BNP em

Global Sovereign and Credit Strategy
EM Angels are
Falling!
21 January 2015
Non-Independent – Marketing Communication
Erosion of EM credit quality in the Baa/BBB space and its likely impact
 Not so long ago, the EM horizon was bright with potential rising stars in investor
portfolios. Now, after a year of political upheaval and collapsing commodity markets,
the EM sky is alight with potential falling angels.
 The market benchmark EMBIG index achieved the coveted IG level in 2013. However,
it now looks set to lose this status as soon as this year. The emerging markets
benchmark index is at risk of becoming a fallen angel.
 Potential falling angels, from investment grade (IG or HG) to speculative grade (HY)
present a major hazard, as the forced exit by IG index investors could stress the
asset class. As there is USD 924bn of BBB- and BBB rated bonds outstanding, the
threat to portfolios is not insubstantial.
 The good news is that in our study of all EM up and downgrades since 1996 by
Moody’s, Fitch and S&P, we find the incidence of ‘rising stars’ (from HY to HG) to be
much more prevalent than ‘falling angels’. The bad news is that, the number of falling
angels has increased since 2008 and we expect it to rise further through 2016.
 We examine the impact on issuer risk premia and market conditions from the 39
sovereign falling angel events since 1989 in order to determine the potential future
performance for similar upcoming events. There have also been falling angels among
corporates by S&P (169), Moody’s (104) and Fitch (85), for which we also examine
risk premia and equity prices.
 In our analysis, six EM sovereigns are at risk of becoming fallen angels this year or
next. Three of these we consider ‘high risk’. As much as USD 259bn of sovereign and
corporate bonds is at high risk of being cast down into speculative grade perdition.
This accounts for 9% of all EM bonds outstanding (USD 2.87trn).
 Looking at current market levels across 277 corporate bonds whose underlying
country ratings are at risk of slipping below Baa3/BBB- via sovereign contagion, we
attempt to identify those whose prices remain out of step with the underlying risk.
 Whether it is owed to fear of defaults, ratings downgrades or selling by high grade
investors of fallen angels, we see a strong probability of a greater number of
distressed market episodes in emerging markets throughout 2015. This will be
exacerbated by already low liquidity conditions.
 Despite our negative comments, we highlight that emerging markets enjoy a deeper
and broader investor base than ever before. Many major EM sovereigns have also
built strong buffers against external shocks. This will make the asset class more
resilient to shocks than in the past.
 We expect several bouts of distress to be shortly followed by sharp recoveries this
year, which will benefit the tactically nimble investor.
David Spegel, London + 44 207 595 8195 21 January 2015

Global Sovereign and Credit Strategy www.GlobalMarkets.bnpparibas.com
This publication is classified as non-objective research
In our 31 October 2014 report Energy price shock scenarios: Impact on EM ratings, funding
gaps, debt, inflation and fiscal risks, we explored the risk to EM energy producer and importer
credit ratings related to crude oil prices (Brent) falling from USD 105/bbl to as low as
USD 60/bbl. Oil is now hovering around the USD 50/bbl level. Although we noted that energy
producers and their EM bank lenders accounted for 30% of outstanding EM bonds, the threat to
their hard currency earnings, growth and fiscal dynamics was greater than the benefit for EM
energy importers. This suggested that the negative ratings impact on the commodity credits
would be more severe than ratings benefits for the oil consuming credits. Countries we flagged
most at risk for substantial downgrades and market losses were Angola, Gabon, Algeria,
Venezuela and Nigeria. However, there were also a number of investment grade (IG) credits at
significant risk, including Azerbaijan, Kazakhstan, Russia, Mexico and Colombia. Were these to
drop to speculative grade, the market impact would be more severe than for the HY names.
EM credit quality breached Even before the collapse in energy prices, the EM corporate and sovereign credit cycle had
the BBB- threshold in formed a negative trend. Indeed, the threat of increasingly fewer net upgrades began as early
2013. But credit quality
as 2007 (Figure 1). After a dip in 2008 and a rebound in 2009, the downward trend re-emerged
has been slipping back
toward BB+ levels with net-negative re-ratings persistently the case every quarter since Q4 2011. That said, it is
little surprise that the peak of credit quality for EM appears to be over. After having hit the BBB-
th
threshold in 2013 and improving another 1/6 of a notch over2013 (Figure 2), the credit quality
th
of the EM benchmark has begun to slide downward. Already it has lost 1/6 of a notch and we
forecast the index to slide another half notch by the year end.
Oil prices appear to be forming a bottom around the USD 50/bbl level. Assuming oil prices
remain between USD 50/bbl and USD 60/bbl through 2016, we expect an increase in
downgrades among energy credits in EM, with Russia lowered to Ba1/BB+ this year and
Ba2/BB in 2016, depending on the outcome of the current sanctions regime imposed on the
nation by the EU and the US. Access to credit is a key component of credit ratings, so its loss
has pressured Russia’s credit worthiness negatively in both the corporate and sovereign space.
Figure 1: EM net sovereign and corporate credit ratings Figure 2: Global EM sovereign ‘rating’ versus spreads
Given the net-ratings trend, it is no

60 300 B+ 1,400
surprise that the positive
momentum for sovereign credit 1,225
40 200 quality peaked in 2013 and now
BB-
appears to be reversing. 1,050
20 100
BB 875
0 0
700
-20 -100
BB+
525
-40 -200
The EM sovereign and corporate
ratings trend dipped into negative 350
-60 -300 BBB-
territory in 2011.
175
-80 -400
BBB
Q490
Q495
Q409
Q491
Q492
Q493
Q494
Q496
Q497
Q498
Q499
Q400
Q401
Q402
Q403
Q404
Q405
Q406
Q407
Q408
Q410
Q411
Q412
Q413
4Q14
0
2016f
2018f
1994
2012
1992
1996
1998
2000
2002
2004
2006
2008
2010
2014
Corporate (rhs) Sovereign (lhs) EMBI/EMBIG spread (rhs) USHY spread (rhs)
Forecast EMBIG rating (lhs) Wtd avg rating EMBIG (lhs)
Upgrades minus downgrades for three agencies combined. Market cap weighted ratings.
Source: Moody’s, S&P, Fitch and BNP Paribas EM Credit Strategy Source: Moody’s, S&P, Fitch, JP Morgan and BNP Paribas Credit Strategy
Are investors really so One popular theory suggests that credit rating agency actions are easily anticipated by
good at predicting rating investors; we find that in the EM case, this is not always the case, particularly among
changes? corporates. We find evidence that it is true that investors appear to better anticipate upgrades,
as seen in Figure 4 which shows the change of risk premia for 66 EM issuers 12 months before
and 6 months after ratings actions. However, in the case of downgrades (Figure 3), we note that
there is frequently a heavy market distortion during these events, which are often clumped
around crisis episodes. It is not as easy to conclude that investors are equally able to anticipate
downgrade events. Nor, how much they price in and at what time they do so. However, we can
say that issuer spreads often continue to widen up to two months after the event before
narrowing in the third month and thereafter.

Global Sovereign and Credit Strategy 2 www.GlobalMarkets.bnpparibas.com
Figure 3: History of EM corporate downgrades & market Figure 4: History of EM corporate upgrades & market
700 Because so many events of heavy EM 0 Investors appear to do much better
downgrades are clumped during crisis -50 anticipating upgrades. Market effects
600 episodes, the influence of market have been less influential.
-100 Here, most of the upgrades were
effects tends to muddy the picture.
500 Conclusions regarding investor -150 priced in 2-6 months before the event.
reaction times are unreliable. -200
400
-250
300 It is noteworthy that spread widening -300
tends to peak one to two months after the -350
200 event before recovering.
-400
100 -450
-500
0 12m 6M 3M 2M 1M 0 1M 2M 3M 6M
12m 6M 3M 2M 1M 0 1M 2M 3M 6M
Spreads of spec grade EM corp downgraded Sreads of spec grade EM corporate upgraded HY market spreads
Market HY spreads
107 events studied. Medians used. ‘0’ = date of ratings action. 66 historic events studies.
Source: Fitch, Moody’s and S&P and BNP Paribas EM Credit Strategy Source: Fitch, Moody’s and S&P and BNP Paribas EM Credit Strategy
Energy price collapse and risks

10% of outstanding EM From a global perspective, the most significant market-moving development in recent months
corporate bonds are has been the collapse in the oil price. Although oil prices appear to be trying to form a bottom
energy corporates rated in
around USD 50/bbl at the moment, unless oil stages a significant recovery (at least above
the BBBs…
USD 70/bbl), we believe that EM will experience a significant number of downgrades and likely
increase of defaults. Figure 5 reveals the breakdown of outstanding EM energy sector bonds by
credit rating. Note that 56% of the stock is presently rated in the BBBs, which means that there
is a high risk to markets from an increase in the number of falling angels.
Potentially, the 10% of outstanding EM energy corporate bonds which are rated in the BBBs
(USD 192bn worth) could become ‘fallen angels’ (issuers whose lose their investment grade
credit rating and slip into speculative grade). However, we believe the number of falling angels
could be even higher than this, as BBB rated banks with loans concentrated in the energy
sector (Figure 7) are also likely to be downgraded. Financial sector credit risks are historically
the most sensitive to the EM credit cycle (Figure 8). Furthermore, the downgrading of more BBB
energy-related sovereigns (Kazakhstan, Russia etc), will drag down corporate and bank ratings
that are currently at the sovereign ceiling (see country titles in Figure 21).
…but the risks are related It is worth highlighting that the deteriorating credit cycle is not limited to the energy sector. After
to more than just energy- all, the negative credit cycle had been developing since mid-2011(Figure 1), long before the oil
producing sovereigns and
price slide. More recently, of the 111 net corporate downgrades in Q4 2014, half were related to
corporates
issuers outside the energy sector. With USD 924bn of ‘BBB-’ and ‘BBB’ rated EM bonds
outstanding (Figure 6), the threat posed by potential fallen angels is substantial.
The risk is that fallen angel events will result in forced selling by HG index investors who are
typically required to unload the bonds of issuers whose credit ratings fall below the Baa3/BBB-
threshold by two agencies. This will be exacerbated by the already poor liquidity environment in
secondary markets, thereby threatening to create distressed situations. If fallen angel events
coincide with other outflows due to expected downgrade or default fears, these distressed
events could prove acute and affect even high quality liquid benchmarks as managers prioritise
raising cash.

Figure 5: Outstanding EM energy sector bonds by rating (USD bn)
140 56% of outstanding energy sector corporates

are rated in the BBBs. The risk of greater
falling anges is consequently very high.
120
This means that it is likely that at least
100 10% of the outstanding universe of EM
corporates will become fallen angels. This
will be driven higher by downgraded
80
banks with heavy loans to energy credits
as well as corporates pressured lower by
60 sovereign downgrades.
40
20
Source: BNP Paribas EM Credit Strategy
Figure 6: Total outstanding stock of EM bonds by rating (USD bn)*

600 The heavy concentration of sovereign and
corporate bonds in the BBB space revals
the threat posed by potential fallen
500
angels.
400
300
200
100
0
AAA
AA+
AA-
BBB
BB+
BB-
CCC+
CCC
AA
BBB+
BB
Not rated
A+
A-
BBB-
B+
B-
Sovereigns Corporates
*Data as of 31 December 2014. Ratings combined for S&P, Fitch and Moody’s.
Figure 7: Universe of external bonds by sector (Q4 2014) Figure 8: Corporate rating cycle by sector
Transportatio Other 300
Sovereign
Soft Construction n 8% Bank sector credit risks benefit most
1% 1% oil&gas net during upswings of the EM credit cycle... 200
com&agric
importers
1%
25% 100
Consumer
3% USD718bn
0
Real estate
4%
Telecom -100
4%
USD228bn Sovereign ...But, by the same -200
Utilities
oil&gas net token, they suffer the
4%
exporters greatest when credit -300
USD543bn
8% conditions turn
Banks USD341bn negative. -400
oil&gas
4Q99
4Q12
4Q97
4Q98
4Q00
4Q01
4Q02
4Q03
4Q04
4Q05
4Q06
4Q07
4Q08
4Q09
4Q10
4Q11
4Q13
4Q14
USD177bn
importer Banks Energy
19% oil&gas net Metals & 12% Aggriculture Auto sector Construction Fuel/Metals/Mining
exporter commodities Industrial Medical Real estate Services
6% 4% Technology Transportation Utilities Banks
Source: BNP Paribas EM Credit Strategy ‘Up-’ minus ‘downgrades’.
Source: Citibank US HY index breakdown, BNP Paribas EM Credit Strategy

