Emerging Markets Daily - December 9

Brazil's Nubank Valued at $41B+ in NY Listing, Evergrande Declared in Default, US Tightens Iran Sanctions, East African Economies, Lego to Build Toys in Vietnam

The Top 5 Stories Shaping Emerging Markets from Global Media - December 9

Brazil’s Nubank Starts Trading in NY at $41 Billion+ Valuation

Financial Times

“Nubank, the Brazilian financial technology company backed by Warren Buffett and Tencent, has hit a valuation above $40bn in its New York initial public offering.”

“Shares in the lossmaking digital lender will start trading on Thursday after it raised $2.6bn with the sale of a minority stake. The transaction ranks as the fifth-largest US stock market flotation of 2021, according to Dealogic.”

“David Vélez, founder and chief executive, said the proceeds would help fuel growth in its newest markets of Mexico and Colombia as it seeks to become a pan-Latin American lender. ‘There is a lot of opportunity to build the next generation of financial services, so we will continue to invest and grow for a very long time,’ he told the Financial Times.”

“Nubank’s initial market capitalisation of $41.5bn will be higher than Brazil’s biggest traditional bank, Itaú Unibanco, making the start-up founded in 2013 the continent’s most valuable listed financial institution.”

“The debut on public equity markets by Nu Holdings, the Cayman Islands controlling entity behind the share issuance, represents another significant milestone for the region’s booming start-up scene.”

“Japanese technology conglomerate SoftBank was among the new backers that invested in the float. Initially offering credit cards with no annual fees, the São Paulo-based group has amassed more than 48m users of its mobile app-based services.” The FT reports.

Evergrande, World’s Most Indebted Property Developer, Declared in Default

Bloomberg

“China Evergrande Group has officially been labeled a defaulter for the first time, the latest milestone in months-long financial drama that’s likely to culminate in a massive restructuring of the world’s most indebted developer.”

“Fitch Ratings cut Evergrande to ‘restricted default’ over its failure to make two coupon payments by the end of a grace period on Monday, a move that may trigger cross defaults on the developer’s $19.2 billion of dollar debt.” 

“The downgrade came just minutes after Fitch applied the same default label to Kaisa Group Holdings Ltd., which failed to repay a $400 million dollar bond that matured Tuesday. Together, the two companies account for about 15% of outstanding dollar bonds sold by Chinese developers.”

“Long considered by many investors as too big to fail, Evergrande has now become the largest casualty of Chinese President Xi Jinping’s campaign to tame the country’s overindebted conglomerates and overheated property market. Before this week, Chinese borrowers had defaulted on $10.2 billion of offshore bonds in 2021, with real estate firms making up 36% of the total, according to data compiled by Bloomberg.” Bloomberg reports.

US Moves to Tighten Sanctions Enforcement on Iran as Nuke Talks Sputter - UAE Firms Face Scrutiny

Wall Street Journal

“The Biden administration is moving to tighten enforcement of sanctions against Iran, according to senior U.S. officials, the first sign of Washington increasing economic pressure on Tehran as diplomatic efforts to restore the 2015 nuclear deal falter.”

“According to senior State and Treasury Department officials, the U.S. will send a top-level delegation, including the head of Treasury’s Office of Foreign Assets Control, Andrea Gacki, next week to the United Arab Emirates. The U.A.E. is a top U.S. ally but also Iran’s second-largest trade partner and a conduit for Iran’s trade and financial transactions with other countries.”

“The U.S. officials will meet with petrochemicals companies and other private firms and banks in the U.A.E. doing billions of dollars of trade with Iran. They will warn that the U.S. has ‘visibility on transactions that are not compliant with sanctions,’ one of the senior officials said. ‘Those banks and firms face extreme risk if this continues.’”

“The visit could be followed by sanctions against Emirati and other firms, the officials said. The U.S. move comes as the prospects of restoring the 2015 nuclear deal appear increasingly gloomy. Negotiations to revive the agreement continue in Vienna on Thursday among Iran, Russia, China, Britain, France and Germany, although the U.S. delegation will only travel to Vienna at the weekend. Iran refuses to negotiate directly with the U.S.”

“After a five-month hiatus imposed by Iran’s new hard-line government, talks resumed last week but stalled, with U.S. and European officials accusing Iran of walking back compromises agreed with Iran’s previous government in the spring.”

“U.S. officials say if there is no progress in the nuclear talks, the delegation to the U.A.E. could be the first of several visits to other countries to tighten the economic pressure on Iran by squeezing its ability to evade the U.S. sanctions imposed by the Trump administration.” Laurence Norman reports.

East African Economies Fastest Growing in the Continent

The East African

“East African economies remained resilient, growing by 2.3 percent and keeping the region on its trajectory as the fastest-growing in Africa in 2020, says a report by Ernst & Young. The report, ‘Reset for Growth: Fast Forward EY Attractiveness Report Africa November 2021’ indicates that across the continent, East Africa was most robust, with Tanzania and Ethiopia growing the fastest in 2020.”

“Southern Africa was affected negatively, with South Africa registering the highest number of Covid-19 cases in 2020, pushing the economy into deep recession.”

“In the latest outlook, although gross domestic product growth in Ethiopia and Tanzania slowed in 2020, it remained in positive territory while the general East Africa GDP is expected to pick up in 2021.”

“Kenya’s growth is expected to rebound to five percent, supported by its Economic Recovery Strategy and a strong recovery in the services sector. The country is also eyeing a free trade deal with the US.”

“The EY survey indicated that a new stable government in Tanzania and rebound in manufacturing will drive growth in 2021 to 4.5 percent while Ethiopia’s growth is projected to decline to 2.2 percent as it struggles with high unemployment and political unrest in Tigray.” Anthony Kitimo reports.

Lego to Build $1 Billion Toy Plant in Vietnam

VN Express Business News

“Danish toy company Lego Group will build a $1-billion plant in the southern province of Binh Duong in the second half of next year. It signed a memorandum of understanding Wednesday with the Vietnam-Singapore Industrial Park Joint Venture Company to build the plant, its sixth globally and first carbon-neutral one.”

“The project will be its second Asian factory after it opened one in China in 2016. Lego has achieved double-digit growth in the region since 2019. Demand is now on track to outstrip supply from its Chinese plant in the mid to long term, Lego's Chief Operations Officer Carsten Rasmussen told Reuters.”

"‘Growth in China and Asia is fantastic and we can see that over time that we will need more capacity,’ he said, pointing to a growing middle class and high number of births in the region compared to more mature European and North American markets.”

“The move is the latest in Lego's decade-old strategy of placing production close to key markets, which has helped rein in costs and shield it from external factors. ‘It gives us shorter delivery time to our customers and make us able to react quickly on demand but it of course also makes us more resilient,’ Rasmussen said. The plant is scheduled to become open in 2024 and hire some 4,000 people. Lego’s products are sold in over 130 markets.” VN Express Business News reports.

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