Market Insights en-gb Fri, 24 May 2019 10:14:23 GMT 2135 Game Over, Zambia – Please Insert IMF Token to Continue Playing http://www.bondsloans.com/news/article/2135/game-over-zambia-please-insert-imf-token-to-c In the world of emerging and frontier markets, there is rarely a dull moment. But while countries like Venezuela or Argentina continue grabbing headlines, one country in southern Africa is starting to creep ever so slowly into the limelight – and it’s not Mozambique. What is the point of no return? 24 May 2019 Africa http://www.bondsloans.com/news/44/africa Market Insights http://www.bondsloans.com/Content/Cms/news/tn_30a2c1f7-e28a-4430-9fe9-6ca1534a39c1.png 44 Fri, 24 May 2019 05:13:37 GMT That southern African country is Zambia, a copper-rich nation that has been struggling for the past few years. Unfortunately, it seems we are now coming towards the point of no return.

A Quick Recap of the Issues

Zambia is a country predominantly reliant on copper, which accounts for roughly 60% of the its exports, and is its primary source of USD income. If we discount Switzerland (more a trading hub than an end-consumer), China is the biggest importer of Zambia’s copper. Debt-to-GDP, including public guarantees and local arrears, is approximately 73.1%.

The surge in debt has been primarily driven by large spending on infrastructure projects, which has been funded by non-concessional debt. Further domestic arrears increased during the 2015 commodity slump and the 2016 presidential elections. Currently, it is estimated that domestic arrears are around 2.5% of GDP.

The IMF stated that it would delay its debt sustainability analysis until there is clarity on potential Chinese debt profiling. There were rumours that the Zambian authorities wanted to swap their USD China-related debt (approximately USD3.1bn at the end of 2018 from a total of USD9.7bn) into yuan. This would reduce the pressures on the country’s USD FX reserves.

On the fiscal side, the most recent figures suggest a 10% deficit on a 2018 budget committed basis, which translates to a 7.5% cash deficit, slightly below the government’s estimate of 7.6%. FX reserves have continued to diminish to roughly USD1.45bn, or 1.7 months of import cover, as of April 2019.

Growth has been lagging. Following the recent conclusion of an IMF Article IV visit at the end of April, the Fund is now forecasting GDP growth of 2.3% for 2019, versus 3.7% in 2018. This is in part due to a drought that has weighed on the country’s agricultural sector and hydroelectricity production.

Bond Prices and the Currency: Canary in the Coal Mine

The long-awaited IMF spring meeting was a non-event in the end. While the country’s Minister of Finance described the meetings as a success in the local Zambian press, it certainly did not look that way from a foreign investor perspective. While investors are pleased to hear that there is continuous cooperation with multilaterals and development banks, it has not resulted in what we consider the crucial next step: a rapprochement between the IMF and Zambia for a funding program.

Considering where the current local bond yields, Eurobond yields and currency are today, it is clear the stresses on the economy continue to build. The latest local bond auction gives us a reasonable indicator of how bad the local situation is. The auction on 26 April shows that the authorities have been allocating to all the bids that came in; yet the uptake was underwhelming, with only roughly 20% of the auction taken up. The local curve is now inverted; the 2-year printed at 29.5%, 3-year at 29.75%, 5-year at 30.5%, while the 15-year printed at 19% (albeit it was only a small amount that was taken up).

For the Eurobonds, the prices are clustered closely together. The 2022 maturity is at a price of 68.75/69.75 or a yield of 18.16%/17.64%, while the next maturity is at 70.375/71.375 for a yield of 17.75%/17.36%, respectively, and, last but not the least, the 2070 maturity, which is priced at same levels as the 2025, for a yield of 16.06%/15.76%. The 5-year CDS on Zambia has moved from a mid-September 2018 price of 583.5bp to the current 1576.87bp which, according to Bloomberg, puts  the probability of default at 66.4%, in contrast to Argentina’s  5-year CDS at 1202.13bp ,or a default probability of 56.5%.

The Zambian Kwacha devalued substantially since end of July 2018 to the 15th May 2019, reaching 32.78%, to finish at 13.21 ZMW to USD. At this time, the NDF market shows us the 1-month at a mid-yield of 59.3%, the 3-month mid-yield at 44.5% and the 1-year at 31.6%, using a spot reference rate of 13.6 to USD.