Figure 9: History of EM corporate rising stars versus fallen angels*

...That said, since 2008, the number of 50
Falling Angels has increased. However,
History reveals that the incidence of Rising
Rising Stars have more often exceeded 40
Stars has been more prevalent than Falling
these than the opposite.
Angels...
30
20
10
-10
-20
2Q97
4Q97
2Q98
4Q98
2Q99
4Q99
2Q00
4Q00
2Q01
4Q01
2Q02
4Q02
2Q03
4Q03
2Q04
4Q04
2Q05
4Q05
2Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11
4Q11
2Q12
4Q12
2Q13
4Q13
2Q14
4Q14
Rising Stars (up to IG from HY) Falling Angels (from IG to HY) Rising Stars vs Falling Angels
*For Moody’s, Fitch and S&P combined. Corporates and banks only.
Source: Moodys, S&P, Fitch, BNP Paribas EM Credit Strategy
Fortunately, falling angels The good news is that ‘rising stars’ (speculative grade issuers who are upgraded to investment
are rare in EM… grade) in EM have been more prevalent (Figure 9) than falling angels over the past twenty
years. Admittedly, the number of falling angels has increased since 2008. However, apart from
just a few quarters, rising stars have more often exceeded the number of falling angels than the
opposite.
…but their number has The bad news is that Q4 2014 saw eight more falling angels than rising stars. And, given the
been rising since 2008
state of the oil market and prevalence of oil-related credit among both sovereign and corporate
issues where risk is concentrated at the BBB- and BBB threshold, an increase in falling angels
is highly likely.
Market impact
Figure 10 examines the past market impact of these pivotal HG versus HY threshold events
back to 2002 and shows that – although the relationship is far from perfect (R-squared = 0.49) –
periods when there are more falling angels than rising stars typically see a widening of spreads.
Corporate market spreads (CEMBI proxy) will widen by about 125bp for every 10 net falling
angels (Figure 11).
Figure 10: Corporate market impact (CEMBI proxy) Figure 11: Corporate market impact*
400 40 600
Although the relationship is not
300 30 500 perfect, periods when there are more
200 y = -12.52x + 56.631
Falling Angels than Rising Stars
100 20 400 typically see spread erosion.
R² = 0.4924
Corporate market spreads will widen
0 10 300 by about 125bp for every 10 net
-100 Falling Angels.
0 200
-200
-300 -10 100
-400 -20 0
-14 -9 -4 1 6 11 16
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
-100
Change of EM Corp spread QoQ (lhs) -200

Number of Rising Stars vs Falling Angels (rhs) -300
Source: BNP Paribas EM Credit Strategy Desk *X-axis = Difference between number of rising stars in the quarter and falling
angels. Includes outlook changes. Y-axis = Market index spread.

Figure 12: Sovereign market impact (EMBIG spread) Figure 13: Sovereign market impact (EMBIG spread)*
400 10 400 10 net Falling Angels
300 8 y = -24.921x + 10.694 typically pressures the
6 R² = 0.5738 EMBIG spread wider by
200 300 241bp.
4
100 2
0 0 200
-100 -2
-4 100
-200
-6
-300 -8 -
-400 -10 -10 -8 -6 -4 -2 0 2 4 6
1Q96
4Q96
3Q97
2Q98
1Q99
4Q99
3Q00
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
4Q11
3Q12
2Q13
1Q14
4Q14
-100
Change of EMBIG QoQ (lhs)
Number of Rising Stars vs Falling Angels (rhs) -200
Source: JPMorgan, BNP Paribas EM Credit Strategy *X-axis = Difference between number of rising stars in the quarter and falling
angels. Includes states and municipal and 100% quasi-sovereign issuers.
Y-axis = Market index spread.
Source: JPMorgan and BNP Paribas EM Credit Strategy
The relationship between sovereign market risk premia and the falling angels trend (R-squared
= 0.57) is stronger than that seen in the corporate market, as seen in Figure 13. This probably
reflects the fact that there are fewer (and larger) issuers in the sovereign index, so the weighted
impact on the overall market index of net downgrades is greater for sovereigns than for
corporates. In any event, 10 net falling angels typically widens the EMBIG spread by 241bp.
This is not surprising, given the rarity of such moves and broad implications for other
investments in the affected country. Fortunately, the only time there has been 10 more falling
angels than rising stars among EM sovereigns was in 1997. Since then, the net figure has been
contained (Figure 12).
Securities impact
The deterioration in Whereas the overall market index impact of a falling sovereign angel is greater, the individual
market risk sentiment
means investors are impact on risk premia of a downgrade from HG to HY is less acute in the sovereign case than
demanding more for a corporate issuer (Figure 14) and will depend on the shape of the credit curve at the time of
incremental risk premia the event. For example, a one-notch downgrade from Baa3/BBB- right now would see a
from falling angels
sovereign’s 10-year bond spread widen by 40bp and a corporate issuer’s bond by 84bp (Figure
15). Back in June 2014, a similar action would have seen the corporate’s risk premium widen by
only 58bp (ie, 31% less) and the sovereign’s by 33bp.
If market sentiment deteriorates further, we can expect the incremental risk premia demanded
by investors from falling angels to increase even more.
Figure 14: Spread impact of one-notch drop in credit Figure 15: Spread impact of one-notch drop in credit
rating for EM sovereigns and corporates (10y bonds) rating for EM sovereigns and corporates (10y bonds)
4 June 2014
188
400 15 January 2015 200

339
159
350 180
Better risk sentiment six months ago meant that EM
278
The individual securities impact of a downgrade from 160

134
sovereign and corporate credit curves were less steep

300 Baa3/BBB- is less acute for sovereigns than corporates. 140 and less convex. So, the extra premia demanded from a
228
113
107
250 downgraded issuer was less than it is now.

120
187
96
90
153
200 100
81
140
76
126
124
68
65
80
111
103
58
150
55
99
49
46
60
84
41
39
35
69
33
100
63
30
57
28
54
25
24
47
46
40
21
40
20
38
18
34
17
31
15
30
14
26
25
13
12
22
21
10
19
17
16
50
14
14
12
10
20
9
7
0 0
AA+ AA AA- A+ A A- BBB+BBB BBB- BB+ BB BB- B+ B B- CCC+CCC AA+ AA AA- A+ A A- BBB+BBB BBB- BB+ BB BB- B+ B B- CCC+CCC
Sovereigns Corporates Sovereigns Corporates
Source: BNP Paribas EM Credit Strategy Source: BNP Paribas EM Credit Strategy

The influence of risk sentiment on the shape of the credit curve, as seen in Figure 16, helps to
explain why the impact on sovereign fallen angels has differed so greatly in the past. At the time
of their downgrades by S&P and Moody’s, Cypriot risk premia were trading at about 1,000bp
and Latvian by over 800bp (S&P 2009). However, in the case of Romania (S&P in 2008),
spreads were at 303bp and in the recent case for Bulgaria (S&P in December 2014), the 10-
year bond spread was a mere 267bp. Also, the point at which investors price in the downgrade
is often dictated by whether it was the result of an unexpected political or economic event, or
came about by a longer term deterioration in fundamental credit quality.
In most cases, expectations of the loss of investment grade (IG) status appear to be priced in
during the final three months of the year. This is revealed in Figure 16 by the more significant
widening of sovereign spreads over the six-month analysis. However, in some cases, the action
has been priced in long before that time. For example, Tunisia’s downgrade was priced in well
in advance of the sovereign first falling out of the IG grade arena in May 2012 by S&P. After all,
the Jasmine Revolution began in December 2010 and Tunisia experienced several downgrades
before becoming a fallen angel. Fitch then followed S&P in December of the same year, the
result of which was a tightening of spreads: the market had long priced in Tunisia’s loss of HG
status.
The risk of a market There is always the risk of an overshoot, as also evident in Figure 16, where spread tightening
overshoot is a prevalent is more prevalent on a month-on-month basis at the time of the rating action. Investors here had
feature of falling angels in
been ‘selling the rumour’ and ‘buying the fact’. The selling typically occurs over the final three to
their final month
six months, as was the case with Cyprus (2012 S&P), Macedonia (2009 S&P), Latvia (2009
S&P) and Indonesia (1997 S&P, Fitch and Moody’s).
Of course, the number of notches in the downgrade will also play a large factor in the widening
of risk premia, as was the case with Moody’s two-notch downgrade of Slovenia to Ba1 in 2013.
Meanwhile, the long-anticipated two-notch downgrades for Tunisia (2012) and Macedonia
(2009) by S&P resulted in little market reaction and even a tightening in the case of the latter.
Figure 16: History of EM sovereign (Republic only) fallen angels by rating agency and impact on risk premia
S&P MOODY'S
Spread Spread
time of EMBIG time of EMBIG
Rating Rating Date of action spread t+1M t-1M -3M -6M Rating Rating Date of action spread t+1M t-1M -3M -6M
Sovereign before after action (t=0) t=0 chg chg chg chg Sovereign before after action (t=0) t=0 chg chg chg chg
Bulgaria BBB- BB+ Dec-14 265 353 6 -5 -13 -6 Costa Rica Baa3 Ba1 Sep-14 479 306 14 -29 -8 -116
Tunisian BBB- BB May-12 539 353 6 1 -3 -7 Jordan Baa3 Ba1 Jun-13 373 307 25 -8 -56 -30
Cyprus BBB BB+ Jan-12 1,053 426 208 -34 69 379 Slovenia Baa2 Ba1 Apr-13 578 308 -144 220 171 1
Hungary BBB- BB+ Dec-11 570 407 35 58 156 296 Cyprus Baa3 Ba1 Jan-12 998 417 327 -89 37 326
Macedonia BBB- BB Apr-09 1,108 658 -194 -223 -251 365 Hungary Baa3 Ba1 Nov-11 512 385 58 0 187 268
Latvia BBB- BB+ Feb-09 836 662 287 -129 -54 258 Egypt Baa3 Ba1 Mar-11 370 304 -50 -1 155 122
Romania BBB- BB+ Oct-08 303 448 394 111 152 162 Peru Baa3 Ba3 Nov-02 742 797 -103 -116 -96 316
Arab Egypt BBB- BB+ May-02 403 615 3 26 -1 -183 Colombia Baa3 Ba2 Aug-99 648 1,005 34 49 157 19
Uruguay BBB- BB+ Feb-02 443 670 319 82 57 -108 India Baa3 Ba2 Jun-98 284 532 23 35 -26 n/a
Colombia BBB- BB+ Sep-99 682 1,017 -91 29 -19 52 Slovak Baa3 Ba1 Mar-98 118 468 -4 -36 -21 -11
Slovak BBB- BB+ Sep-98 71 1,386 0 0 0 -14 Thailand Baa3 Ba1 Dec-97 135 501 2 -2 48 106
Indonesia BBB- BB+ Dec-97 279 501 270 -17 101 156 Indonesia Baa3 Ba1 Dec-97 279 501 217 -17 101 156
FITCH EMBIG Korea Baa2 Ba1 Dec-97 n/a 501 n/a n/a n/a
Rating Rating Date of Spread @ spread t+1M -1M -3M -6M
Sovereign before after action t=0 t=0 chg chg chg chg India Baa3 Ba2 Jun-91 n/a n/a n/a n/a
Croatia BBB- BB+ Sep-13 595 375 -5 30 80 63 Hungary Baa2 Ba1 Jul-90 n/a n/a n/a n/a
Tunisian BBB- BB+ Dec-12 478 291 1 -22 -19 -46
Cyprus BBB- BB+ Jun-12 1,369 433 139 149 30 454
Hungary BBB- BB+ Jan-12 605 426 -18 46 80 324
Latvia BBB- BB+ Apr-09 1,150 658 -153 27 385 613
Romania BBB BB+ Nov-08 697 684 173 375 546 552
Arab Egypt BBB- BB+ Aug-02 475 823 -7 20 75 66
Colombia BBB- BB+ Mar-00 524 733 20 54 -16 -176
Croatia BBB- BB+ Apr-99 n/a 1,014 n/a n/a n/a n/a
Slovak BBB- BB+ Dec-98 137 1,096
Malaysia BBB- BB Sep-98 n/a 1,386 n/a n/a n/a n/a
Indonesia BBB- BB+ Dec-97 279 501 217 -17 101 156

