AKE Ones to Watch, 13 November 2017

Americas: Venezuelan government to meet with creditors to discuss debt restructuring

Sectors: all
Key Risks: sovereign default; payment delays; political instability; sanctions

In Venezuela, on 13 November the government of President Nicolas Maduro is scheduled to meet with creditors holding US$63bln in bonds to discuss plans to restructure and refinance the debt. The meeting follows Maduro’s announcement on 2 November that Venezuela planned to restructure and refinance all its foreign debt, estimated between US$100bln and US$150bln. US financial sanctions in place will likely make any restructuring proposal extremely complicated, with the process likely to be protracted. The meeting comes three days after state-owned utility Corpoelec was declared in default after failing to make a US$27.6m interest payment on its US$650m Electricidad de Caracas notes due in 2018. Also on 13 November the International Swaps and Derivatives Association will discuss whether late payments of a US$1.2bln state-owned oil company PDVSA bond repayment due on 2 November constituted a credit event. Sovereign and PDVSA defaults are broadly expected.

Asia-Pacific: Leaders gather for ASEAN Summit in Manila

Sectors: all
Key Risks: external conflict

Manila will play host to the 31st ASEAN Summit from 13 to 15 November, with various leaders including United States President Donald Trump, Canada’s Justin Trudeau and representatives of China and South Korea also in attendance. While the ASEAN meeting historically has not led to much of significance, the high importance it is being afforded outside of the region suggests that other countries increasingly see it as an important venue to vye for influence. This is most apparent between the United States and China. In recent years Beijing has used its clout with Cambodia and Myanmar to prevent ASEAN from issuing a joint statement condemning China’s increasing assertiveness in the South China Sea. Trump’s presence can be seen as an attempt to counter the growing impression that the United States is neglecting the region. Any big announcements over regional politics are unlikely to come from ASEAN, but its partners.

Eurasia: Sechin a no-show for Ulyukayev trial, amid unclear signs over his future

Sectors: energy
Key Risks: political uncertainty

Igor Sechin, CEO of Russian state-run oil giant Rosneft, did not appear at ex-economy minister Alexei Ulyukayev’ trial as summoned. Ulyukayev was arrested last November for allegedly accepting a US$2m bribe. Sechin arranged the bribe and sting, claiming Ulyukayev attempted to extort Rosneft to approve its takeover of Bashneft. Rosneft claimed Sechin did not receive the summons issued 8 November, although it was widely reported. Sechin was ordered anew to appear on 15 November. A not-guilty verdict for Ulyukayev cannot be ruled out and would undoubtedly be seen as a major loss for Sechin. However, there are continued signs Sechin’s influence is only poised to grow. These include Gazprom’s note on its latest bond prospectus issued 8 November that it could lose its state-granted monopoly on gas exports and Putin announcing an agreement between Rosneft and Iran’s National Iranian Oil Company (NIOC) at the beginning of the month.

Europe: Brexit uncertainty as May’s government appears at risk of imminent collapse

Sectors: all
Key Risks: political instability; negotiation deadlock; hung parliament; early elections

Britain’s Sunday Times reported on 12 October that 40 Conservative MPs endorsed a no-confidence vote in Prime Minister Theresa May, eight short of the 48 required to do so. The divide in May’s cabinet is growing, as evidenced by a leaked letter from Environmental Secretary Michael Gove and Foreign Secretary Boris Johnson. The revelations came two days after the EU’s chief Brexit negotiator, Michel Barnier, declared the UK had two weeks to make concessions if talks are to proceed to the future EU-UK relationship. Britain’s negotiator, David Davis, declared neither the UK nor Northern Ireland would remain in the EU customs union, despite general consensus that this would be the only way to maintain the Good Friday Peace Agreement’s stipulation there be no hard border with the rest of Ireland unless the UK also remains in the customs union, which May has ruled out.

MENA: Hariri says to return to Lebanon within days

Sectors: banking; finance; energy
Key Risks: capital flight; trade restrictions; political instability

On 12 November, in widely-anticipated comments during an interview on his television channel, recently resigned prime minister Saad al-Hariri suggested he could reconsider his resignation and planned to return to Lebanon imminently. His comments were reportedly welcomed by President Michel Aoun. Hariri cited fears of sanctions by Arab countries, namely the Gulf Cooperation Council (GCC) countries against Lebanon, claiming he resigned in the face of sanctions threats. Remittances make up 20 per cent of the Lebanese economy, and constitute a significant portion of foreign deposits in local banks. Lebanese political actors, including Hizbullah, have come together to reject Hariri’s resignation, accusing Saudi Arabia of meddling in domestic politics. It is unclear what Saudi-linked politicians or even the Saudi government itself will be able to extract from Hizbullah in order to remove the threat of economic sanctions and further political instability. Talk of war is over-egged, but political developments in the coming week will increase political and economic risks.

Sub-Saharan Africa: Voters head to the polls in Somaliland presidential election

Sectors: all
Key Risks: political stability; frustration of process

On 13 November presidential elections will take place in the self-declared republic of Somaliland.  Incumbent Ahmed Silanyo will step down after one term, albeit one that was extended by two years. The election will be the first in the world to use an iris-based biometric voting system and is expected to pass peacefully. Abdirahman Mohamed Abdullahi, Faisal Ali Warabe and Muse Bihi Abdi will contest the election, with no clear favourite at this stage. Among the key issues is the controversial US$400m deal with the United Arab Emirates to modernise the port of Berbera, with Abdullahi, the former speaker of parliament, vowing to review all investment projects and threatening to terminate the ‘illegally’ conducted port deal. While such issues have dominated the build up, the wider hope is that yet another smooth transition of power will help pave the way for international recognition of Somaliland’s 1991 declaration of independence.