Not IMF or China, but IMF and China, Will Be Needed

What can one expect from all of this? That funding support in some form or another will be key to secure Zambia’s future.

Eurobond interested payments are in fact not the main concern; in 2019, the country needs to pay a manageable USD237mn in Eurobond debt servicing costs. The primary concern, instead, is debt servicing for the non-concessional infrastructure debt – much of which emanates from China. That said, clearer communication is required from the Zambian authorities on their plan to get both China, a major creditor, and the IMF on board, because one without the other simply won’t be enough. China’s penchant for opaqueness and the IMF’s for transparency with regards to financial agreements may mean a difficult lies path ahead for the country as it seeks a resolution, but one that is no less crucial to follow.

The government also needs to reduce its spending and bring local arears under control. A large portion of the government’s flagship projects cannot simply be stopped, which means there is a need for additional international funding.

Is the default risk real at this stage? If the macro environment doesn’t shift dramatically and if support isn’t forthcoming, most likely. It won’t be this year, and maybe not the next, but we are clearly running out of tarmac. External debt service has been estimated to be around USD1.5-1.6bn for this and next year; however, given the difficulty in knowing where we stand with some of its loans, one can’t be certain about these levels.

Politics could be an important driver of what happens next. The country will have its next presidential elections in 2021. This might seem distant, but one has to bear in mind that President Lungu may not be too keen to start negotiations with the IMF so close to elections. As readers might recall, the last presidential vote was very closely disputed, and locally, there may still be some stigma attached to any president or political party approaching the IMF; Lungu could avoid the entire affair for fear of having his economic competence questioned at a key point in the political cycle.

What Markets Want is Clear

If the IMF were to come in, one would expect a restructuring of its outstanding Eurobonds. But at this stage, our view is that the multilaterals may not be open to immediately restructuring the debt (Mozambique, which did secure early multilateral support was, in our view, a rare exception).

As it stands, there is no question about the government failing to recognise current debt levels, and the problems with its economy are well-known. Zambia’s relationships with the Fund has been difficult in the past, but we seem to be approaching a point where the country has few options left. Once the news is out that Zambian authorities and the IMF are looking to come to an agreement, we expect to see an immediate rally in the bonds. While overly harsh treatment of the country by the Fund might have repercussions for the region, it will still require strict adherence to a programme.

At the end of the day, how one believes this story will play out rests largely on the conviction that an outright default can be avoided. At current levels for the Eurobonds, we don’t seem too far off from historic haircuts being applied during sovereign debt restructurings. Of course, a sovereign debt restructuring can take place in many guises, but if history serves as any guide, we are dangerously close to seeing those pricing levels, where the median recovery rate for Africa is close to that seen during the 1960s. Urgency is high, and expedience is required before it’s game over.

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2134 Securities Commission Malaysia: SRI Sukuk Broadens Investor Base that Participate in SDGs http://www.bondsloans.com/news/article/2134/securities-commission-malaysia-sri-sukuk-broa Malaysia has been pioneering the sustainable Islamic finance market well before the country’s 2014 launch of the Sustainable and Responsible investment (SRI) Sukuk framework. Zainal Izlan Zainal Abidin, Deputy Chief Executive of Malaysia’s Securities Commission, says the country needs to build on the seven SRI sukuk issued to date and pull more borrowers from the private sector into the sustainable finance market while ensuring demand from investors. Sustainable development and sukuk 23 May 2019 Asia Pacific http://www.bondsloans.com/news/46/asia-pacific Market Insights http://www.bondsloans.com/Content/Cms/news/tn_75270b5d-e296-4b4e-ba7d-c363d2abf7e5.jpg 46 Thu, 23 May 2019 11:59:53 GMT Bonds & Loans: In what ways do Islamic finance and sustainable finance complement one another?

Zainal Izlan Zainal Abidin: The ethical underpinnings of Islamic finance – with Shariah-compliance being a key element in terms of use of proceeds and general corporate or organisational activity – are the main common factor shared with SRI. Other factors linked to both Islamic finance and SRI is the screening process that tends to be undertaken. Shariah screening tends to be a ‘negative’ screen or exclusionary in the sense that it excludes prohibitive business activities and SRI screening takes a ‘positive’ approach by selecting companies that demonstrate good SRI practices. However, they both go through a similar process, and investors, who may be familiar with one process for screening use of proceeds, tend to be familiar with the other; that is quite helpful in terms of getting both markets engaged.