Future fallen angel candidates

The question now is: which credits are set to lose their IG rating and to what extent has this
been priced into their securities?
Sovereigns
Hungary’s loss of IG When considering the likely impact on risk premia of a potential sovereign fallen angel such as
status may not be the best
case study for Russia Russia, the case of Hungary in 2009 is frequently used as the primary example. There, the
sovereign 10-year spread widened to 512bp by the first downgrade by Moody's (November
2011), then to 570bp (S&P in December 2011) and subsequently 605bp by the time Fitch took
action in January 2012. With that in mind, Hungary’s example augurs ill for Russia, which has
yet to fall below IG and where spreads are presently at 453bp (Fed ’23) – still below the same
level that Hungary was at the time of its first downgrade by Moody’s (although Russia was at
535bp a week ago). As there have been 39 EM fallen angels on the sovereign side since 1989
(excluding examples of quasi-sovereign corporates, states and municipals), using Hungary as
the sole example for Russia or any other EM sovereign is inappropriate.
On this point, it is worth restating the impact of deteriorating sentiment on the shape of the EM
credit curve and risk premia demanded for each notch of downgrade. As seen in the case of
Hungary, although investors may anticipate downgrades, risk premia may widen further on the
back of a deteriorating credit environment. Hungary’s downgrades occurred during a tumultuous
time for credit markets, when fears of European peripherals dominated market swings.
So, although we may identify credits for which investors appear to have priced in a loss of IG
ratings adequately (or where the market appears to have been overly aggressive), their spreads
may nevertheless continue to widen if market sentiment sours further. Using the EMBIG as our
proxy for market risk sentiment, Figure 16 shows that risk premia at the time of the IG loss
across differing countries frequently moves higher or lower in line with market sentiment.
USD 168bn worth of EM Figure 17 lists the EM sovereigns with at least one rating in the ‘Baa/BBB’ arena and highlights
sovereign and corporate
debt is at ‘high risk’ of the six names that we believe are at some risk of losing their IG status. Three of these we
losing IG status consider at high risk. Excluding Turkey, there is USD 66bn worth of sovereign debt that we
consider is at risk of becoming fallen angels. USD 102bn worth of corporate bonds domiciled in
these sovereigns is rated in the BBBs and is likely to also become fallen angels. This means
that investors have a total of USD 168bn worth of EM sovereign and corporate debt that are
only one or two notches away from potentially suffering a loss of IG status. There is a further
USD 10,572mn of Ba1/BB+ corporate debt that would likely suffer downgrades were the
sovereign brought down to that level. Were Moody’s or Fitch to downgrade Turkey a notch then,
on top of the USD 74.6bn of sovereign debt, USD 5.5bn of IG corporate debt would become
fallen angels. This would raise the total market risk to USD 259bn. This is 9% of the all EM
bonds outstanding (USD 2.87trn).
Azerbaijan: highest risk Azerbaijan appears to be significantly out of step with likely downgrades. The sovereign could
be rated as low as ‘Ba3/BB-’ if oil prices remain around USD 50/bbl over a three-year horizon.
Risk premia should be over 100bp wider, in our opinion.
Kazakhstan may also receive a three-notch downgrade to Ba1/BB+ on the same basis as
Kazakhstan: high risk
Azerbaijan. However, the market has already largely priced this in and we do not see much
potential for big moves in either direction, assuming market risk sentiment does not deteriorate
significantly and drag Kazakh spreads wider with it.

Russia: high risk. As with Kazakhstan, the market appears to have been overly aggressive in pricing in the
Sovereign looks 17bp downgrade potential for Russia. Spreads here are in line with B1/B+ sovereigns, whereas we
‘cheap’ … expect at least a two-notch downgrade (possibly up to three notches) by the end of 2016. We
question whether expectations for capital outflows to continue at the same pace as H2 2014 are
…but sovereigns more valid, since much of the ‘hot money’ has probably already exited. Still, given the demand
often continue to widen
the month after the first problems and other issues affecting Russian risk premia, we see only 17bp of compression
rating agency takes action, potential assuming no deterioration in market sentiment. That is to say, we expect Russia to
as was the case with trade more like a Ba2/BB or even Ba3/BB- sovereign (during distressed market conditions) for
Hungary in 2011
some time. However, the occasions of prior sovereign fallen angel events (Figure 15) show that,
in most cases, spreads continued to widen out one month after the first event (“t+1”). In some
cases (Macedonia 2009, Latvia 2009, Slovenia 2013 and Peru 2002), spreads tightened
considerably in the month following their loss of IG status. However, almost all of these
(excepting Slovenia’s case) coincided with strong market rallies.
Bulgaria: moderate-low We see a moderate risk of another downgrade (Moody’s most likely), for Bulgaria. The market is
not pricing in any such risk. 25bp of additional risk premia is warranted.
South Africa: moderate- In the case of South Africa, there is a moderate-to-high likelihood the sovereign will lose its IG
high
rating by 2016. Although the reduction in energy costs reduces the country’s import bill,
reserves are too low, leaving the country prone to external shocks. Furthermore, the
deterioration of political risks, rolling blackouts and likely bailout bill for Eskom, which will raise
fiscal risks significantly, are negative factors which will not disappear anytime soon.
Turkey: declining risk Given the positive impact of declining oil prices on Turkey’s inflation and current account
balance, we believe the threat of another agency matching S&P’s speculative grade rating has
declined considerably, as we explained in our 31 October 2014 oil shock report. Tightening over
the past week has brought the sovereign closer to ‘fair value’ levels. Although, were no
downgrade to manifest, we would see a further 16bp of compression potential.

Figure 17: EM Baa/BBB rated sovereigns and risk assessment

Current m arket* BNP Paribas assessm ent Am ont of securities at risk USDbn Notchs ceiling
Market
pricing Expected Forecast Sov
MOO FITC Spre ratings Im plied Probability of rating spread bonds Corp Corp Corp Corp Mood
Country DYS S&P H ad chg rating Fallen Angel Com m ent action change outst BBB+ BBB BBB- BB+ y's S&P Fitch
Further spread w idening
potential if oil remains
Azerbaijan Baa3 BBB- BBB- 329 -1.7 Ba2/BB High probability below USD60/bbl -3.0 114 1,250 0 0 1,500 0 0 0 0
Bonds are mis-priced.
Bahrain Baa2 BBB BBB 244 -1.4 Baa3/BBB- Low probability Expect compression. None -44 7,000 75 2,623 719 379 +2 +1
Low probability in Market spread is at 'fair
Brazil Baa2 BBB- BBB 242 -1.0 Baa3/BBB- 2015. value'. -0.7 4 47,834 22,376 118,854 18,916 16,787 +1 +2
Moderate probability Overpriced. Expect
Bulgaria Baa2 BB+ BBB- 230 -0.1 Baa3/BBB- in 2015. w idening -0.5 25 4,134 0 0 622 0 +2 +3
Low probability Market spread is at 'fair
Colombia Baa2 BBB BBB 230 -1.2 Baa3/BBB- through 2016. value'. -0.7 4 30,965 500 19,722 3,600 0 +2 +2
India Baa3 BBB- BBB- Low probability. Upgrade potential 1.0 0 0 8,099 5,222 3,594 +1 +2
Indonesia Baa3 BB+ BBB- 219 0.4 Baa3/BBB- Low probability Expect compression. 0.8 -9 37,699 0 0 6,050 800 +1 +1
Market spread is at 'fair
Kazakhstan Baa2 BBB+ BBB+ 289 -2.8 Ba1/BB+ High probability value'. -2.8 11 2,500 1,747 1,909 950 1,138 +1 0 +1
Latvia Baa1 A- A- 58.4 0.7 A3/A- Low probability Overpriced. 1.0 10 5,964 0 0 0 0 +3 '+6
Lithuania Baa1 A- A- 126 -0.8 Baa1/BBB+ Low probability Expect compression. 1.9 -33 12,398 0 0 0 0 7 +3
One notch dow ngrade
possible due to oil effect
by 2017. This is priced in
Mexico A3 BBB+ BBB+ 161 -1.2 Baa2/BBB Low probaibliy already. -1.0 -6 53,356 38,276 6,801 1,914 2,146 +2 +3
Morocco Ba1 BBB- BBB- 204 0.6 Baa3/BBB- Low probaibliy Bonds now 'fairly valued' 1.3 2 5,362 0 0 300 0 +2 +2
Panama Baa2 BBB BBB 202 -0.7 Baa3/BBB- Low probaibliy Expect compression. 1.0 -27 10,875 0 1,096 778 0 +2 +8
Mispriced. Expect stable
Peru A3 BBB+ BBB+ 171 -1.4 Baa2/BBB Low probaibliy ratings. 0.0 -16 18,396 6,421 4,565 1,400 1,672 +2 +2
Upgrade potential is
Philippines Baa2 BBB BBB- 159 0.5 Baa2/BBB Low probaibliy priced in. 1.0 3 26,405 0 4,199 0 625 +2 +1
Upgrade potential is
Romania Baa3 BBB- BBB- 139 1.6 Baa1/BBB+ Low probaibliy priced in. 0.8 9 19,129 0 0 0 0 +3 +3
Spreads have
compressed 50bp WoW.
High probability of 2- Levels look 'fairly valued'.
Russia Baa3 BBB- BBB- 473 -4.5 B1/B+ 3 notch dow ngrade. Possible 15bp added -2.3 -17 45,715 0 62,170 26,049 9,434 0 0 0
Moderate-high Dow ngrade potential is
S Africa Baa2 BBB- BBB 206 -0.4 Baa3/BBB- probabiliy in 2016. not priced in. -1.2 25 16,563 1,047 4,479 2,292 0 +3 +2 +2
Mispriced. Look for
Slovenia Ba1 A- BBB+ 170 -0.4 Baa2/BBB Low probaibliy compression 0.5 -20 33,131 0 983 0 373 +2 +2
Mispriced. Expect 1-
notch dow ngrade not 2.
T&T Baa1 A 166 -2.0 Baa2/BBB Low probaibliy Look for compression. -0.9 -16 400 175 100 0 0 +3 +3
Market spread is at 'fair
Thailand Baa1 BBB+ BBB+ 115 0.1 Baa1/BBB+ Low probaibliy value'. -0.2 0 84 12,961 1,900 238 0 +2 +2
Moderate Market spread is at 'fair
Turkey Baa3 BB+u BBB- 224 -0.1 Baa3/BBB- probability. value'. -0.2 -16 74,579 0 2,582 2,966 550 +2 +2 +1
Uruguay Baa2 BBB- BBB- 185 0.1 Baa3/BBB- Low probaibliy Expect compression. 1.1 -36 11,073 0 0 0 0 +3 +2
High and Moderate-high totals> 6 6 ,0 2 7 2 ,79 4 6 8 ,558 3 0 ,79 1 10 ,572
‘Current’ levels for 19 Jan 2015. Spreads implied from CDS for T&T, Thailand and India. BNP Paribas 'expected rating action' is based on assumption Brent prices
remain below USD 60/bbl for a thre- year period.Spread forecast is based on BNP Paribas ratings expectation versus current levels. Latvia EUR 2024 and Bulgaria
EUR ‘24 bond spread swapped into USD. Spread forecast assumes no change in risk-sentiment.
Corporates
Corporate issues at the With respect to corporates, risks lie on many fronts. Issuers rated at the sovereign ceiling will
sovereign ceiling will see
their ratings fall from IG see their ratings fall along with the sovereign, regardless of their standalone risk assessment.
along with the sovereign This is especially the case for bank sector issuers. In addition, (assuming the sovereign is only
downgraded one notch to Ba1/BB+), corporates rated one notch lower will similarly face
downgrades, equivalent to that of the sovereign. For issuers rated more than a notch below the
sovereign, the strength of the standalone credit will determine whether or not they suffer any
downgrades.
The banking sector would Even through there are a significantly greater number of EM corporate bond issuers (over 2000)
threatened the most by a
sovereign falling angel than rated sovereigns (132), the credit cycle of sovereigns and corporates have been closely
intertwined since the 1990s (Figure 19). The deterioration in the economic and/or political risk
environment that typically coincides with sovereign falling angels is often magnified for
corporate credit risk, particularly for the financial sector (Figure 20) where asset impairment and

the higher cost of capital often take a heavy toll on their credit ratings. How other sectors fare
will depend on the nature of the country’s problems and whether the credit deterioration is the
result of domestic or exogenous forces.
In our ratings database, we tally 169 S&P EM corporate falling angels since 1997, 85 for Fitch
since 1995 and 104 for Moody’s since 1991. Figure 18 examines changes of issuer risk premia
(and equity prices) up to six months prior to the loss of IG status by S&P and one month after.
As is the case with the sovereign events seen in Figure 16, the impact of changing market risk
sentiment can distort reading the results. For example, the Banco Votorantim, BTG and ABC
Brasil events in early 2014 occurred as a result of appetite for EM risk being in sharp recovery
after the ‘taper tantrum’ of the previous year. Surprise multiple notch events, as with Mexico’s
Gruma (’08) and KUO (’02) or India’s Tata (’07) usually see negative price readjustments
continuing for a month after.
Investors price in about Very often in cases of one notch rating events which have been priced in over the preceding six
120bp of additional risk
over a six-month period months, we see significant spread compression in the t+1 period. That said, on a median basis
prior to the loss of IG for the sample of 44 events we analysed, the overall effect was ‘0bp’. Over a six month horizon,
the median change for corporate falling angels is 120bp, with a third of this priced in during the
final month and nearly two thirds (82bp) in the final three.
While bond investors buy Given that falling angel events typically occur during deteriorating environments for corporate
and sell in the month
following a fallen angel fundamentals, it is not surprising that underlying equity prices continue to sell off following a
event, equity investors downgrade event for a corporate falling angel. For the companies that were public (many EM
continue to sell bond issuers are not) underlying equity prices fell 1.2% in the ‘t+1’ period of our analysis, on a
median basis. At the time of downgrade, issuer equity prices fell 17.13% versus their levels six
months earlier.

