German growth figures for the second quarter of this year have indicated a GDP increase of 0.4 percent, doubling the expectations of many economists. It follows the impressive result of 0.7 percent growth in the first quarter of this year, making for a total 1.8 percent GDP increase from 12 months ago.
The positive results in the first quarter were driven by a mild winter, with economists expecting growth to slow to 0.2 percent. A rise in exports and household consumption kept momentum up.
“Both household final consumption expenditure and government final consumption expenditure supported growth”, Germany’s statistical office Destatis noted in a statement. “However, growth was slowed by weak gross capital formation. After a strong first quarter, a decline was recorded, especially in gross fixed capital formation in machinery and equipment, and in construction.”
The figures put a dampener on fears the German economy could be severely hurt by Britain’s decision to leave the European Union
The figures put a dampener on fears the German economy could be severely hurt by Britain’s decision to leave the European Union. The German automotive, pharmaceutical and chemical businesses all export a significant number of products to Britain. Overall, the UK is Germany’s third largest export destination.
But despite the positive results, weak investment in construction and machinery weighed down on the economy. As reported by Reuters, ING Economist Carsten Brzeski said that for the German economy to continue its recovery, the government needs to improve efforts to promote investment.
“Increased uncertainties after the Brexit vote, continued structural weaknesses in many eurozone countries and a renewed global slowdown make an organic pick-up in investment rather unlikely”, he said.
The German Government was recently criticised by the International Monetary Fund for not doing enough for investments that could help growth in the region.
Growth across the eurozone has remained largely flat. New data from the EU statistics office states growth for the second quarter in the region was 0.3 percent, matching estimates.
Climate change and renewable energy are high on the international agenda. The Middle East – the core of the planet’s sunbelt – is already engaging with this energy transformation, diversifying into solar. Helping meet this demand is Qatar Solar Technologies; at its helm, chairman and CEO Dr Khalid K Al Hajri. He talks about the expectations of the solar industry – contributing 26 percent of the world’s energy – and how Qatar Solar Technologies’ partnerships with Centrotherm and Solar World will help the company build 6.5 GW worth of photovoltaic solar facilities.
World Finance: Climate change and renewable energy are high on the international agenda. The Middle East– the core of the planet’s sunbelt– is already engaging with this energy transformation, diversifying into solar. Helping meet this demand is Qatar Solar Technologies. Its Chairman and CEO Dr Khalid K Al Hajri joins me now.
Dr Al Hajri, what is the future of the solar energy industry?
Dr Khalid K Al Hajri: There is a projection that by 2040, 60 percent of the world’s energy needs will be met by renewable sources. 26 percent of that will be from solar.
The price of the solar industry is coming down. In fact, the price today, if you compare it per megawatt used by cars, it’s around $122/MW using solar, and $118/MW with gas. So you can see the gap is coming down.
Last year, 2015, was the first time when investment in renewables and in solar went up, while investment in oil and gas came down. So that’s how solar will help overcome some of these challenges of climate change.
Qatar Solar Technologies will be laying the foundation for the solar industry development across the MENA region.
World Finance: You’ve made significant investments in the photovoltaic businesses Centrotherm and Solar World. How does that position QSTech across the photovoltaic value chain?
Dr Khalid K Al Hajri: One of our visions is to be a globally leading integrated company. Getting involved in Solar World, which is the major producer of panels in Europe and the US; and also Centrotherm, which is a general combined technology provider with 95 percent of the polysilicon marketshare worldwide, and in semiconductors they have 45 percent of the market.
So with the three of us working together on research and development, benefiting from each of ours’ experience, know-how and knowledge: that also will be a huge force through the use of Qatar’s Science and Technology Park, and the Qatar Foundation.
We think this will bring about a lot of improvements in the solar industry across the globe. And mainly we’ll start in the MENA region.
World Finance: You’ve been building your own polysilicon production plant – the first of its kind in the Middle East – tell me about that.
Dr Khalid K Al Hajri: We have 1.2 million square metres. One of our visions is to be a globally integrated leading organisation in the solar industry. And that land will accumulate around 6.5 GW facilities, from polysilicon up to panel production.
We’re adopting a fairly strategic approach. We’re building a polysilicon plant, and by the end of this year it will be producing 8,000 tonnes. That gives you around 1.3 GW.
And what we’re doing there is, we are laying the foundation for solar industry development in the MENA region.
World Finance: So that puts you in a really good position – especially with the recent Paris agreements actually coming into force, to drive forward the solar industry.