The idea of generating an outcome – such as social impact – that is not purely commercial is also something that links the two markets. Investing in SRI is about how we achieve financial returns in tandem with non-financial returns; in Islamic finance, the concept is similar, whether we are talking about avoidance of excessive returns, enhancing social welfare or equitable distribution. There are a number of non-monetary considerations that form key pillars of decision-making in both markets.

Bonds & Loans: Malaysia won accolades for launching the world’s first green sukuk in 2017. How did the Securities Commission help create an enabling regulatory framework to support the transaction? What needed to be done?

Zainal Izlan Zainal Abidin: We started out in 2014, when we introduced the SRI Sukuk framework. Our intention was to leverage on the fast-growing sustainable finance market, which is represented via the various acronyms and terminologies, and to help create an enabling ecosystem by encouraging greater participation in the sukuk market and meeting the demands of a wider pool of investors. The SRI framework captures the broadest possible definition of the segment, including a range of activities that generate non-monetary returns such as environmental or social benefits, benefits in terms of sustainability or improvements in governance, among others.

In 2015, Khazanah Nasional launched a social impact sukuk focused on enhancing educational outcomes, which was really the government’s first foray into the space from a funding perspective; it helped demonstrate that there is a market for SRI issuances. This has been helped by the fact that domestic long-term investors are moving to a more sustainable investment methodology – and are looking for more sustainable investment assets as a result.

One of the areas we have been active in is engaging the government on tax exemptions designed to eliminate the cost differential between issuing in SRI format and general sukuk. This will help compensate for additional disclosure and certification costs associated with SRI, and enhance the ecosystem.

Ultimately, we need more borrowers to move into the market. With the demand side making it clear that there is appetite, borrowers and corporate finance advisors should be more confident in tapping the SRI market with green or SRI-linked instruments.

We’ve had seven SRI sukuk issuances now. It takes a lot of awareness building and education to help grow this market. It took quite a bit of time to generate enough traction for the first issuance to move forward.

In terms of pipeline development, the government has set itself a target of having up to 20% of the energy mix coming from renewable energy, which we believe will drive the development of more green projects.

But we still have some issues to resolve. The first is deal size, because the quantum of funding required by most borrowers in this space is smaller than the sums typically raised in the sukuk market. The industry has some work to do in creating structures that can help these candidates tap the market. The risk assessment for many of the projects being financed is not necessarily as familiar to investors when compared with the types of instruments they typically invest into, partly because many sustainability-linked projects deploy new and innovative technologies that make it more challenging to price risk. These are some of the challenges the industry faces.

Bonds & Loans: In Malaysia and elsewhere, there seems to be quite a bit of focus on the ‘push’ aspects of this market – in the sense that government and other stakeholders are trying through various means to push more issuers into the sustainable finance space. What do you think is needed to turn this into a ‘pull’ market – where the benefits of tapping this space are self-evident in themselves, and sufficient to attract more supply?

Zainal Izlan Zainal Abidin: Education is perhaps the biggest ingredient. One of the things that helps is bringing investors into closer dialogue with borrowers to demonstrate that there is a differentiating factor in going down the SRI route. Many investors are naturally still driven primarily by financial returns, but the pool of SRI-sensitive investors is formative and growing. In ten years, I don’t think we will see CFOs struggling to generate buy-in to issue in green or SRI formats because the risk will be priced into deals; it will become obvious for borrowers that being more sustainable and investing in green or SRI-linked activities has a direct pricing benefit for the funding you need to raise to invest in those activities. At the end of the day, it’s really a supply and demand market – the capital markets are by their very nature non-interventionist. It may take a while to get there, but we are going to see a further coupling of cost of funding and SRI-related activities; for instance, as a CFO of an energy firm, the decision of whether to invest into a new coal-powered or a solar plant becomes a commercial decision that has pricing implications. In the future, people will no longer have to push being SRI-compliant; they will need to justify why they aren’t yet still in business. This is where market forces are shifting.

Bonds & Loans: How deep is the sustainable finance market in Malaysia? What is the Securities Commission Malaysia doing to facilitate the market’s growth?

Zainal Izlan Zainal Abidin: Sovereigns and multilaterals have been driving this market forward, and they can provide leadership – but they can only do so much. For this market to be sustainable, we need the entire economy and the private sector to move down this path. The seven SRI sukuk issuances in Malaysia were all private sector issuances, in direct contrast to what’s often seen in other markets. This is a good sign – it shows that corporates in a diverse range of sectors are bought into the concept.

