Brazilian officials are accustomed to shrugging off the country’s debt levels by comparing them with those of much more heavily indebted Europe.
Although this misses the point – Brazil’s public debt is more burdensome than in most other countries because it has some of the highest interest rates in the world – the argument is doubly wrong if a new study by Moody’s is to be believed. Read more
By John-Paul Rathbone and Andres Schipani
Socialist Venezuela would never sell out its friends to Wall Street, right? Yet it appears that is exactly what Caracas wants to do. Pressed by the oil price collapse, rattled by fears of default, facing rising social tension as imports collapse due to lack of foreign exchange, and seemingly unable to put its economic house in order, the country is trying to raise desperately-needed cash by selling debts owed to it by the Dominican Republic and Jamaica on to Goldman Sachs. Chavismo turns to the vampire squid?
The idea has been circulating for a while in the investment banking community. But now details have emerged in the press, as reported by El Nuevo Herald, and Petroleum Argos. Essentially, the trade involves Venezuela securitizing debts owed under its $3.5bn a year subsidised oil program, called Petrocaribe. Read more
When oil prices fall, it’s a fair bet that Venezuela’s economy will suffer. After all, that has been the case every time oil prices have fallen in the past. When Venezuela’s official gazette then publishes a legal notice on October 10 saying that its oil-for-loans scheme with China had been tweaked, it is also a fair bet that this would be taken as a sign of Venezuelan economic distress and maybe even a default on loans from its closest ally, China. That is how beyondbrics and many others understood it. How wrong one can be — sort of. Read more
By Arturo Porzecanski of American University
José Antonio Ocampo, a former United Nations official and co-president with Prof. Joseph Stiglitz of Columbia University’s Initiative for Policy Dialogue, which promotes the adoption of heterodox economic policies in developing countries, recently wrote a guest post welcoming a UN General Assembly resolution calling for the launch of negotiations on a multilateral framework for sovereign debt restructuring. The resolution was Argentina’s initiative and it passed with the backing of a coalition of developing countries (the so-called G-77 plus China) in the wake of, as Ocampo put it, “the absurd decisions of a New York judge on Argentine debt.” Read more
Argentina’s debt default at the end of last month might have been expected to plunge emerging markets into a new paroxysm of panic. But the saga has for the most part been brushed off by fixed income fund managers.
True, prices of Argentine bonds have fallen, but not by very much. An issue due in 2033 actually gained slightly last week to close on Friday at 84 cents on the dollar, down from 96 cents two weeks ago but well above its 2014 low of 65 cents, let alone the 20-30 cents in the dollar level to where defaulted Latin American paper might have been expected to sink.
What’s more, demand for new high yield Latin American paper continues to surge. Read more
Argentina’s national motto is En unión y libertad (In Union and Liberty). Should it, perhaps, consider changing it to Sui Generis?
Having found a variety of ways throughout its history to break new ground in macroeconomic and sovereign debt mismanagement, Buenos Aires this week may be forced into a new one.
Kenya is extending a $600m syndicated loan due for repayment on Thursday by three months, following an eleventh-hour agreement after weeks of prevarication.
A Treasury official said negotiations with the three international banks underwriting the loan – Citigroup, Standard Bank and Standard Chartered – were concluded only on Tuesday, two days before the repayment date. Read more
It’s official. Jaiprakash Associates, the Indian energy and infrastructure conglomerate, has sold off two hydroelectric plants in northern India.
The last time one of the group’s subsidiaries did something similar, its shares rallied on hopes that the move would bring down the group’s debts. But this time the stock has tanked because of signs the plants may have been sold too cheaply. Read more
Investors in Ukrainian bonds have heaved a collective sigh of relief over the past few days – or, if not that, they have at least moved further away from the threat of default, if the recent retraction in bond yields and CDS spreads is any guide. But even in the darkest days of last week when Ukrainian yields soared to panic levels, investors could have taken one grain of comfort. Things, after all, could have been worse: they could have invested in Venezuela. Read more
Ukrainian bonds are rallying strongly on Monday as investors digest the weekend’s dramatic events. Short term bonds issued by the sovereign and by Naftogas, the state gas company, have recovered from their recent panic levels.