Dr Khalid K Al Hajri: Absolutely. Because this is the first time, after COP21 in Paris, that the governments have made a real commitment. And now, whether they resist the future or go along with it: there is no other option. And we will be playing a major part in promoting the government to achieve their goals as set there.
World Finance: So what are they key challenges that are facing solar players?
Dr Khalid K Al Hajri: In the solar industry there are two challenges we have to overcome. One, to bring the price down. Two, the storage. And that will come through research and development, and dealing with Solar World, Centrotherm, Qatar Solar Technologies through Qatar Science and Technology Parks and the Qatar Foundation, that really will make the platform for positive contribution among this consortium for overcoming these challenges. And this is not only for the consortium – we’ll make it available for the rest of the solar industry key players.
Actually, there is another, third challenge. And that’s the fragmentation of the industry. The solar industry so far has been very fragmented. And we need to work on this, to make it one group, to exchange information between all the producers and key players in the solar industry to make it more competitive against other sources of energy.
World Finance: Finally then, what does the future hold for QSTech?
Dr Khalid K Al Hajri: The future – we would like to be a globally integrated company, worldwide. We have already started with our consortium with Solar World and Centrotherm.
Two: we would like to work together for research and development, and working simultaneously as we are building our plant, and building our name globally.
Thirdly, we will support the government in achieving the goal set based on COP21.
World Finance: Dr Al Hajri, thank you very much.
Dr Khalid K Al Hajri: I appreciate it so much, thank you.
Productivity within the US economy has declined for the third quarter in a row. New data released by the US Bureau of Labour Statistics (BLS) has shown that in the second quarter of 2016, productivity fell by 0.5 percent. While US economic output increased by 1.2 percent in Q2 of 2016, the number of hours worked in the US economy grew by 1.8 percent.
The three-quarter-long streak in declining productivity is the longest since 1979. Overall, productivity is down by 0.4 percent from the previous year, meaning that the US has also seen its first year-over-year productivity decline since 2013.
As the BLS noted: “From the second quarter of 2015 to the second quarter of 2016, productivity decreased 0.4 percent, the first four-quarter decline in the series since a 0.6-percent decrease in the second quarter of 2013.”
While the US has seen strong employment gains, the latest figures on declining productivity raise questions over the likeliness of a Federal Reserve rate hike
The figures also represent a long-term decline in US productivity, with the BLS also noting that “the average annual rate of productivity growth from 2007 to 2015” stood at “1.2 percent to 1.3 percent per year”. This “remains well below the long-term rate from 1947 to 2015 of 2.2 percent per year”.
Productivity is a key component of wage growth and rising living standards. Supposed sluggish wage growth continues to be a major source of contention in the US – and this declining productivity is likely to further fuel this trend (although wages have edged up slightly, of late).
While the US has seen strong employment gains, the latest figures on declining productivity raise questions over the likeliness of a Federal Reserve rate hike anytime soon.
In a report published on August 9, the Institute of Fiscal Studies (IFS), a British think tank, revealed new estimates showing that Brexit could cost the UK £39bn ($51bn). While this figure, which would entail two further years austerity, is the worst-case scenario presented by the group, the best case is that £31bn ($40bn) will be needed to restore the UK’s £10.4bn ($13.6bn) surplus, with 1.4 more years of austerity instead.
Based on the projections given by the National Institute of Economic and Social Research in March, the IFS estimates that the UK will attain a budget deficit of between £13bn ($17bn) and £28bn ($36.6bn) in 2019 to 2020 as a result of Brexit.
The think tank argues that the biggest damage from the UK’s decision to leave the EU will arise from its withdrawal from the union’s trade agreements. As such, the IFS expects that a World Trade Organisation-type alternative “would give the UK the least favourable access to the single market and would therefore reduce national income by the most”, according to the report. A trade agreement akin to those that the European Free Trade Association and the European Economic Area (EEA) have in place with other countries, however, would soften the blow.
The think tank argues that the biggest damage from the UK’s decision to leave the EU will arise from its withdrawal from the union’s trade agreements
According to the HM Revenue and Customs, over 45 percent of the UK’s total exports go the EU, meaning that the country could face significant increases in costs to many of its major industries, including legal and financial services.
In light of the situation facing the British economy, the IFS advises that Philip Hammond, the country’s new Chancellor, implements further spending cuts and tax increases, in addition to those already planned in the coming years. Ultimately, the institution argues that the state must try to deliver a surplus of £10.4bn ($13.6bn) in 2019 to 2020.
