Turkey, Oman and Bahrain among ‘bondfire’ fragile five

Turkey, Oman and Bahrain among ‘bondfire’ fragile five
A man feeds seagulls on the Bosphorus in Istanbul. Rising borrowing costs could hurt indebted countries such as Turkey. (Reuters)
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Updated 02 March 2021

Turkey, Oman and Bahrain among ‘bondfire’ fragile five

Turkey, Oman and Bahrain among ‘bondfire’ fragile five
  • Emerging markets to ramp up debt sales this year
  • But global borrowing costs are rising too fast

DUBAI: Just when developing economies were ready to bask in the post-COVID rebound in global growth, in sweeps a bond market blaze to scorch them again.
Most major investment banks were predicting a stellar 2021 for emerging market assets as long as one crucial snag — global borrowing costs rising too fast — was avoided. Well guess what, they are on a tear.
February saw their steepest monthly gain since Donald Trump’s shock 2016 US presidential election win and, though the move comes from record low levels, for emerging markets now carrying nearly $80 trillion worth of debt it has been painful few weeks.
The widely-tracked JPMorgan Emerging Market Bond Index (EMBI) is having its worst start to a year for a quarter of a century, currencies have recoiled and MSCI’s EM stocks index has just suffered its biggest weekly drop since peak COVID panic last March.
The carnage has been described as a bond bonfire by ING analysts and prompted some of those bullish investment banks like JPMorgan and Morgan Stanley to curtail their bets.
Rising developed market bond yields sting emerging markets in two main ways.
Firstly they push up borrowing costs. BofA estimates emerging markets will sell over three quarters of a trillion dollars worth of debt this year — $210 billion by governments and over $550 billion by corporates. Higher rates mean adding to government debt ratios that soared 15.5 percentage points across the top 60 emerging markets last year and have left 13 such countries with debt-to-GDP in excess of 100 percent.
Secondly, it cuts the premium existing emerging debt offers investors compared to ultra safe and liquid US Treasuries.
If the risk-reward calculation no longer adds up, money managers can quickly sell as was seen during the 2013 ‘taper tantrum’ when the Federal Reserve’s hints at ending its easy-money policies triggered an estimated $25 billion emerging asset selloff in just two months.
The effects of that episode were particularly severe in the “Fragile Five” of Brazil, India, Indonesia, South Africa and Turkey that had built-up large current account deficits that were funded by short-term capital inflows.
This time, investors are worried about at least some of those.
“Brazil and South Africa are countries whose combination of persistent weak growth, rising public debt, very steep yield curves with very high long-term real interest rates has become a big source of concern,” said David Lubin, Citi’s managing director and head of emerging markets economics. “Mexico might also be on that list.”
Still, the alarm bells aren’t ringing as loud now.
For one reason, US “real” yields, adjusted for inflation, remain low by historical standards, at about negative 80 basis points which keeps emerging market assets looking attractive.
By comparison, during the original taper tantrum, “real” US 10-year yields rose steeply from negative 75 basis points at the end of 2012 to positive 50 basis points by mid-2013.
And despite the huge rise in debts, last year’s recessions have helped to mostly eliminate current account deficits, limiting many emerging markets’ reliance on capital inflows and acting as a shock absorber against rising US yields.
A punchy recovery in global growth and fast-rising commodity prices should further help developing economies and even dig some out of a hole.
Moody’s last week cranked up its pan-EM growth forecast for the year to 7 percent from 6.1 percent, led by upward revisions to China, India and Mexico, and with $1.9 trillion of US stimulus now coming most institutions are doing the same.
“We could be at the door of a big, big economic boom,” said head of Barings’ sovereign debt and currencies group Ricardo Adrogué. “Some of these countries that seem hopeless today could actually be ok.”
Others will not be so lucky though.
Ethiopia is about to become a test case for the new G20 ‘Common Framework’ debt relief plan which stipulates private creditor debt must also be restructured, meaning the government has to default.
Others are expected to follow. S&P Global warned last week Belize was “virtually certain” to default in May. Laos and Sri Lanka have key payments in June and July, while JPMorgan lists 16 at-risk countries from Cameroon to Tajikistan sitting on a combined $61.4 billion of debt.
Tellimer’s senior economist Patrick Curran has dubbed the new group of vulnerable countries the ‘Fragile Frontiers’. It includes Jamaica, Tunisia, Ecuador, Sri Lanka, Belarus, Ethiopia, Laos, Bahrain and Oman.
Adding to the risks, not all emerging markets have started rolling out COVID vaccines yet. In Africa, for example, only a minority of countries are currently vaccinating and more variants are still breaking out.
Countries like Mexico, Jamaica, Panama, Mauritius, Montenegro, Jordan and Fiji where tourism accounts for close to 10 percent of GDP will wonder whether vaccines will come quickly enough to save their busy seasons this year.
“Virus mutations are a real thing I worry about,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management. “There’s already been several and there’s no way of predicting how many more there will be.”