The Securities Commission has a twin mandate as both market regulator and market developer. There are three key areas we see as current priority from a market development perspective. One of them is driving further growth of sustainable investment. We see a lot of potential in the domestic market, and a natural extension of the work we’ve been doing in the capital market space already, especially in the Islamic capital market. We truly believe that a lot of funding issues globally can be solved by aligning together Islamic and sustainable finance because it broadens the number of investors that can participate.

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2133 Penalise or Promote: Is ESG Rating a One-Way Street? http://www.bondsloans.com/news/article/2133/penalise-or-promote-is-esg-rating-a-one-way-s Scores and rankings of ESG – shorthand for environment, social and governance – factors has become supremely important for investors looking to funnel capital towards more sustainable activities, often on the basis that better ESG means more sustainable cashflow generation capacity and lower overall risk. But are there limits to the linkages that can be drawn between credit performance and ESG rankings? Fitch's Fernanda Rezende on the evolution of ESG and ratings 22 May 2019 Americas http://www.bondsloans.com/news/45/americas Market Insights http://www.bondsloans.com/Content/Cms/news/tn_e937ca3e-20ac-4202-8856-353cf4531cf8.jpg 45 Wed, 22 May 2019 16:03:29 GMT Bonds & Loans speaks with Fernanda Rezende, Senior Director, Corporates at Fitch Ratings about how the ratings industry is evolving to meet the changing needs of borrowers and investors. 

Bonds & Loans: What in your view are some of the main drivers of borrowers becoming more cognisant of ESG-related risk?

Fernanda Rezende: In terms of the ethical and moral aspects of prioritising ESG, it is clear that these are very positive – for borrowers, investors, the wider market and society – which we do not opine on.. The investor community globally is becoming more focused on ESG, and asset owners are increasingly being asked to demonstrate how they score on environmental, social or governance-related factors. As investors integrate analysis of these factors in their investment process, borrowers will need to be in a position to address evolving investor requirements; or they will see the pool of investors dedicated to ESG-linked investing in their bonds start to decrease, with a potential liquidity impact.

We think the combined impact of these two trends will see more organisations in Brazil and elsewhere prioritising the improvement of ESG aspects.

Bonds & Loans: Do you think ESG prioritisation can become one avenue by which borrowers help channel more capital into emerging markets like Brazil?

Fernanda Rezende: This seems unlikely. ESG considerations are very entity and transaction-specific, so it will ultimately depend on the borrower. That being said, organisations or countries that are more transparent in general, or specifically with respect to ESG factors, tend to have a more attractive credit story when compared with other organisations that are behind on these practices; their forward-looking nature and prioritisation of sustainability is often directly related to their approach to other credit fundamentals, like cashflows.

In the medium-term, we’re likely to see more attractive assets – from an investment perspective – evolve out of higher prioritisation of ESG. Countries or organisations that don’t enforce prioritisation of ESG are increasingly likely to be disadvantaged in the long term.

Bonds & Loans: Ratings play an important role in the pricing of debt capital markets transactions. To what extent can markets really price ESG-related risk, especially once you start moving beyond carbon emissions climate risk or other features where science can be slightly more defining and start looking at risks more holistically? What role can ratings or rankings play here?

Fernanda Rezende: At this moment, we believe it is very difficult for the fixed income market to price this kind of risk. Part of the challenge, which is arguably more prevalent in emerging markets like Brazil, is that there is a poverty of high-quality information that can provide a suitable base to demonstrate borrowers’ track record on ESG factors. This information is starting to emerge, and will continue to emerge over time.

Fitch Ratings recently introduced an ESG relevance score, which we have been publishing since January this year. What we aim to do is provide a clear linkage between ESG factors and our own credit ratings and approach to measuring risk. We actually separated all of the factors linked to ESG and ran an exercise involving all of our international ratings, and tried to make clear how we incorporate those factors in the rating. Each factor is given a score of 1 to 5, and the higher relevance scores mean higher ESG-relevance – and therefore, a higher influence on the overall creditworthiness of that particular borrower, so how those risks could influence cash flows, for example.

Currently, these relevance scores add another dimension to the information available to investors, but they don’t yet provide a clear linkage between the credit and the price. That said, we are starting to produce data and research that helps to understand how ESG risk is incorporated in the traditional credit risk. We have a better understanding of how this data impacts ratings, but it will take a bit more time before we understand how these relevance scores influence pricing.