Figure 18: EM corporate fallen angels sorted by date of action (S&P only)
Bond risk premia chg bp Issuer equity px chg %
Spread
time of EMBIG
Rating Rating Date of action spread EM HY t+1M t-1M -3M -6M t+1M t-1M -3M -6M
Company name Country before after action (t=0) t=0 spread chg chg chg chg chg chg chg chg
Odebrecht Oleo e Gas SA Brazil BBB- BB+ 05-Jan-15 265 353 387 111 39 96 98 n/a n/a n/a n/a
Indian Overseas Bank India BBB- BB+ 01-Dec-14 267 336 346 15 6 -22 -64 -5.12 2.76 -14.62 -0.75
Cia Siderurgica Nacional SA Brazil BBB- BB+ 31-Oct-14 268 318 346 23 8 27 -13 -3.06 -16.24 -15.99 -14.64
Oi SA Brazil BBB- BB+ 31-Jul-14 271 285 295 56 -5 -23 -80 -18.78 -5.24 -41.23 -48.29
FirstRand Ltd South Africa BBB- BB+ 01-Jul-14 273 293 312 0 7 n/a n/a n/a n/a
Banco Votorantim SA Brazil BBB- BB+ 05-Jun-14 274 317 343 36 -94 -176 -124 n/a n/a n/a n/a
Banco BTG Pactual SA Brazil BBB- BB+ 01-May-14 276 317 335 -22 -64 -87 -45 n/a n/a n/a n/a
Banco ABC Brasil SA Brazil BBB- BB+ 01-May-14 275 317 335 -10 -50 -113 -97 -0.16 8.83 3.20 -0.48
Bahrain Telecom Bahrain BBB- BB+ 31-Dec-13 279 358 368 -25 -8 -5 70 -3.05 -5.45 -8.95 -17.13
Volcan Cia Minera SAA Peru BBB- BB+ 16-Dec-13 280 358 368 26 34 54 75 10.58 -12.61 -17.46 -0.95
AES Panama SA Panama BBB- BB+ 01-Dec-13 284 332 357 -4 -42 -7 35 n/a n/a n/a n/a
Yanzhou Coal Mining Co Ltd China BBB- BB+ 01-Oct-13 285 375 388 -15 21 79 127 6.03 30.52 -11.88 -38.32
AngloGold Ashanti Ltd South Africa BBB- BB+ 31-Jul-13 288 370 382 166 140 181 123 n/a n/a n/a n/a
Novolipetsk Steel OJSC Russia BBB- BB+ 01-Jul-13 289 307 329 71 7 25 -19 n/a n/a n/a n/a
China Metallurgical Group China BBB- BB+ 31-May-13 291 292 315 0 45 16 50
Bilbao Vizcaya Argentaria PanamaPanama
SA BBB- BB+ 31-Oct-12 296 304 370 -3 -1 13 69 n/a n/a n/a n/a
Usinas Siderurgicas de Minas Gerais
Brazil
SA BBB- BB+ 31-Aug-12 297 341 412 -52 15 82 12.26 16.16 -32.78 -39.50
Arab Bank PLC/Bahrain Bahrain BBB BB 31-Jul-12 299 374 449 -14 -18 -6 152 -3.10 -3.70 -10.57 -5.05
OTP Bank PLC Hungary BBB- BB+ 19-Dec-11 306 407 511 20 -31 67 120 4.50 -10.00 -20.52 -46.37
Controladora Mabe SA CV Mexico BBB- BB+ 01-Oct-11 309 354 448 112 142 176 197 n/a n/a n/a n/a
BES Investimento do Brasil SA Brazil BBB- BB+ 02-May-11 313 295 314 39 6 -58 -24 n/a n/a n/a n/a
Israel Electric Corp Ltd Israel BBB- BB+ 31-Jan-11 316 289 326 19 -8 -18 -15 n/a n/a n/a n/a
DP World Ltd United Arab Emirates
BBB- BB+ 31-Dec-09 322 337 -206 338 214 125 n/a n/a n/a n/a
KazMunayGas National Co Kazakhstan BBB- BB+ 31-Jul-09 327 428 -42 47 -381 -600 n/a n/a n/a n/a
Cemex SAB de CV Mexico BBB- BB+ 31-Jan-09 333 724 30 116 755 861 n/a n/a n/a n/a
Gazprombank OJSC Russia BBB- BB+ 29-Jan-09 334 724 -386 -5 728 1,201 n/a n/a n/a n/a
Nine Dragons Paper Holdings Ltd Hong Kong BBB- BB 31-Dec-08 336 751 4,182 -1 177 288 n/a n/a n/a n/a
Aracruz Celulose SA Brazil BBB- BB 01-Dec-08 342 684 -736 1,178 1,014 1,081 n/a n/a n/a n/a
MOL Hungarian Oil and Gas PLC Hungary BBB- BB+ 01-Dec-08 340 684 51 593 807 869 -6.36 -29.95 -46.02 -53.40
Gruma SAB de CV Mexico BBB- BB 31-Oct-08 346 448 1,167 -151 -114 -186 n/a n/a n/a n/a
Grupo Petrotemex SA de CV Mexico BBB- BB+ 29-Feb-08 348 291 -6 44 82 72 n/a n/a n/a n/a
Tata Steel Ltd India BBB BB 31-Jul-07 350 181 116 23 -66 24 n/a n/a n/a n/a
Road King Infrastructure Ltd Hong Kong BBB- BB+ 31-Oct-06 352 208 -56 -21 78 14 n/a n/a n/a n/a
Coca-Cola Embonor SA Chile BBB- BB+ 02-Mar-04 356 433 -25 -16 -22 -67 2.51 7.62 12.88 13.38
SK Holdings Co Ltd Korea BBB- BB+ 31-May-03 357 511 0 -11 8 20 12.14 8.32 -10.41 -25.29
Grupo KUO SAB De CV Mexico BBB- BB 31-Dec-02 358 741 126 -112 -3 54 0.26 -7.10 -16.90 -32.40
Telecom Argentina SA Argentina BBB- BB+ 31-Mar-01 374 701 -4 0 14 175 -1.20 -25.23 11.60 -28.60
YPF SA Argentina BBB- BB+ 31-Mar-01 376 701 -4 -3 -1 -6 -5.03 1.02 -3.87 -16.06
Camuzzi Gas del Sur SA Argentina BBB- BB+ 31-Mar-01 371 701 62 39 175 440 n/a n/a n/a n/a
Telefonica de Argentina SA Argentina BBB- BB+ 31-Mar-01 375 701 475 -7 0 -13 -3.06 -8.45 2.93 -11.58
MetroGas SA Argentina BBB- BB+ 31-Jan-01 380 749 -92 82 65 41 0.00 -4.55 -7.69 -4.55
Gruma SAB de CV Mexico BBB- BB+ 01-Dec-99 385 899 -25 0 -7 -2 -16.71 -12.42 -22.85 -34.06
Bank of China Ltd China BBB- BB+ 31-Jul-99 390 938 21 -44 -83 -305 n/a n/a n/a n/a
Median values> 316 358 0 39 82 120 -1.20 -5.24 -11.88 -17.13
Source: S&P and BNP Paribas

Are corporates correctly pricing in sovereign event risk?

Figure 21 presents a summary of EM corporates that are in our target list of countries at
potential risk of becoming fallen angels. The list shows the rating action implied by current
market risk premia. We compare this versus the rating action implied for the sovereign and our
own sovereign credit assessment (over a three-year horizon) in order to determine whether the
corporate is over or undervalued versus sovereign moves.
Many corporates are already rated below our forward-looking sovereign rating assessment.
Valuations for these should be based on the credit risk of the underlying issuer rather than the
threat presented by potential rating action on the sovereign.
Countries with multiple It is worth highlighting that the sovereign ceiling in several countries often provides some
notch sovereign ceilings
will help cushion the cushion against the contagion risk from a sovereign downgrade. For example, in South Africa,
downgrade risk for many the sovereign ceiling is three notches higher for Moody’s and two for the other agencies.
corporates Therefore, a one-notch sovereign downgrade to Ba1/BB+ need not necessarily result in fallen
angels among all corporates there.
Figure 19: EM net sovereign and corporate credit ratings Figure 20: Ratings downgrades by sector
60 300
300
Bank sector credit risks benefit most
40 200 200
during upswings of the EM credit cycle...
20 100 100
0 0 0
-20 -100 -100
...But, by the same -200

-40 -200 token, they suffer the
greatest when credit -300
-60 -300 conditions turn
negative. -400
-80 -400
4Q08
4Q97
4Q98
4Q99
4Q00
4Q01
4Q02
4Q03
4Q04
4Q05
4Q06
4Q07
4Q09
4Q10
4Q11
4Q12
4Q13
4Q14
Q490
Q495
Q409
Q491
Q492
Q493
Q494
Q496
Q497
Q498
Q499
Q400
Q401
Q402
Q403
Q404
Q405
Q406
Q407
Q408
Q410
Q411
Q412
Q413
4Q14
Aggriculture Auto sector Construction Fuel/Metals/Mining

Industrial Medical Real estate Services
Technology Transportation Utilities Banks
Corporate (rhs) Sovereign (lhs)
Upgrades minus downgrades for three agencies combined. Upgrades minus downgrades for three agencies combined.
Source: Moody’s, S&P, Fitch and BNP Paribas EM Credit Strategy Source: Moody’s, S&P, Fitch and BNP Paribas EM Credit Strategy