FASTFACTS

The widely-tracked JPMorgan Emerging Market Bond Index (EMBI) is having its worst start to a year for a quarter of a century


Evergrow signs $400m loan to restructure debts

Evergrow signs $400m loan to restructure debts
Updated 22 April 2021

Evergrow signs $400m loan to restructure debts

Evergrow signs $400m loan to restructure debts
  • $74 million of loan will finance construction of fertilizer plant in Sadat City
  • Mashreq Bank and National Bank of Egypt led 12-bank syndicate

RIYADH: Egyptian fertilizer company Evergrow has signed a $400 million loan agreement with a syndicate of 12 banks led by Mashreq Bank and the National Bank of Egypt (NBE), who acted as the facility arrangers, Asharq reported citing a joint statement on Wednesday.

The plan consists of $326 million that will be used to restructure previous debts Evergrow owes to the same banks, while the remaining $74 million will finance the construction of the third phase of the company’s fertilizer plant in Sadat City, slated for completion within nine months.

The financing is one of the largest dollar loans granted by banks to private sector companies in the Egyptian market in the field of potassium fertilizers during the past 10 years.

The deal is part of Evergrow’s financial reform program sponsored by the Central Bank of Egypt.

The new funds will help raise the annual production capacity of all the company’s products from 817,000 tons currently to 1.15 million tons annually, said Evergrow Chairman Mohamed El Kheshen.

Egypt’s Minister of Trade and Industry Neveen Gamea in March said that Egypt aims to increase its exports — especially to EU, African and Arab markets — to $100 billion, through the implementation of a strategic plan.


Turkish crypto founder flees with reported $2bn

Turkish crypto founder flees with reported $2bn
Updated 22 April 2021

Turkish crypto founder flees with reported $2bn

Turkish crypto founder flees with reported $2bn
  • Launched aggressive campaigns to lure investors
  • Founder reported to have flown to either Albania or Thailand
ISTANBUL: Turkish prosecutors on Thursday opened an investigation after the Istanbul-based founder of a cryptocurrency exchange shut down his site and fled the country with a reported $2 billion in investors’ assets.
The Thodex website went dark after posting a mysterious message saying it was suspending trading for five days on Wednesday because of an unspecified outside investment.
Turkish security officials then released a photo of Thodex founder Faruk Fatih Ozer going through passport control at Istanbul airport on his way to an unspecified location.
Local media reports said Ozer — reported to be either 27 or 28 years old — had flown either to Albania or Thailand.
HaberTurk and other media said Thodex shut down after running a promotional campaign that sold Dogecoins at a big rebate — but did not allow investors to sell.
Reports said the website and the entire exchange had shut down while holding at least $2 billion from 391,000 investors.
“The victims are panicked,” investors’ lawyer Oguz Evren Kilic was quoted as saying by HaberTurk.
“They are lodging complaints at prosecutors’ offices in the cities they reside.”
Prosecutors launched an investigation into the businessman on charges of “aggravated fraud and founding a criminal organization,” the private DHA news agency said.
Thodex has launched aggressive campaigns to lure investors.
It had first pledged to distribute luxury cars through a flashy advertising campaign featuring famous Turkish models.
The platform then launched its Dogecoin drive.
The cryptocurrency is getting particularly popular among Turks who are looking to preserve their saving in the middle of a sharp decline in the value of the local lira.
The Turkish crypto market remains unregulated despite growing skepticism from President Recep Tayyip Erdogan’s government about the safety and use of digital currencies.
The Turkish central bank has decided to ban the use of crypto currencies in payments for goods and services starting from April 30.
It warned that cryptos “entail significant risks” because the market is volatile and lacks oversight.
“Wallets can be stolen or used unlawfully without the authorization of their holders,” the central banks warned last week.