Bonds & Loans: Borrowers taking their first steps in this market often hunt for pricing advantages when looking to go green or issue ESG-linked notes, for example. Is there an argument in favour of looking at a borrower’s prioritisation of ESG as something that should command a premium from investors because of the additionality being created? And if so, to what extent can ratings help play a role in communicating that prioritisation or those organisations’ strengths?

Fernanda Rezende: If I look at our own analysis, what we predominately do is look at risk in a negative sense – so in a sense, we are analysing all the factors that could cause a drag on a company’s ability to generate sustainable cashflows. With ESG, this is no different: we expect corporates to be transparent, to provide a clear governance structure, to only engage ethically. They are negative by their nature, in the sense that we are looking more closely at the absence of characteristics.

But ESG factors can be negative as well as positive. If we look at the characteristics that we look at positively, there aren’t many – but a few stand out. For example, many pulp and paper companies in Brazil are typically viewed positively in their approach to energy sustainability because they tend to generate their own energy, often from sustainable sources and sell excess energy back to the grid. This has a direct positive influence on their cashflow sustainability and repayment capacity as a borrower, two major elements we focus on.

But, unless there is a very clear and proven link between cashflow performance and ESG factors, there is a risk for the industry – borrowers, investors, ratings companies and others –that we conflate or speculate on the benefits that companies could enjoy in prioritising improvement of those factors. If a company has outstanding governance structures and goes well beyond its peers in terms of sourcing all of its energy from renewable energy providers, for instance, the question for us is always: what is the impact of these factors on cashflow generation capacity or the company’s ability to repay. We are at the point where we have a better understanding of how the lack of prioritisation of ESG-related characteristics – strong corporate governance, for instance – impacts risk, rather than how the prioritisation of these factors enhances a borrower’s risk framework. For corporate governance, for instance, we don’t incorporate a mechanism that benefits the overall rating, per se, but we would penalise for things like the absence of a clear governance strategy, or a lack of audited financial statements, for instance. This is because our view of governance is often reflective of the minimum standard that is required among specific types of organisations in different geographies. As more information about the linkage between ESG and credit quality emerges, however, this could change.

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2132 CASE STUDY: Almarai’s USD500mn Issue Marks First Corporate International Sukuk out of Saudi http://www.bondsloans.com/news/article/2132/case-study-almarais-usd500mn-issue-marks-firs The benchmark-sized international debut sukuk received more than USD5bn worth of orders – a similar level of oversubscription to the recent Saudi Aramco jumbo bond, a tremendous start to the Saudi dairy giant’s new USD2bn Islamic finance programme. A breakthrough for the Saudi market 21 May 2019 Middle East http://www.bondsloans.com/news/43/middle-east Market Insights http://www.bondsloans.com/Content/Cms/news/tn_2e432f05-63d1-428e-8553-f3367854fbd9.jpg 43 Tue, 21 May 2019 13:39:06 GMT Background

Almarai, the Gulf’s largest dairy company, has for years been a prolific issuer of local debt. Over the past six years it has tapped the domestic markets five times, but the funding was almost exclusively sourced from local lenders, with the bulk coming from a single bank, pushing its indebtedness into SAR13bn territory.

“The downturn of 2016 was in many ways a wake-up call for the company, forcing us to look at private placement options and regional banks, as well as international sukuk – even as that market was growing more expensive by historical standards,” says Almarai Executive Manager Paul Gay.

Along with other Saudi exporters, it struggled due to a number of external and local challenges, including the implementation of VAT across the KSA and broader fiscal consolidation within the Kingdom, as well as political and geopolitical tensions (including loss of access to the Qatari market). Almarai’s first-quarter net income fell more than 9% over 4Q2018, according to Reuters, even as revenues climbed 3.8% to SAR3.35bn during the period.

In September 2018 the company redeemed SAR1.7bn of perpetual senior sukuk issued in 2013. Meanwhile, the cost of funding continued to edge up steadily for the company and rose by SAR28mn in 1Q2019, mostly due to the increase of interest-bearing debt (following the repayment of perpetual sukuk), a higher Saudi interbank borrowing rate and lower capitalisation of funding costs for qualified capital projects, according to the company’s statements.