Figure 21: Corporate falling angel risk assessment

Current Market Statistics BNP Paribas risk assessment
M ar ket B N PP R ich/ C h
A mt Imp lied so ver eig n 3 Y so v eap t o
M o o d y' ( U S$m M id r at ing Imp lied So ver eig n r at ing r at ing r at ing g lo b al C o mment : R isk o f imp act f r o m
s S&P F it ch ) M id So T 2 act io n r at ing ( M d y/ S&P/ F t ch) f o r ecast f o r ecast p eer s so ver eig n d o wng r ad e b elo w IG
A Z ER B A IJA N ( So ver eig n ceiling : N o hig her t han so ver eig n f o r all ag encies)
AZRAIL 8.25%18 Feb 16 N/R N/R BBB-e 125 0.00 684 n/a n/a Baa3/BBB-/BBB- -1.72 -3.00
IBAZAZ 5.625%11 Jun 19 Ba3 N/R BB 500 92.39 637 0.87 BB/Ba2 Baa3/BBB-/BBB- -1.72 -3.00 -92 Overvalued.
IBAZAZ 8.25%09 Oct 24 Ba3 N/R N/R 250 87.00 855 -1.08 B+/B1 Baa3/BBB-/BBB- -1.72 -3.00 -234 Fairly valued.
SOIAZ 5.45%09 Feb 17 Ba1 BB+ BBB- 500 100.97 365 n/a n/a Baa3/BBB-/BBB- -1.72 -3.00 -92 Overvalued.
SOIAZ 4.75%13 M ar 23 Ba1 BB+ BBB- 1,000 91.74 430 0.69 BBB-/Baa3 Baa3/BBB-/BBB- -1.72 -3.00 -23 Overvalued versus sovereign.
B A HR A IN ( So ver eig n ceiling : 2 no t ches f o r M o o d y' s, 1 f o r F t ich and S&P)
Ahli United Bank FRN 02 Dec 15 N/R BBB BBB 75 98.00 379 n/a n/a Baa2/BBB/BBB -1.40 None Stable sovereign rating.
BATELC 4.25%01 M ay 20 N/R BB+ BBB- 519 99.89 282 0.94 BBB-/Baa3 Baa2/BBB/BBB -1.40 None 68 Stable sovereign rating.
BBK FRN 28 Jun 17 Ba1 N/R BBB- 23 88.00 660 -1.99 BB/Ba2 Baa2/BBB/BBB -1.40 None -345 Cheap to corporates
ABCORP FRN 04 Apr 17 /BB+ /BB+ /BB+ 373 97.33 259 n/a n/a Baa2/BBB/BBB -1.40 None Stable sovereign rating.
BBK 4.5%28 Oct 15 Baa2/ Baa2/ Baa2/ 500 102.27 115 n/a n/a Baa2/BBB/BBB -1.40 None Stable sovereign rating.
Gulf Intl Bank FRN 30 Sep 15 Baa1/BBB Baa1/BBB Baa1/BBB 361 99.24 230 n/a n/a Baa2/BBB/BBB -1.40 None Stable sovereign rating.
M UM TAK 5%30 Jun 15 /BBB /BBB /BBB 750 101.65 94 n/a n/a Baa2/BBB/BBB -1.40 None Stable sovereign rating.
KA Z A KHST A N ( So ver eig n ceiling : 1 no t ch f o r M o o d y' s, 1 f o r F it ch and 0 f o r S&P)
Alliance Bank 10.5%25 M ar 17 (restructured)
Cu/NR Cu/NR Cu/NR 615 24.55 11,557 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76
Alliance Bank 4.7%25 M ar 20 (restructured)
Cu/NR Cu/NR Cu/NR 241 36.50 2,900 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76
ATF Bank 9%11 M ay 16 B1 NR BBB 350 94.75 1,260 -1.43 BB-/Ba3 Baa2/BBB+/BBB+ -2.78 -2.76
ATF Bank 10%PERP Ca NR CC 100 68.50 3,430 0.05 SD/Ca Baa2/BBB+/BBB+ -2.78 -2.76 -997
Bank Centercredit 9.125%Perp Caa2 B+ CCC 81 87.50 2,772 -1.86 SD/Ca Baa2/BBB+/BBB+ -2.78 -2.76 -592
BTAS 10.75%01 Jul 18 (restructured) WR/ WR/ WR/ 2,082 16.13 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76
BTAS Performance Warrants 01 Jul 20 / / / 5,221 13.56 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76
BTAS 7.2%01 Jul 25 (restructured) WR/ WR/ WR/ 497 6.98 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76
CSBNKZ 9.875%28 Oct 16 B1 BB- BB- 200 105.59 992 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76 51
DBKAZ 5.5%20 Dec 15 Baa3 BBB+ BBB- 277 101.03 378 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76 Fair value vs sovereign downgrade risk.
Dev Bnk of Kazakstn 6.5%03 Jun 20 Baa3 BBB+ BBB 100 109.60 492 -1.41 BBB-/Baa3 Baa2/BBB+/BBB+ -2.78 -2.76 Overvalued versus sovereign.
Dev Bnk of Kazakstn 6%23 M ar 26 Baa3 BBB+ BBB 107 100.40 546 -1.07 BBB-/Baa3 Baa2/BBB+/BBB+ -2.78 -2.76 Overvalued versus sovereign.
EASTCM 7.75%22 Apr 18 B3 N/R B 100 91.00 1,006 1.21 B+/B1 Baa2/BBB+/BBB+ -2.78 -2.76 -4
HALYK 7.25%03 M ay 17 Ba3 BB+ BB 638 101.48 662 -0.71 BB-/Ba3 Baa2/BBB+/BBB+ -2.78 -2.76 -238
Halyk Savings Bank 7.25%28 Jan 21 Ba3 BB+ BB 500 106.47 651 0.01 BB/Ba2 Baa2/BBB+/BBB+ -2.78 -2.76 -131
Intergas 6.375%14 M ay 17 Baa3 BB+ BBB- 540 105.02 506 0.40 BBB-/Baa3 Baa2/BBB+/BBB+ -2.78 -2.76 -23 Overvalued versus sovereign.
KazatomProm 6.25%20 M ay 15 Baa3 /*-/ Baa3 /*-/ Baa3 /*-/ 500 100.00 364 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76
KAZNM H 4.625%24 M ay 23 N/R BBB+ BBB 1,000 81.23 592 -2.52 BB+/Ba1 Baa2/BBB+/BBB+ -2.78 -2.76 -326
Kazkomerts Bank 8%03 Nov 15 Caa1u/B /*-Caa1u/B /*-Caa1u/B /*- 270 98.00 1,079 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76
Kazkomerts Bank 7.5%29 Nov 16 Caa1 B+ B 356 89.78 1,359 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76 -290
Kazkomerts Bank VAR 13 Jun 17 Caa2u CCC /*- B- 250 87.48 1,663 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76 -81
Kazkomerts Bank 8.5%11 M ay 18 Caa1u B /*- B 300 82.50 1,499 -1.24 B-/B3 Baa2/BBB+/BBB+ -2.78 -2.76
Kazkomerts Bank 9.2%Perp Caa3u CCC- /*- CCC 100 81.85 5,509 -0.72 SD/Ca Baa2/BBB+/BBB+ -2.78 -2.76 -1581
Kazkomerts Bank Variable 27 Jul 16 Caa2 B- CCC 200 89.47 1,708 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76
KTZKZ 7%11 M ay 16 Baa3 BBB- BBB- 350 104.46 322 0.06 BBB-/Baa3 Baa2/BBB+/BBB+ -2.78 -2.76 Overvalued versus sovereign.
KTZKZ 6.375%06 Oct 20 Baa3 BBB- BBB 700 107.15 526 -0.47 BBB-/Baa3 Baa2/BBB+/BBB+ -2.78 -2.76 -14 Overvalued versus sovereign.
KTZKZ 6.95%10 Jul 42 Baa3 BBB- BBB 1,100 93.26 536 -0.74 BBB-/Baa3 Baa2/BBB+/BBB+ -2.78 -2.76 -77 Overvalued versus sovereign.
KZKENG 4.55%03 Dec 16 Ba2/ Ba2/ Ba2/ 200 0.00 700 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76 Fair value vs sovereign downgrade risk.
KZOKZ 6.375%09 Apr 21 Baa3 BBB- BBB 1,250 95.50 458 -1.87 BB/Ba2 Baa2/BBB+/BBB+ -2.78 -2.76 -245 Overvalued versus sovereign.
KZOKZ 4.4%30 Apr 23 Baa3 BBB- BBB 1,000 90.51 423 -0.25 BBB-/Baa3 Baa2/BBB+/BBB+ -2.78 -2.76 -89 Overvalued versus sovereign.
KZOKZ 4.875%07 M ay 25 Baa3 BBB- BBB 500 87.03 435 -0.84 BB+/Ba1 Baa2/BBB+/BBB+ -2.78 -2.76 -102 Overvalued versus sovereign.
KZOKZ 5.75%30 Apr 43 Baa3 BBB- BBB 2,000 96.90 498 1.61 BBB+/Baa1 Baa2/BBB+/BBB+ -2.78 -2.76 82 Overvalued versus sovereign.
KZOKZ 6%07 Nov 44 Baa3 BBB- BBB 1,000 84.64 517 -0.58 BBB-/Baa3 Baa2/BBB+/BBB+ -2.78 -2.76 -41 Overvalued versus sovereign.
Kazmunigaz (KM G) 9.125%02 Jul 18 Baa3 BBB- BBB 1,600 107.35 464 -0.93 BB+/Ba1 Baa2/BBB+/BBB+ -2.78 -2.76 Overvalued versus sovereign.
KazM unaiGaz 7%05 M ay 20 Baa3 BBB- BBB 1,500 104.14 471 -1.22 BB+/Ba1 Baa2/BBB+/BBB+ -2.78 -2.76 Overvalued versus sovereign.
KZOLKZ 6.375%09 Apr 21 Baa3 BBB- BBB 1,250 102.50 460 -1.05 BB+/Ba1 Baa2/BBB+/BBB+ -2.78 -2.76 -105 Overvalued versus sovereign.
TEM IR 14%30 Jun 22 N/R B NR 63 109.52 1,046 1.51 BB-/Ba3 Baa2/BBB+/BBB+ -2.78 -2.76 -130
FOURFN 11.75%14 Aug 19 B3/BB- B3/BB- B3/BB- 200 99.38 1,116 n/a n/a Baa2/BBB+/BBB+ -2.78 -2.76

