Debt steadier as selling hits rupiah; Argentine peso improves; Al Hilal, ADIB eye sukuk

By Rebecca Melvin

New York, Sept. 5 – Emerging markets debt steadied somewhat on Wednesday with some currencies dropping lower, like the Republic of Indonesia’s rupiah, which was newly in the crosshairs and dragging that country’s sovereign bonds lower; but the Argentine peso improved slightly.

The Indonesia rupiah dropped Wednesday on the heels of a slump in the South African rand on Monday and Tuesday and ongoing pressure on the Argentine peso, which dropped more than 5% on Monday and Tuesday. But on Wednesday the Argentine peso strengthened by more than 1%. Argentine government officials were meeting with the International Monetary Fund in Washington for a second day on Wednesday.

In Indonesia, the government responded to the selling with rupiah bolstering measures, including selling dollars and buying government bonds, imposing new import taxes and announcing that several power plant construction projects that had not yet secured financing were being postponed.

Overall, emerging markets debt was more stable following moves lower on Tuesday when South Africa’s sovereign and corporate bonds weakened.

In the Middle East, Al Hilal Bank and Abu Dhabi Islamic Bank were meeting with fixed-income investors regarding proposed dollar-denominated sukuk, or Islamic bonds. ADIB is proposing a benchmark of tier 1 perpetual Islamic notes, which will be non-callable for five years, and Al Hilal is planning a five-year sukuk.

The meetings are being held in the Middle East, Asia and Europe, with deals subject to market conditions.

Al Hilal is in merger talks with Abu Dhabi Commercial Bank and Union National Bank. The potential merger of three Abu Dhabi banks would create one of the largest bank in the Gulf Cooperation Council, with assets of about $110 billion.

In Asia, final terms emerged on China General Nuclear Power Corp.’s €500 million green notes that priced with a 2% coupon at 99.696 for a yield of 2.047%, or mid-swaps plus 150 basis points.

Pricing for the 2025 notes came at the tight end of revised guidance for a yield spread of mid-swaps plus 150 bps to 155 bps, with initial talk set at mid-swaps plus 155 bps.

Orders for the senior unsecured green notes topped €850 million.

Bank of China, BNP Paribas, Credit Agricole CIB and ICBC are joint global coordinators, lead managers and bookrunners of the Regulation S notes.

Indonesia’s rupiah drops

Indonesia was announcing measures to combat a drop in its currency, which fell to a decade low. The energy and resources ministry postponed power plant projects, saying the savings on imports and capital goods could conserve $8 billion to $10 billion. The government also increased the import tax by up to four times on more than 1,100 consumer goods. The tax will be between 7.5% and 10% on goods including electronic appliances and luxury vehicles.

Argentine peso fall pauses

Argentina’s peso recouped more than 1% on Wednesday after dropping another 5.25% early this week and 16% last week. Economy Minister Nicolas Dujovne was meeting with IMF officials and held a press conference late Wednesday on the status of the IMF talks.

President Mauricio Macri announced last week that Argentina is asking for early disbursements from its $50 billion standby loan agreement inked in June. The government has already received $15 billion of the total backstop and was expecting another $3 billion next month.

Argentina is not seeing other sources of funding, Dujovne said at the press conference, responding to reports that Argentina was negotiating a $10 billion to $15 billion credit line with the U.S. Treasury.

“I have enormous confidence in the progress that we’ve made these days,” Dujovne said following two days of talks.

The peso closed 1.4% better at 38.52 per U.S. dollar.

Macri has announced ambitious new targets to balance next year’s fiscal deficit which will be paid for with taxes on exporters and steep spending cuts.

Argentina’s economy is expected to shrink 1.9% this year compared to a previous estimate of a 0.3% contraction, according to a central bank poll published on Tuesday. Inflation in 2018 is now seen at 40.3% compared to a recent monthly poll of 31.8%.

Last week Moody’s Investors Service predicted a 1% contraction of Argentina’s economy next year, contrary to a previous expectation of a 3% expansion.

The renewed downdraft in the peso occurred despite the Argentine central bank’s drastic action on Thursday to raise interest rates 15% to 60%, making it the highest rate among emerging market countries. The bank last raised rates in July to 45% from 40%.

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