Challenges Notwithstanding

Convincing boards and key stakeholders of the need to create an international credit curve and diversify funding is challenging in itself, particularly as borrowers often have to pay a premium compared to the domestic funding it can already access. In Almarai’s case, a combination of regained stability in the global markets, improving interest and exchange rates and narrowing of the gap between local and international funding costs alleviated some of those concerns.

Another key factor was the recent transaction by the Saudi sovereign, which set a benchmark and helped to build a curve for major local corporates.

Finally, whereas some of the region’s companies struggle with the disclosure elements of the issuance process, Almarai had an advantage of already having high levels of transparency and compliance by the time it decided to come to market. A lot of the required information was already available internally and therefore was easy to relay to relevant stakeholders.

The company cited the likes of DP World and Majid Al Futtaim as regional peers it was hoping to emulate on its debut deal.

Finally, Almarai had a clear objective of blazing the trail for Saudi corporates to the international sukuk market, but was facing external constraints in terms of timing: namely, geopolitical volatility and market congestion. It had to find the perfect window to issue.

Transaction Breakdown

On its first attempt to come to market in November 2018, Almarai picked its partner banks very strategically. HSBC was chosen as a highly reputed global lender with a vast network of international partners; FAB and GIB had a strong regional presence; Standard Chartered could help tap into Asian pockets of liquidity; JP Morgan was selected for their expertise in Europe.

Still, their first attempt at issuing in late November did not pan out as planned, with global EM jitters and a flare-up in tensions with the West pushing yields higher and forcing most prospective issuers to scrap or delay their plans.

The treasury department instead decided to bide its time and wait for conditions to improve; the KSA sovereign USD7.5bn issuance in January 2019 helped to “test the waters” and extend the yield curve for the Kingdom, opening the way for Almarai to follow suit.

The issuer had worked out the format of the Sukuk – a Murabaha-Iljara – early in 2018, and then settled on launching a USD500mn sukuk as part of a USD2bn programme. Notably, the still significant sukuk repayments outstanding were disassociated from the use of proceeds for the international issuance in order to get the most competitive pricing. They also resisted calls from investors to upsize the deal and extend tenors, or offer a more complex structure that would command a premium.

Reward in Pricing

The pricing of the deal was guided by the all-in-clause: it allowed for an acceptable premium, as the issuer expected, but the price would not go above a pre-agreed range.

The question remained, though, on IPTs: should the issuer go tight, or wide? Naturally, Almarai’s preference was to go with the tighter end, while the banks pushed back as they were keen on a wider price margin. The concern was around the ability to drive the price down from a wide base; nevertheless, Almarai trusted its partner banks, offering 225bp over mid-swaps, which enabled the deal team to build up a huge orderbook (11x oversubscribed), leading to significant tightening.

Even as price tightened 25bp to 200bp, the book actually increased; there were indications that the coupon could be squeezed even further, perhaps to the 170-175bp range, but here secondary market considerations came into play. The banks warned against going too low and pricing inside peers like QNB. In the end, they settled on 180bp, and accepted a 5-10bp premium, which proved to be a tough, but sensible decision.

While the company had set a target of diversifying its investor base from the start, it was not necessarily very familiar with a lot of the major funds and institutional investors that it wanted to lure, which is where its strong relationships with the partner banks really paid off.

On the back of the lenders’ efforts during the roadshows, which took place in Hong Kong, Singapore, Dubai and London, the issuance managed to draw strong demand from Asian and European investors. Its partnership with FAB and Standard Chartered was perhaps less prominent, but the geographic expertise of said lenders no doubt helped secure strong demand.

As a result, Almarai’s management team was somewhat taken aback by the diversity of the final orderbook, as it did not expect such strong participation of European and Asian accounts. Allocation was guided by the overall objective of diversification. Accounts based in Europe took over a third of the allocations (36%), local Saudi investors picked up 6%, and another 33% was distributed around the GCC region. Asia picked up another 23% and the remaining 2% went to US offshore investors.

In terms of type, the notes attracted more fund capital than expected (60%), and fewer banks than anticipated (32%). Insurance and pension funds (4%) and Central Banks & corporates (4%) picked up the remaining allocations.

Some of the questions that were asked during the roadshow revolved around the planned use of proceeds and repayment ability, which the issuer’s strong credit record and impressive growth story helped alleviate. A balanced management team on the roadshow, which included the company CEO, also helped to provide additional comfort to prospective investors.