Figure 21 continued: Corporate falling angel risk assessment

R U SSIA ( So ver eig n ceiling : no t hig her t han so ver eig n f o r all ag encies)
AFKSRU 6.95%17 M ay 19 N/R /BB /BB 500 0.00 1,655 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
AKBHC 10.75%18 Sep 15 B2 B2/ B2/ 250 92.45 2,385 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
Alfa Russia 8%18 M ar 15 Ba1 /*- Ba1 /*-/BB+Ba1
/*- /*-/BB+ /*- 600 100.13 685 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
Alfa Russia 7.875%25 Sep 17 Ba1 /*- BB+ /*- BBB- 1,000 95.28 899 -2.15 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25
Alfa Russia VAR 22 Feb 17 Ba3 /*- B+ BB+ 300 82.50 1,287 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 -650
ALFARU 7.75%28 Apr 21 Ba1 /*- BB+ /*- BBB- 1,000 87.30 904 -1.93 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 -475 Fair value vs sovereign downgrade risk.
ALROSA 7.75%03 Nov 20 Ba3 /*- BB- BB 1,000 93.46 775 0.57 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -127 Is a quasi-sovereign, so should trade tight
to corps.
Bank of M oscow 7.5%25 Nov 15 Ba3 /*- Ba3 /*-/ Ba3 /*-/ 300 95.25 1,168 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
Bank of M oscow VAR 10 M ay 17 Ba3 /*- N/R WD 400 82.02 1,480 -1.95 B/B2 Baa3/BBB- /BBB- -4.50 -2.25 -785
BORFIN 7.625%26 Sep 18 B1 BB N/R 415 71.00 1,776 -2.40 B/B2 Baa3/BBB- /BBB- -4.50 -2.25 -1083 Already rated and priced in single Bs.
CHM FRU 6.25%26 Jul 16 Ba1 /*- BB+ BB 402 97.33 762 0.21 BB+/Ba1 Baa3/BBB- /BBB- -4.50 -2.25 Very 'under-levered' company. Good
defensive play versus peers.
Severstal 6.7%25 Oct 17 Ba1 /*- BB+ BB+ 706 93.68 840 -1.54 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 Very 'under-levered' company. Good
CHM FRU 4.45%19 M ar 18 NR BB+ BB+ 576 87.08 821 -1.43 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 Very 'under-levered' company. Good
CRBKM O 7.7%01 Feb 18 B1 BB- BB 500 79.66 1,550 -2.11 B/B2 Baa3/BBB- /BBB- -4.50 -2.25
DM EAIR 6%26 Nov 18 N/R BB+ BB+ 300 76.17 1,306 -3.04 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 -879
EDCLLI 4.875%17 Apr 20 N/R BB+ BB 600 82.46 773 -0.56 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -296 Already rated and priced in single Bs.
Evraz 8.25%10 Nov 15 B1 /*- B1 /*-/B+ B1 /*-/B+ 138 99.62 836 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 Cheap'
EVRAZ 7.4%24 Apr 17 B1 /*- B+ BB- 600 86.71 1,371 -0.95 B/B2 Baa3/BBB- /BBB- -4.50 -2.25 -544 Already rated and priced in single Bs.
Evraz 9.5%24 Apr 18 B1 /*- B+ BB- 850 89.08 1,271 -0.56 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 Already rated and priced in single Bs.
EVRAZ 7.5%15 Nov 19 Ba3 BB NR 350 89.94 884 0.14 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -270 Overvalued vs Russian corporates.
EVRAZ 6.5%22 Apr 20 N/R B+ BB- 1,000 75.60 1,164 -0.07 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 -430 Already rated and priced in single Bs.
FEIBNK 9%14 Nov 16 B2 B+ N/R 225 92.00 1,349 2.04 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -322 High risk.
FESHRU 8%02 M ay 18 N/R B B /*- 550 38.78 4,470 -3.52 SD/Ca Baa3/BBB- /BBB- -4.50 -2.25 High risk.
FESHRU 8.75%02 M ay 20 N/R B B /*- 325 37.01 3,502 -2.75 CCC/Caa2 Baa3/BBB- /BBB- -4.50 -2.25 -2488 High risk.
Gazprombank 6.5%23 Sep 15 Ba1 /*-Ba1 /*-/BBB-
Ba1/*-/*-/BBB- /*- 948 98.90 789 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
GAZPRU 5.092%29 Nov 15 Baa2 Baa2/BBB-Baa2/BBB-
/*- /*- 1,000 99.42 543 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
Gazprom 6.212%22 Nov 16 Baa2 BBB BBB 1,350 98.29 656 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 -410
Gazprom 8.146%11 Apr 18 Baa2 BBB- /*- BBB 1,100 99.40 731 -2.67 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25
Gazprom 9.25%23 Apr 19 Baa2 BBB- /*- BBB 2,250 101.18 765 -2.49 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -480 Cheap' as a quasi-sovereign credit
GAZPRU 5.999%23 Jan 21 Baa2 BBB- /*- BBB 600 88.61 693 -2.43 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -368 Cheap' as a quasi-sovereign credit
GAZPRU 4.95%19 Jul 22 Baa2 BBB- /*- BBB 1,000 82.08 651 -1.89 BB+/Ba1 Baa3/BBB- /BBB- -4.50 -2.25 -326 Fair value vs sovereign downgrade risk.
GAZPRU 6.51%07 M ar 22 Baa2 BBB- /*- BBB 1,300 89.45 688 -2.11 BB+/Ba1 Baa3/BBB- /BBB- -4.50 -2.25 -362 Fair value vs sovereign downgrade risk.
GAZPRU 4.95%06 Feb 28 Baa2 BBB- BBB 900 79.49 544 -3.41 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 -181 Overvalued versus sovereign.
Gazprom 8.625%28 Apr 34 Baa2 BBB BBB 1,200 102.07 635 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 -260 Cheap' as a quasi-sovereign credit
GAZPRU 7.288%16 Aug 37 Baa2 BBB- /*- BBB 1,250 91.71 598 -5.17 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 Overvalued versus sovereign.
GM KNRM 4.375%30 Apr 18 Baa2 /*- BBB- BBB- 750 93.02 571 -1.47 BB+/Ba1 Baa3/BBB- /BBB- -4.50 -2.25 Overvalued versus sovereign.
GM KNRM 5.55%28 Oct 20 Baa2 /*- BBB- BBB- 1,000 90.39 614 -1.76 BB+/Ba1 Baa3/BBB- /BBB- -4.50 -2.25 -265 Overvalued versus sovereign.
GPBRU 5.625%17 M ay 17 Ba1 /*- BBB- /*- BBB- 1,000 87.47 1,114 -3.39 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 -767
GPBRU 7.25%03 M ay 19 B1 /*- BB+ /*- BB+ 500 77.70 1,314 -2.05 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 -770 Sub-debt should trade 'cheaply'
GPBRU 7.496%28 Dec 23 0.00 NR/ NR/ 750 69.38 1,766 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 0
HCFBRU 10.5%19 Apr 21 NR N/R B+ 200 70.28 1,729 -1.05 B/B2 Baa3/BBB- /BBB- -4.50 -2.25 -876
KOKSRU 7.75%23 Jun 16 B3 B- N/R 319 81.00 2,383 1.72 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25
Kazan Orgsintez 9.25%30 Oct 11 /NR /NR 101 99.05 1,581 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
LUKOIL 6.356%07 Jun 17 Baa2 /*- BBB- /*- BBB- 500 96.80 702 -2.22 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -410 Overvalued versus Gazprom.
LUKOIL 3.416%24 Apr 18 Baa2 /*- BBB- /*- BBB- 1,500 87.50 676 -2.04 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 Overvalued versus Gazprom.
LUKOIL 7.25%05 Nov 19 Baa2 /*- BBB- /*- BBB- 600 95.77 698 -2.07 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -389 Overvalued versus Gazprom.
LUKOIL 6.125%09 Nov 20 Baa2 /*- BBB- /*- BBB- 1,000 89.58 693 -2.10 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -344 Overvalued versus Gazprom.
LUKOIL 6.656%07 Jun 22 Baa2 /*- BBB- /*- BBB- 500 90.24 681 -1.74 BB+/Ba1 Baa3/BBB- /BBB- -4.50 -2.25 -332 Overvalued versus Gazprom.
LUKOIL 4.563%24 Apr 23 Baa2 /*- BBB- /*- BBB- 1,500 80.64 603 -1.29 BB+/Ba1 Baa3/BBB- /BBB- -4.50 -2.25 -250 Overvalued versus Gazprom.
M oscow Bank R&D 8.875%M ar 16 B3 B2/ B2/ 60 79.56 3,010 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
M ETINR 6.5%21 Jul 16 Ba2 /*- N/R BB- 750 94.95 968 0.88 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25
M ETINR 5.625%17 Apr 20 Ba2 /*- BB BB 1,000 76.97 1,019 -1.06 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 -487
M obil Teles 8.625%22 Jun 20 Baa3 /*- BBB- /*- BB+ /*- 750 98.19 762 -1.68 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 Overvalued. But strong credit with good
M OBTEL 5%30 M ay 23 Baa3 /*- BBB- /*- BB+ /*- 500 81.40 635 -0.82 BB+/Ba1 Baa3/BBB- /BBB- -4.50 -2.25 -232 franchise.
Overvalued. But strong credit with good
NLM KRU 4.45%19 Feb 18 Baa3 /*- BB+ BBB- 708 88.63 771 -1.86 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 franchise.
Fair value vs sovereign downgrade risk.
NM OSRM 7.25%25 Apr 18 Ba3 /*- N/R WD 500 76.50 1,586 -2.20 B/B2 Baa3/BBB- /BBB- -4.50 -2.25 Fair value vs sovereign downgrade risk.
NM OSRM 10%17 Dec 19 B1 /*- N/R WD 300 66.69 1,993 -1.78 B-/B3 Baa3/BBB- /BBB- -4.50 -2.25 -1175 Already rated and priced in single Bs.
NM OSRM 10%26 Apr 19 B1 /*- N/R WD 500 68.10 2,063 -2.02 B-/B3 Baa3/BBB- /BBB- -4.50 -2.25 -1180 Already rated and priced in single Bs.
Nomos Bank 8.75%21 Oct 15 B1 /*- B1 /*-/ B1 /*-/ 350 92.01 2,040 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 Already rated and priced in single Bs.
Nomos Bank 8.75%21 Oct 15 B1 /*- B1 /*-/ B1 /*-/ 350 92.01 2,040 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 Already rated and priced in single Bs.
NORDLI 6.375%07 M ay 18 Ba3 /*- N/R BB- 450 90.87 860 0.41 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 Overvalued versus sovereign.
NOTKRM 5.326%03 Feb 16 Baa3 /*- BBB- BBB- 600 97.92 705 0.00 SD/Ca Baa3/BBB- /BBB- -4.50 -2.25 Overvalued versus sovereign.
NOTKRM 6.604%03 Feb 21 Baa3 /*- BBB- /*- BBB- 650 89.06 747 -1.99 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -373 Overvalued versus sovereign.


OR-ICB 6.2%29 Sep 15 Ba2 /*- Ba2 /*-/ Ba2 /*-/ 400 96.02 1,084 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
PGILLN 5.625%29 Apr 20 N/R BB+ BBB- 750 87.55 718 -1.32 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -333 Overvalued versus sovereign.
PHORRU 4.204%13 Feb 18 Baa3 /*- N/R BB+ 500 87.55 791 -1.80 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 Slighly overvalued. But strong credit.
PROBUS 11.75%10 M ay 16 / / 62 80.00 3,110 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
Promsvyaz Bank 12.75%27 M ay 15 B1 /*- B1 /*-/NR B1 /*-/NR 180 98.00 1,851 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 No sovereign ratings effect.
Promsvyaz Bank 11.25%08 Jul 16 B1 /*- N/R B+ 189 85.97 2,256 -0.08 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 No sovereign ratings effect.
PROM BK 8.5%25 Apr 17 Ba3 /*- N/R WD 400 88.50 1,385 -1.66 B/B2 Baa3/BBB- /BBB- -4.50 -2.25 -690
PROM BK 10.5%17 M ar 21 / / 100 58.88 2,184 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
PROM BK 10.5%30 Jul 21 / / 333 58.44 1,955 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
PROM BK 12.5%24 Dec 49 / / 100 62.38 1,829 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
RASPAD 7.75%27 Apr 17 B2 /*- N/R B+ 400 71.51 2,415 -2.44 CCC+/Caa1 Baa3/BBB- /BBB- -4.50 -2.25 -1387 High risk.
RCCF 7.75%31 M ay 16 B3 B+ WD 350 65.50 4,363 -1.46 B-/B3 Baa3/BBB- /BBB- -4.50 -2.25 -3193 High risk.
RCCF 13.5%22 M ay 19 NR/ NR/ 100 36.50 4,747 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 High risk.
RENOTE 11%21 Apr 16 B3 B+ B 126 76.38 3,557 0.00 SD/Ca Baa3/BBB- /BBB- -4.50 -2.25 -1702 High risk.
RSHB 5.298%27 Dec 17 Ba1 /*- N/R BBB- 1,300 84.00 1,093 -3.11 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 Fair value vs sovereign downgrade risk.
Russia Agric Bnk 6.299%15 M ay 17 Ba1 /*- N/R BBB- 584 88.59 1,128 -3.27 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 -765 Fair value vs sovereign downgrade risk.
Russ Agric Bank 7.75%29 M ay 18 Ba1 /*- N/R BBB- 980 88.12 1,108 -3.16 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 Fair value vs sovereign downgrade risk.
RSHB 5.1%25 Jul 18 Ba1 /*- N/R BBB- 1,300 81.70 1,047 -2.59 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 -669 Fair value vs sovereign downgrade risk.
RSHB 6%03 Jun 21 B1 /*- N/R BB+ 800 69.00 3,621 -5.19 CCC/Caa2 Baa3/BBB- /BBB- -4.50 -2.25 -2995 Is sub-debt. Should trade cheaper.
RSHB 8.5%16 Oct 23 NR/ NR/ 500 68.89 1,331 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
RURAIL 5.739%03 Apr 17 Baa2 /*- BBB BBB 1,500 93.67 819 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 -573 Fair value vs sovereign downgrade risk.
RURAIL 5.7%05 Apr 22 Baa2 /*- BBB- /*- BBB- 1,400 82.66 738 -2.06 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -389 Overvalued.
RURAIL 7.487%25 M ar 31 Baa2 /*- BBB BBB 650 84.30 755 -6.47 B/B2 Baa3/BBB- /BBB- -4.50 -2.25 Overvalued.
Russia Standard Bank 8.875%16 Dec 15 B3 B- N/R 200 72.50 4,860 0.00 SD/Ca Baa3/BBB- /BBB- -4.50 -2.25 High risk.
RUSB 9.25%11 Jul 17 B2/B+ B2/B+ 414 87.50 4,084 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 High risk.
RUSB 11.5%17 Jan 24 Caa1/ Caa1/ 200 37.49 4,701 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 High risk.
SberBank 5.499%07 Jul 15 Baa3 /*- Baa2 /*-/ Baa2 /*-/ 1,500 99.77 573 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
SBERRU 4.95%07 Feb 17 Baa3 /*- N/R BBB 1,300 93.43 779 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 -499
SberBank 5.4%24 M ar 17 Baa3 /*- N/R BBB 1,250 93.63 790 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 -510
SBERRU 5.18%28 Jun 19 Baa2 /*- N/R BBB 1,000 85.69 787 -2.92 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -524
SBERRU 5.717%16 Jun 21 Baa2 /*- N/R BBB 1,000 83.85 753 -3.02 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -449
SBERRU 6.125%07 Feb 22 Baa2 /*- N/R BBB 1,500 85.45 732 -2.69 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -428 Slightly overvalued to sovereign
SBERRU 5.25%23 M ay 23 N/R N/R BBB- 1,000 64.48 1,041 -3.24 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 -664 Sub-debt should trade 'cheaply'
SBERRU 5.5%26 Feb 24 0.00 / / 1,000 64.46 1,620 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
SCFRU 5.375%27 Oct 17 B1 /*- N/R BB- 800 80.03 1,342 -1.00 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25
SIBNEF 4.375%19 Sep 22 Baa2 /*- BBB- /*- BBB- 1,500 75.26 719 -1.96 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 Overvalued versus sovereign.
SIBNEF 6%27 Nov 23 Baa2 /*- BBB- /*- BBB- 1,500 79.32 746 -3.00 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 -393 Overvalued versus sovereign.
SIBUR 3.914%31 Jan 18 Ba1 /*- N/R BB+ 1,000 84.69 887 -1.74 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25
SOVCPF 12.5%25 Apr 18 / / 100 93.50 1,403 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
Bank St Petersburg VAR 25 Jul 17 B1 /*- N/R WD 100 80.44 1,674 -1.47 B/B2 Baa3/BBB- /BBB- -4.50 -2.25 Banks most at risk
STPETE 10.75%22 Apr 19 N/R N/R B+ 100 69.49 2,095 -2.09 B-/B3 Baa3/BBB- /BBB- -4.50 -2.25 -1213 Banks most at risk
Tyumen Oil 7.5%18 Jul 16 Baa2 /*- BBB- BBB- 1,000 97.50 879 -1.73 BB+/Ba1 Baa3/BBB- /BBB- -4.50 -2.25 Undervalued versus sovereign.
Tyumen Oil 6.625%20 M ar 17 Baa2 /*- BBB- BBB- 800 93.69 917 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 -625 Undervalued versus sovereign.
Tyumen Oil 7.875%13 M ar 18 Baa2 /*- BBB- /*- WD 1,100 92.20 983 -3.67 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 Undervalued versus sovereign.
Tyumen Oil 7.25%02 Feb 20 Baa2 /*- BBB- /*- WD 500 87.04 926 -3.20 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 Undervalued versus sovereign.
TransNeft 8.7%07 Aug 18 Baa2 /*- BBB- /*- N/R 1,050 102.33 681 -1.92 BB+/Ba1 Baa3/BBB- /BBB- -4.50 -2.25 Overvalued versus sovereign.
Transcapital Bank VAR 18 Jul 17 B2 N/R N/R 100 83.00 1,546 -0.11 B/B2 Baa3/BBB- /BBB- -4.50 -2.25 -376
TM K-BP 5.25%11 Feb 15 (Convert) /B+ /B+ 328 98.15 4,212 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
TRUBRU 7.75%27 Jan 18 B1 B+ N/R 500 63.87 2,469 -2.99 CCC+/Caa1 Baa3/BBB- /BBB- -4.50 -2.25
TRUBRU 6.75%03 Apr 20 B1 B+ N/R 500 57.36 1,904 -1.59 B-/B3 Baa3/BBB- /BBB- -4.50 -2.25 -1086 Already rated and priced in single Bs.
UBRIR 12%27 Dec 18 # N/A / / 68 103.19 980 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
URKARM 3.723%30 Apr 18 Baa3 /*- N/R BBB- 650 81.92 929 -2.92 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 Fair value vs sovereign downgrade risk.
UUUCN 6.25%13 Dec 18 Ba3 B+ BB- 300 71.06 1,561 -1.49 B/B2 Baa3/BBB- /BBB- -4.50 -2.25 -810 Fair value vs sovereign downgrade risk.
VEBBNK 5.125%27 M ay 16 N/R BBB BBB 400 93.07 1,028 -2.73 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 Fair value vs sovereign downgrade risk.
VEBBNK 5.45%22 Nov 17 N/R BBB- /*- BBB 600 85.71 1,052 -3.96 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 Fair value vs sovereign downgrade risk.
VEBBNK 4.224%21 Nov 18 N/R BBB- /*- BBB 850 75.34 1,132 -3.91 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 -835 Fair value vs sovereign downgrade risk.
VEB Bank 6.902%09 Jul 20 N/R BBB- /*- BBB 1,600 77.43 1,132 -3.91 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 Fair value vs sovereign downgrade risk.
VEBBNK 5.942%21 Nov 23 N/R BBB- /*- BBB 1,150 70.09 964 -4.52 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 -622 Fair value vs sovereign downgrade risk.
VEBBNK 6.8%22 Nov 25 N/R BBB- /*- BBB 1,000 71.94 952 -4.49 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 Fair value vs sovereign downgrade risk.
Vimpelcom 8.25%23 M ay 16 Ba3 /*- BB N/R 600 97.16 1,008 0.79 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25
VIP 6.493%02 Feb 16 Ba3 /*-/BBBa3 /*-/BB 500 97.17 904 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
VIP 6.2546%01 M ar 17 Ba3 /*- BB N/R 500 92.06 980 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 -369
Vimpelcom 9.125%30 Apr 18 Ba3 /*- BB N/R 1,000 94.79 1,000 -0.71 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25
VIP 5.2%13 Feb 19 Ba3 /*- BB N/R 600 83.22 912 -0.01 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 -298
VIP 7.748%02 Feb 21 Ba3 /*-/BBBa3 /*-/BB 1,000 85.97 949 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
VIP 7.5043%01 M ar 22 Ba3 /*- BB N/R 1,500 83.95 918 -0.17 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 -292 Overvalued versus sovereign.
VIP 5.95%13 Feb 23 Ba3 /*- BB N/R 1,000 77.05 848 0.15 BB/Ba2 Baa3/BBB- /BBB- -4.50 -2.25 -227 Overvalued versus sovereign.


