of GDP.
It looks like Turkey could avoid the IMF assistance through further domestic bonds issuing, and the purchases of those instruments will be quasi-mandatory for private banks in the next months
Turkey's debt recovers the upward trend as expectations rise for the entry of new capital flows into the country.
Continue Reading