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Thursday, 21 July 2022

The incoming EM debt crisis is getting worse

The number of emerging-market countries at risk of default is at a record high after Angola and Gabon became the latest to see yields on their sovereign bonds rise to distressed levels, Bloomberg reports. There are now 21 nations with yields 10% higher than US treasuries, a warning sign that indicates a rising risk of default.

Egypt is one of them: Egypt, along with Nigeria and Kenya, saw sovereign bonds falling into distressed territory recently, according to the business newswire. With a number of large foreign debt repayments on the horizon, Moody’s warned in May that it could downgrade Egypt’s credit rating if its foreign reserves fall further. Egypt is due to repay almost USD 4 bn in November and another USD 3 bn in February, according to Bloomberg data.

Almost a fifth of all EM sovereign debt was trading at distressed levels earlier this month: Bonds worth USD 237 bn were in distressed territory earlier this month — and that was before Angola and Gabon joined the club of nations staring down the barrel of a debt crisis.

Higher interest rates are only making debt relief more important: Low-income countries will suffer rising poverty and instability if rich nations don’t get serious about providing debt relief, World Bank President David Malpass said following the G20 meeting this week, which made little progress on debt reduction.

Countries that do default on their debt “must brace themselves for tricky negotiations ahead,” writes the Financial Times’ Alan Beattie, arguing that a lack of clear international rules on how to restructure sovereign debt and the rise of China as a sovereign creditor will make it difficult to restructure debt fairly. Most defaulters aren’t big-spending EMs who have bitten off more debt than they can chew, he adds. “It’s important to keep this in context and not start turning it into a morality play about feckless developing country governments,” Beattie writes.

Also worth noting this morning:

  • Russia and Iran just signed a huge oil and gas agreement: Gazprom is to invest USD 40 bn to develop Iranian oil and gas fields in what Iranian media say is the largest-ever foreign investment in the country’s fossil fuel industry. (Tasnim)
  • Remember the Evergrande debacle? It never went away. The Chinese real-estate developer has not yet reached an agreement with its international creditors on restructuring that was supposed to be announced for a July deadline. (Wall Street Journal)
  • Removing conflicts of interest can be profitable, too: Big Four firm EY says splitting its auditing and consulting divisions could earn it as much as USD 10 bn in fees from Silicon Valley tech firms. (Financial Times).
  • Is Apple a healthcare company now? The tech giant has published a 60-page report on how it’s pioneering health technology, including sleep monitoring, fitness classes, atrial-fibrillation detection and cycle tracking. The report marks the first time Apple has laid out its strategy to capitalize on existing health features; it’s getting ink from Reuters.

Up

EGX30

9,113

+0.9% (YTD: -23.7%)

None

USD (CBE)

Buy 18.88

Sell 18.96

None

USD at CIB

Buy 18.90

Sell 18.96

None

Interest rates CBE

11.25% deposit

12.25% lending

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3,212

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3,960

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THE CLOSING BELL-

The EGX30 rose 0.9% at yesterday’s close on turnover of EGP 896 mn (7.7% above the 90-day average). Local investors were net buyers. The index is down 23.7% YTD.

In the green: Ibn Sina Pharma (+6.8%), Fawry (+6.3%) and e-Finance (+6.2%).

In the red: EFG Hermes (-2.2%), Orascom Development Egypt (-1.1%) and Eastern Company (-1.0%).

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