VOSEXP 12%29 M ay 19 # N/A NR/ NR/ 125 88.38 1,467 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
Alliance Oil 9.875%11 M ar 15 N/R /NR /NR 350 90.50 9,831 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
VTB 6.465%04 M ar 15 Baa3 /*-
Baa3 /*-/BBB-
Baa3/*-/*-/BBB- /*-1,250 99.99 623 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
VTB 6%12 Apr 17 Baa3 /*- N/R WD 2,000 87.75 1,169 -3.93 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 -850 Fair value vs sovereign downgrade risk.
VTB Capital 6.875%29 M ay 18 Baa3 /*- BBB- /*- WD 1,514 84.22 1,172 -3.89 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 Fair value vs sovereign downgrade risk.
VTB 6.315%22 Feb 18 Baa3 /*- BBB- /*- WD 698 84.19 1,164 -3.87 B+/B1 Baa3/BBB- /BBB- -4.50 -2.25 Fair value vs sovereign downgrade risk.
VTB 6.551%13 Oct 20 Baa3 /*- BBB- /*- WD 948 77.42 1,065 -3.18 BB-/Ba3 Baa3/BBB- /BBB- -4.50 -2.25 -692 Fair value vs sovereign downgrade risk.
VTB Capital 6.25%02 Jul 35 Baa3 /*- BBB BBB 693 99.47 721 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25 -327 Overvalued versus sovereign.
VTB 9.5%Perp NR/ NR/ 2,250 64.48 1,652 n/a n/a Baa3/BBB- /BBB- -4.50 -2.25
T U R KEY ( so ver eig n ceiling is 2 no t ches f o r M o o d y' s, 1 f o r F it ch and 1 f o r S&P)
ACKAF 5%03 Apr 23 /BB+ /BB+ 500 97.68 360 1.56 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 74 Slightly cheap to sovereign
AkBank 5.125%22 Jul 15 Baa3/ Baa3/ Baa3/ 1,000 101.62 157 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20
AKBNK 4.125%17 Apr 18 N/R N/R BBB- 250 100.44 290 0.48 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 -10
AKBNK 6.5%09 M ar 18 Baa3 NR BBB- 500 108.93 242 1.11 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 Overvalued versus sovereign.
ALBRK 6.25%30 Jun 19 N/R BB BB 350 101.01 468 1.47 BB+/Ba1 Baa3/BB+u/BBB- -0.06 -0.20 19
ALBRK 7.75%07 M ay 23 N/R B BB 200 98.89 622 1.95 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 88
ALNTF 3.125%22 Jul 19 N/R N/R A 250 99.81 183 -2.32 BBB+/Baa1 Baa3/BB+u/BBB- -0.06 -0.20 -60 Overvalued versus sovereign.
ASYAKA 7.5%28 M ar 23 C/ C/ C/ 250 56.38 2,850 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20 High risk.
BNKPOZ 5%07 Feb 18 N/R N/R BBB- 150 99.44 417 -0.65 BB+/Ba1 Baa3/BB+u/BBB- -0.06 -0.20 -137
CCOLAT 4.75%01 Oct 18 Baa3 N/R BBB 500 106.14 181 1.15 BBB+/Baa1 Baa3/BB+u/BBB- -0.06 -0.20 93 Overvalued versus sovereign.
DPRFIN 2.4351%21 Nov 34 /AAA /AAA /AAA 500 104.63 187 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20
FCFIN 8%24 Jan 23 B1/ B1/ B1/ 400 101.00 661 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20 High risk.
FINBN 5.5%11 M ay 16 Ba2 N/R BBB- 500 102.76 282 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20 M ore of a Ba2 or Ba1 credit.
FINBN 6.25%30 Apr 19 Ba2 N/R BBB- 500 104.43 380 1.08 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 7 M ore of a Ba2 or Ba1 credit.
GARAN 2.774%20 Apr 16 Baa2 BB BBB- 300 100.40 217 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20
GARAN 4%13 Sep 17 Baa3 BB+ BBB- /*+ 600 261.18 261 1.02 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 BBVA increased stake. Above sov ceiling.
GARAN 4.75%17 Oct 19 Baa3 BB+ BBB- /*+ 750 102.47 280 0.87 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 71 BBVA increased stake. Above sov ceiling.
GARAN 6.25%20 Apr 21 Baa3 BB+ BBB- /*+ 500 109.33 296 0.38 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 61 BBVA increased stake. Above sov ceiling.
GARAN 5.25%13 Sep 22 Baa3 BB+ BBB- /*+ 750 103.80 295 0.63 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 BBVA increased stake. Above sov ceiling.
HALKBK 4.875%19 Jul 17 Baa3 N/R BBB- 750 103.09 269 0.67 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 18 Overvalued versus sovereign.
HALKBK 4.75%04 Jun 19 Baa3 N/R BBB- 500 101.95 295 0.74 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 13 Overvalued versus sovereign.
HALKBK 3.875%05 Feb 20 Baa3 N/R BBB- 750 97.24 307 1.04 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 9 Overvalued versus sovereign.
ISCTR 5.1%01 Feb 16 Baa3 BB BBB- 500 102.73 198 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20
ISCTR 3.75%10 Oct 18 Baa3 BB+ BBB- 750 99.81 262 0.81 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 70 Slightly overvalued to sovereign
ISCTR 5.5%21 Apr 19 Baa3 BB+ BBB- 500 105.21 287 0.81 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 45 Slightly overvalued to sovereign
ISCTR 5%30 Apr 20 Baa3 BB+ BBB- 750 102.37 304 0.61 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 35
ISCTR 5%25 Jun 21 Baa3 BB+ BBB- 750 101.82 308 0.43 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 69
ISCTR 7.85%10 Dec 23 Ba2 BB+ BB+ 400 112.90 419 0.81 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 38
69 Is a diversivied hold co. High cash and
KCHOL 3.5%24 Apr 20 Baa3 BBB- BBB- 750 97.88 249 0.71 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20
negative net debt.
KFINKK 5.162%26 Jun 19 N/R N/R BBB 500 105.38 252 0.10 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 -7
KFINKW 5.875%31 Oct 16 N/R N/R BBB- 350 105.26 217 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20 63
M ERSIN 5.875%12 Aug 20 Baa3 N/R BBB- 450 107.25 291 0.21 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 61 Overvalued versus sovereign and peers
SISETI 4.25%09 M ay 20 Ba1 BB+ BB+ 500 98.57 310 1.23 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 78 Overvalued versus sovereign and peers
TCZIRA 4.25%03 Jul 19 Baa3 NR BBB- 750 100.48 281 0.86 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 27
TSKBTI 5.375%30 Oct 19 Baa3 N/R BBB- 350 103.49 318 0.57 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 -11 Cheap
-36 Is a diversivied hold co. High cash and
TUFIKA 3.95%02 M ay 18 N/R N/R BBB 500 100.88 258 -0.19 BB+/Ba1 Baa3/BB+u/BBB- -0.06 -0.20
negative net debt.
-35 Is a diversivied hold co. High cash and
TUFIKA 5.375%24 Apr 19 N/R N/R BBB 500 105.00 280 -0.14 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20
negative net debt.
TURKTI 3.75%19 Jun 19 N/R BBB- BBB- 500 101.13 215 1.40 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 92 Overvalued versus sovereign and peers
TURKTI 4.875%19 Jun 24 N/R BBB- BBB- 500 102.38 272 1.21 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 85 Overvalued versus sovereign and peers
VAKBN 5.75%24 Apr 17 Baa3 BB+ BBB- 500 104.93 266 1.03 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 46 Rich
VAKBN 5%31 Oct 18 Baa3 BB+ BBB- 500 102.92 296 0.79 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 36 Slightly overvalued to sovereign & peers
VAKBN 3.75%15 Apr 18 Baa3 BB+ BBB- 600 99.23 293 0.79 BBB-/Baa3 Baa3/BB+u/BBB- -0.06 -0.20 9 Slightly overvalued to sovereign & peers
YASARH 8.875%06 M ay 20 B2 N/R B 250 104.15 647 3.34 BB/Ba2 Baa3/BB+u/BBB- -0.06 -0.20 324
YKBNK 5.1875%13 Oct 15 /BB+ /BB+ /BB+ 750 101.99 206 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20
YKBNK 6.75%08 Feb 17 Baa2 BB BBB- 500 106.68 261 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20 21 Slightly overvalued to sovereign & peers
YKBNK 5.25%03 Dec 18 Baa3 BB+ BBB 500 103.99 291 0.74 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 16 Slightly overvalued to sovereign & peers
YKBNK 5.125%22 Oct 19 Baa3 BB+ BBB 550 102.95 306 0.67 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 1 Fair value vs peers & sovereign
YKBNK 4%22 Jan 20 Baa3 BB+ BBB 500 97.79 308 0.97 BBB/Baa2 Baa3/BB+u/BBB- -0.06 -0.20 -9 Fair value vs peers & sovereign
YUKSEL 9.5%10 Nov 15 WR/ WR/ WR/ 200 48.50 13,018 n/a n/a Baa3/BB+u/BBB- -0.06 -0.20 High risk.