Riyadh property prices rise 2% in Q1 even as rents fall

Riyadh property prices rise 2% in Q1 even as rents fall
Updated 22 April 2021

Riyadh property prices rise 2% in Q1 even as rents fall

Riyadh property prices rise 2% in Q1 even as rents fall
  • Mortgages rise, underpinning demand
  • Office sector remains under pandemic pressure

RIYADH: Property prices in the Saudi capital edged higher in the first quarter even as rental rates eased, JLL said.
Riyadh’s residential sale prices registered an annual increase of 2 percent for apartments and villas. By contrast, rental rates reported yearly declines of 1 percent for apartments and villas, it said. Some 7,700 homes were handed over during the period, the broker said.
“Looking ahead, the government initiatives that are pushing Riyadh to be the business hub of the region are expected to spur local and international demand,” JLL said in the report.
It said that strong government support helped to boost demand for residential property in the first three months of the year.
New mortgage loans for individuals jumped by 33,000 contracts in January 2021, it said.
The total value of mortgages increased to SR16.4 billion, according to the Saudi Arabia Monetary Agency (SAMA).
The Riyadh office market remains under pressure with average lease rates across a basket of Grade A & B office spaces in the city falling by 2 percent over the quarter compared to a year earlier.


IATA predicts Middle East airline losses of $4.2 billion in 2021

IATA predicts Middle East airline losses of $4.2 billion in 2021
Updated 22 April 2021

IATA predicts Middle East airline losses of $4.2 billion in 2021

IATA predicts Middle East airline losses of $4.2 billion in 2021
  • Airlines will burn through $81 billion of cash this year
  • Industry crisis much longer and deeper than expected

RIYADH: Middle Eastern airlines will endure losses of $4.2 billion in 2021, down from $7.9 billion in 2020, as pandemic travel restrictions remain in place in much of the world, according to the International Air Transport Association (IATA).
Losses will be equal to 13.8 percent of revenues in 2021, an improvement from 28.9 percent in 2020, but still an historically bad number. Demand will be 67.6 percent lower than 2019 levels, while capacity will shrink 58.9 percent, IATA said.
While the region’s carriers will benefit from some of the highest vaccination rates globally, their relatively small home markets mean airlines like Emirates, Etihad and Qatar Airways will remain heavily exposed to international travel restrictions.
Globally, airline industry losses will narrow to $47.7 billion in 2021 from $126.4 billion in 2020, IATA said.
Airlines will burn through $81 billion of cash this year, following $149 billion in 2020, while the industry has taken on a further $220 billion of debt for a burden of $651 billion, IATA said.
“This crisis is longer and deeper than anyone could have expected,” said IATA Director General Willie Walsh. “Losses will be reduced from 2020, but the pain of the crisis increases. Government imposed travel restrictions continue to dampen the strong underlying demand for international travel.”


L&T Construction to build oil and gas supply base in King Salman Energy Park

L&T Construction to build oil and gas supply base in King Salman Energy Park
Updated 22 April 2021

L&T Construction to build oil and gas supply base in King Salman Energy Park

L&T Construction to build oil and gas supply base in King Salman Energy Park
  • The contract is valued at between $133m and $332m

RIYADH: Indian contractor Larsen & Toubro has been appointed by Oilfields Supply Company Saudi to design and build what it describes as one of the world’s largest oil and gas supply bases, in King Salman Energy Park in Dammam.

The project, valued at between INR1,000 crore ($133.3 million) and INR2,500 crore, involves the construction of industrial facilities, an administration building, ancillary buildings, associated infrastructure and storage yards, and is scheduled for completion in 30 months, L&T said in an emailed statement.

“This project will act as a business incubator to support the oil and gas industry in the Kingdom and help accelerate industrial growth in the energy sector,” said M. V. Satish, senior executive vice president (Buildings), L&T.