But is there so much for investors to cheer about? Read more
Finance Minister Uros Cufer
Slovenia is set to join a regional rush to the bond markets as it seeks to borrow €3.5bn, equivalent to around 10 per cent of its annual GDP, this year. The government announced that it would raise the cash largely through “long-term borrowing through issuing sovereign bonds”, with some short-term local notes also likely to be issued.
The statement raised the possibility of using the funds to help finance a €4.8bn bank bailout announced in December, which includes a €3.2bn recapitalisation programme. The government is confident that this can be met without resorting to an international bailout of the sort that has placed severe strictures on other eurozone countries such as Greece and Portugal. Read more
Tapping bond markets is something of a trend for many African countries in the past year, including Gabon this month with a $1.5bn 10-year eurobond priced to yield 6.375 per cent.
But selling long-term debt is proving a hard game in east Africa, despite the presumable attractions of political stability and a favourable business environment. Interest costs for government securities are high, with long-term instruments maintaining yields of about 10 per cent or more, creating a growing concern for central banks. Read more
No surprise about the way financial markets reacted to Tuesday’s Ukraine-Russia tie-up. With the chances of a default before the 2015 elections reduced effectively to zero, bond yields and the price of credit default swaps plummeted (see charts below).
Looks like bond holders can look forward to a long-running game of chicken. Read more
Gabon joined the year’s rostrum of sovereign African eurobond issuers on Thursday with a 10 year “soft bullet” issue of $1.5bn priced to yield 6.375 per cent.
It follows comparable landmark issues over the past 15 months from Zambia, Rwanda, Nigeria and Ghana. So how does it stack up? Read more
An interesting take on the 1997 Asia crisis from Carmen Reinhart, known for her influential (before it was corrected) paper on the relation between growth and debt, and Takeshi Tashiro.
A new research paper from the two economists this week argues that Asia still hasn’t recovered from 1997 in one key regard: investment is still pitifully low, from India to South Korea. Read more
Call it the $164.5bn question. Turkey’s financing issues have sparked off concerns of late, as the extent of the economy’s dependence on continued ultra-loose US monetary policy appears to become ever clearer.
One well-known issue is the country’s current account deficit, which is still hefty despite lower growth than in recent years and which is overwhelmingly financed by relatively fickle portfolio flows. Another is a jawdropping number – the $164.5bn of foreign currency denominated debt coming due in the next 12 months. Read more
Sometimes you get lucky – the International Finance Corporation certainly did when it picked Thursday to launch its first local currency bond in Zambia.
As the US Federal Reserve confounded analysts by announcing that it will keep its quantitative easing programme steady at $85bn a month, prompting a rally in emerging market assets, the private sector arm of the World Bank issued a $150m ($28.5m) kwacha-denominated note at 15 per cent. The four-year “Zambezi” bond is the first issued by a foreign organisation in Zambia’s domestic market, and will raise money for IFC’s local operations, officials told beyondbrics. Read more
What can Tata possibly see in this struggling sector?
For the second time this year, Tata Sons has announced plans to launch a new Indian airline. The illustrious group has joined forced with Singapore Airlines and put in an application with the Foreign Investment Promotion Board, India’s FDI regulatory body. Read more
We have said it before and we will say it again: reports of the death of emerging markets have been greatly exaggerated.
Two major bond issues from Russia and South Africa this week, totalling $9bn, offer further proof that, despite the sharp sell-off in EM assets during the QE taper talk since May, there is still appetite from investors for EM debt – if the price is right. Read more
What can Eskom do about it’s funding problems? The South African power utility is looking to spend a whopping $50bn revamping old plants and building new generators including Kusile and Medupi, set to be the world’s third- and fourth-largest coal-fired stations. But the company’s hopes of 16 per cent price increases over the next few years were dashed by the national regulator, which allowed it only 8 per cent.
So Eskom is looking at ‘equity-like debt’ instead. Will that work? Read more