M arket B N PP R ich/ C h
A mt Imp lied so vereig n 3 Y so v eap t o
M o o d y' ( U S$m M id rat ing Imp lied So vereig n rat ing rat ing rat ing g lo b al C o mment : R isk o f imp act f ro m
s S&P F it ch ) M id So T 2 act io n rat ing ( M d y/ S&P/ F t ch) f o recast f o recast p eers so vereig n d o wng rad e b elo w IG
SOU T H A F R IC A ( So vereig n ceiling : 3 no t ches f o r M o o d y' s, 2 f o r F it ch, 2 f o r S&P)
ABLSJ 6%15 Jun 16 Baa2 N/R N/R 350 71.71 3,302 n/a n/a Baa2/BBB-/BBB -0.40 -1.20 High risk.
ABLSJ 8.125%24 Feb 17 Baa2 N/R N/R 350 72.39 2,810 n/a n/a Baa2/BBB-/BBB -0.40 -1.20 -1836 High risk.
ANGSJ 8.5%30 Jul 20 Baa3 BB+ N/R 1,250 106.55 549 -0.91 BB+/Ba1 Baa2/BBB-/BBB -0.40 -1.20 -160 Pricing in sovereign downgrade risk
AngloGold 5.375%15 Apr 20 Baa3 BB+ N/R 700 97.11 459 -0.33 BB+/Ba1 Baa2/BBB-/BBB -0.40 -1.20 Pricing in sovereign downgrade risk
ANGSJ 5.125%01 Aug 22 Baa3 BB+ N/R 750 92.51 470 -0.18 BB+/Ba1 Baa2/BBB-/BBB -0.40 -1.20 Pricing in sovereign downgrade risk
AngloGold 6.5%15 Apr 40 Baa3 BB+ N/R 300 86.19 561 -4.09 B/B2 Baa2/BBB-/BBB -0.40 -1.20 Slightly 'cheap'
Aquarius Platinum 4%18 Dec 15 (Convert)/ / / 125 96.63 729 n/a n/a Baa2/BBB-/BBB -0.40 -1.20
AQRIUS 14.75%27 Jun 15 / / / 75 57.50 17,972 n/a n/a Baa2/BBB-/BBB -0.40 -1.20 High risk.
Cell C Pty Ltd 11%01 Jul 15 Caa2/CCC Caa2/CCC Caa2/CCC 161 98.63 1,401 n/a n/a Baa2/BBB-/BBB -0.40 -1.20
EDCON 9.5%01 M ar 18 B3 /*-/B- B3 /*-/B- B3 /*-/B- 250 77.16 1,864 n/a n/a Baa2/BBB-/BBB -0.40 -1.20 High risk.
ESKOM 6.75%06 Aug 23 Ba1 BBB- BBB- 1,000 103.91 440 -0.12 BBB-/Baa3 Baa2/BBB-/BBB -0.40 -1.20 -62 Overvalued versus sovereign downgrade
risk
A3 BBB+ BBB+ 500 103.02 163 -1.73 BBB/Baa2 Baa2/BBB-/BBB -0.40 -1.20 Overvalued versus sovereign downgrade
FIRSTR 4.375%09 Jun 16 risk
GFISJ 4.875%07 Oct 20 Ba1 BB+ N/R 1,000 86.17 643 -0.23 BB+/Ba1 Baa2/BBB-/BBB -0.40 -1.20 -88 Slightly 'cheap'
IM PALA 1%21 Feb 18 / / / 200 82.89 661 n/a n/a Baa2/BBB-/BBB -0.40 -1.20
INTSJ 3.875%24 Jul 17 Baa2 BBB- BBB- 300 101.46 238 1.00 BBB/Baa2 Baa2/BBB-/BBB -0.40 -1.20 Overvalued versus sovereign.
M TNSJ 4.755%11 Nov 24 Baa2 BBB N/R 750 100.81 278 0.53 BBB+/Baa1 Baa2/BBB-/BBB -0.40 -1.20 20 Overvalued versus sovereign.
M yriad Intl (NPNSJ) 6.375%28 Jul 17 Baa3 N/R BB+ 700 110.13 134 2.48 BBB+/Baa1 Baa2/BBB-/BBB -0.40 -1.20 Overvalued versus sovereign.
NPNSJ 6%18 Jul 20 Baa3 N/R BB+ 1,000 111.40 222 1.19 BBB/Baa2 Baa2/BBB-/BBB -0.40 -1.20 167 Overvalued versus sovereign.
SAFTRA 4.5%10 Feb 16 Baa1/BBB-Baa1/BBB-Baa1/BBB- 750 102.71 147 n/a n/a Baa2/BBB-/BBB -0.40 -1.20
SAFTRA 4%26 Jul 22 Baa1 BBB- BBB 1,000 97.33 271 0.29 BBB/Baa2 Baa2/BBB-/BBB -0.40 -1.20 11 Overvalued versus sovereign.
SAPSJ 7.75%15 Jul 17 Baa1 BBB- BBB 1,000 97.33 271 0.29 BBB/Baa2 Baa2/BBB-/BBB -0.40 -1.20 11 Overvalued versus sovereign.
SAPSJ 8.375%15 Jun 19 Baa1 BBB- BBB 1,000 97.33 271 0.29 BBB/Baa2 Baa2/BBB-/BBB -0.40 -1.20 11 Overvalued versus sovereign.
SAPSJ 6.625%15 Apr 21 Ba2 BB N/R 350 103.66 437 1.65 BBB-/Baa3 Baa2/BBB-/BBB -0.40 -1.20
Sappi Papier 7.5%15 Jun 32 B2 B N/R 221 88.75 673 n/a n/a Baa2/BBB-/BBB -0.40 -1.20 202 Cheap'. But, higher risk.
SOAFSK 3.903%24 Jun 20 Baa2 BBB- BBB 500 102.52 191 0.28 BBB/Baa2 Baa2/BBB-/BBB -0.40 -1.20 58 Overvalued versus sovereign.
Standard Bank 8.125%02 Dec 19 Ba1 /*/ Ba1 /*/ Ba1 /*/ 500 110.00 438 n/a n/a Baa2/BBB-/BBB -0.40 -1.20

Emerging Markets Strategy Contacts

Piotr Chwiejczak FX & IR CEEMEA Strategist London 44 20 7595 8715 piotr.chwiejczak@uk.bnpparibas.com
David Spegel Global Head of Sovereign and London 44 20 7595 8195 david.spegel@uk.bnpparibas.com
Credit Strategy
Erkin Isik FX & IR CEEMEA Strategist Istanbul 90 (216) 635 2987 erkin.isik@teb.com.tr
Mirza Baig Head of FX & IR Asia Strategy Singapore 65 6210 3262 mirza.s.baig@asia.bnpparibas.com
Jasmine Poh FX & IR Asia Strategy Singapore 65 6210 3418 jasmine.j.poh@asia.bnpparibas.com
Yii Hui Wong FX & IR Asia Strategy Singapore 65 6210 3314 yiihui.wong@asia.bnpparibas.com
Jennifer Kusuma FX & IR Asia Strategy Singapore 65 6210 3263 jennifer.kusuma@asia.bnpparibas.com
Gabriel Gersztein Head FX & IR Latam Strategy Sao Paulo 55 11 3841 3421 gabriel.gersztein@br.bnpparibas.com
Thiago Alday FX & IR Latam Strategist Sao Paulo 55 11 3841 3445 thiago.alday@br.bnpparibas.com
James Z Hao FX & IR Latam Strategist New York 1 917 472 4333 james.z.hao@us.bnpparibas.com
Emerging Markets Sector Specialists Contacts

Tatiana Tchembarova Sector Specialist London 44 20 7595 1251 tatiana.tchembarova@uk.bnpparibas.com
Ray Heung Head Asia Sector Specialist Hong Kong 852 2108 5283 ray.heung@asia.bnpparibas.com
Susan Chie Asia Sector Specialist Hong Kong 852 2108 5290 susan.chie@asia.bnpparibas.com
Rahul Gupta Asia Sector Specialist Hong Kong 852 2108 5257 rahul.gupta@asia.bnpparibas.com
Tony H Chen Asia Sector Specialist Hong Kong 852 2108 5284 tony.h.chen@asia.bnpparibas.com
Damien Botton LATAM Sector Specialist Sao Paulo 55 11 3841 3251 damien.botton@br.bnpparibas.com
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Global Sovereign and Credit Strategy

David Spegel, London + 44 207 595 8195 21 January 2015

Given the net-ratings trend, it is no

David Spegel, London + 44 207 595 8195 21 January 2015

Energy price collapse and risks

David Spegel, London + 44 207 595 8195 21 January 2015

Figure 5: Outstanding EM energy sector bonds by rating (USD bn)

140 56% of outstanding energy sector corporates

Source: BNP Paribas EM Credit Strategy

Figure 6: Total outstanding stock of EM bonds by rating (USD bn)*

David Spegel, London + 44 207 595 8195 21 January 2015

Figure 9: History of EM corporate rising stars versus fallen angels*

Change of EM Corp spread QoQ (lhs) -200

David Spegel, London + 44 207 595 8195 21 January 2015

400 15 January 2015 200

The individual securities impact of a downgrade from 160

sovereign and corporate credit curves were less steep

250 downgraded issuer was less than it is now.

David Spegel, London + 44 207 595 8195 21 January 2015

David Spegel, London + 44 207 595 8195 21 January 2015

Future fallen angel candidates

David Spegel, London + 44 207 595 8195 21 January 2015

David Spegel, London + 44 207 595 8195 21 January 2015

Figure 17: EM Baa/BBB rated sovereigns and risk assessment

David Spegel, London + 44 207 595 8195 21 January 2015

David Spegel, London + 44 207 595 8195 21 January 2015

David Spegel, London + 44 207 595 8195 21 January 2015

Are corporates correctly pricing in sovereign event risk?

-20 -100 -100

...But, by the same -200

Aggriculture Auto sector Construction Fuel/Metals/Mining

David Spegel, London + 44 207 595 8195 21 January 2015

Figure 21: Corporate falling angel risk assessment

Source: BNP Paribas EM Credit Strategy

David Spegel, London + 44 207 595 8195 21 January 2015

Figure 21 continued: Corporate falling angel risk assessment

Source: BNP Paribas EM Credit Strategy

David Spegel, London + 44 207 595 8195 21 January 2015

Figure 21 continued: Corporate falling angel risk assessment

Source: BNP Paribas EM Credit Strategy

David Spegel, London + 44 207 595 8195 21 January 2015

Figure 21 continued: Corporate falling angel risk assessment

Source: BNP Paribas EM Credit Strategy

David Spegel, London + 44 207 595 8195 21 January 2015

Figure 21 continued: Corporate falling angel risk assessment

Source: BNP Paribas EM Credit Strategy

David Spegel, London + 44 207 595 8195 21 January 2015

Emerging Markets Strategy Contacts

Jasmine Poh FX & IR Asia Strategy Singapore 65 6210 3418 jasmine.j.poh@asia.bnpparibas.com

Jennifer Kusuma FX & IR Asia Strategy Singapore 65 6210 3263 jennifer.kusuma@asia.bnpparibas.com

Emerging Markets Sector Specialists Contacts

Production and Distribution

David Spegel, London + 44 207 595 8195 21 January 2015

© BNP Paribas (2015). All rights reserved.

David Spegel, London + 44 207 595 8195 21 January 2015

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