With a USD2bn programme in place, Almarai is keen to come back to the international market by 2020, and will consider options for extending its maturities. This deal was a first for the borrower and the country, and paved the path for more Saudi companies to come to the international market, including the recent blockbuster issuance from Saudi Aramco, which saw a similar level of oversubscription to Almarai.

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2131 Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead http://www.bondsloans.com/news/article/2131/brown-brothers-harriman-emerging-markets-prev EM remains hostage to global trade tensions. Last week’s moves by the US to with regards to Japan, EU, Canada, and Mexico should only be viewed as a change in tactics. China is now the sole focus, but these other trade skirmishes are likely to flare again. We remain negative on EM within this environment. Head of EM Strategy Win Thin on key data drivers this week 20 May 2019 Investor Insights http://www.bondsloans.com/news/108/investor-insights Market Insights http://www.bondsloans.com/Content/Cms/news/tn_b0c43859-6c40-4bfb-b974-98b618ea7b91.jpg 108 Mon, 20 May 2019 07:53:52 GMT Taiwan reports April export orders Monday, which are expected to contract -6.5% y/y vs. -9.0% in March. Q1 current account data will also be reported Monday. April IP will be reported Thursday, which is expected to contract -5.0% y/y vs. -9.9% in March. While the central bank not have an explicit inflation target, low price pressures and a soft economy should allow the central bank to keep rates steady at the next quarterly policy meeting in June.

Poland central bank releases minutes Monday. The bank remains in dovish mode, with Governor Glapinski saying it sees no hike through 2022. April industrial output and PPI will be reported Wednesday, with both expected to pick up from March. April construction output and real retail sales will be reported Thursday, with both expected to pick up from March.

Chile reports Q1 GDP Monday, with growth expected to slow to 1.8% y/y vs. 3.6% in Q4. CPI rose 2.0% y/y in April, right at the bottom of the 2-4% target range. With headwinds building on the economy, we believe the central bank is on hold for the time being. Next policy meeting is June 7, no change is expected then.

Bank of Israel meets Monday and is expected to keep rates steady at 0.25%. CPI rose 1.3% y/y in April, still near the bottom of the 1-3% target range. Yet the economy remains robust as GDP grew 5.2% annualized in Q1 vs. 3.1% expected.

Thailand reports Q1 GDP Tuesday, with growth expected at 2.8% y/y vs. 3.7% in Q4. The BOT recently delivered a dovish hold and cut its growth forecast for this year by a couple of ticks to 3.8% due largely to weaker exports. Consensus sees the next hike coming in 2020. We concur and see steady rates in 2019. Next policy meeting is June 26, no change is expected then.

Korea reports trade data for the first 20 days of May on Tuesday. The US-China trade war will impact the economy. The weaker won will help at the margin, but not by enough to offset the headwinds emanating from China. Next policy meeting is May 31, no change is expected then.

South Africa reports April CPI Wednesday, which is expected to remain steady at 4.5% y/y. If so, inflation would remain at the center of the 3-6% target range. The central bank meets Thursday and is expected to keep rates steady at 6.75%. With the economy weak, the bank would probably like to cut rates, but the vulnerable rand is likely to prevent that for now.

Mexico reports mid-May CPI Thursday, which is expected to rise 4.48% y/y vs. 4.38% in mid-April. Banco de Mexico just delivered a hawkish hold, giving no inkling of a potential rate cut. We think high inflation and a weak peso will likely prevent any easing until 2020. April trade and Q1 current account data will be reported Friday. Next policy meeting is June 27, no change is expected then.

Malaysia reports April CPI Friday, which is expected to rise 0.3% y/y vs. 0.2% in March. Bank Negara does not have an explicit inflation target, but low price pressures should allow it to ease policy further. Bank Negara just cut rates 25 bp to 3.0%, underscoring its growth concerns. Next policy meeting is July 9, and much will depend on the global backdrop.

Brazil reports mid-May IPCA inflation Friday, which is expected to rise 4.99% y/y vs. 4.71% in mid-April. If so, it would be the highest since mid-February 2017 and in the top of the 2.75-5.75% target range. While many are still looking for rate cuts in Brazil, we think high inflation and the weak real will prevent this. Next policy meeting is June 19, no change is expected then.

Check out the EM Preview for the Week Ahead and other musings & insights on Emerging Markets at BBH’s “Mind on the Markets” blog.

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