While Brexiteers continue to argue that the impact of the UK’s departure from the EU will not be as big as those in the Leave campaign argued, a precarious situation in terms of trade agreements cannot be ignored. For example, on August 9 the Norwegian European Affairs Minister, Elizabeth Vik Aspaker, was reported as saying that Norway would block the UK’s attempt to join the single market, arguing that a country cannot just choose some of the freedoms on which the EEA is based. She added that the UK’s admission into the EEA is “not necessarily in Norway’s interests”.
The UK’s negotiation of trade agreements is pivotal to its budget deficit in the coming years. Nonetheless, no agreement with the country’s biggest recipient of exports can be as favourable as that currently in place with the EU. As suggested by the IFS, something has to give to cushion the subsequent fall, and it may just be an increase in taxes and a reduction in state expenditure – both of which will directly impact the British population, which is probably not what the majority had in mind when they voted Leave.
Speaking at the Detroit Economic Club, Republican Presidential nominee Donald Trump unveiled his economic vision for the US on Monday. The nearly hour-long speech included a number of traditional Republican economic policies, such as promising lower taxes and regulations on businesses, as well as his own core policies, such as opposing free trade deals.
Chiefly, Trump proposed reducing the number of income tax brackets in the US from seven to three. This new plan, he told the audience in Detroit, will “dramatically streamline the process”. To achieve this, he said that he will “work with House Republicans on this plan, using the same brackets they have proposed: 12, 25 and 33 percent”.
Trump proposed reducing the number of income tax brackets in the US from
seven to three
These new tax brackets are slight reverse on Trump’s previous tax proposals: while Trump had previously proposed reducing tax brackets from seven to three, his earlier proposal was for the top tax bracket to be capped at 25 percent, down from the present 39.6 percent for those earning over $413,000. His latest proposal brings the top band closer to the present figure, at 33 percent for the highest bracket of earners. “These reforms will offer the biggest tax revolution since the Reagan Tax Reform”, he claimed.
Trump also attempted to poach voters from his rival Hillary Clinton, promising future big spending on infrastructure projects. “We will build the next generation of roads, bridges, railways, tunnels, sea ports and airports that our country deserves”, he promised. “American cars will travel the roads, American planes will connect our cities, and American ships will patrol the seas.”
It is increasingly accepted that the US needs a major programme to renew its aged and creaking infrastructure – and Democratic voters are among the most supportive of such a plan.
The negative impact of globalisation and trade was also key on Trump’s agenda, with the candidate blaming NAFTA for both the loss of jobs in America and the decline of the city in which he was speaking – Detroit.
He claimed that his presidential rival would support further free trade policies such as the Trans-Pacific Partnership (TPP), which would only further hurt US manufacturing and jobs. This claim came in spite of the fact that Clinton is officially opposed to the TPP, owing to the general anti-trade sentiment that has characterised the 2016 presidential race.
American financial services group TIAA has entered into a definitive agreement to acquire Florida-based EverBank in a bid to strengthen its banking credentials. The deal builds on the group’s decision four years ago to branch out into banking services, and, according to CEO Roger Ferguson, puts the project 10 years ahead of where it would’ve been if allowed to grow organically.
The transaction is slated for completion mid-2017, by which time the two will be well into a “new chapter”, with different ownership but with the same commitment to employees, customers and communities, according to sources at EverBank.
“EverBank’s complementary capabilities and two decades of profitability make this an excellent investment and a great strategic fit for TIAA”, according to Ferguson. “Together, we look forward to bringing an enhanced level of service and an expanded range of financial solutions to our millions of loyal customers and the institutions we serve.”
The deal builds on TIAA’s decision four years ago to branch out into banking services
Again according to Ferguson, EverBank’s strength in digital and mortgage business is one of the reasons why TIAA is interested. Having managed retirement assets for employees of universities and non-profits for decades, its banking services are open to the general public and represent a significant departure from its core business.
Rob Clements, Chairman and CEO of EverBank, said: “Our two companies are a great match. We look forward to introducing our unique consumer and commercial banking products to the millions of individuals and the institutions that TIAA serves today, while enhancing the investment and retirement product offerings for our clients.”
The acquisition gives TIAA $27.4bn in assets and another $18.8bn in deposits, while greatly enhancing the group’s online and mobile banking services, two areas for which EverBank is widely admired. At $19.50 per share, TIAA is paying a 43 percent premium to the bank’s book value, although sources there will be hoping to make up the difference in cost savings and value-added products and services.
The US’ latest jobs report shows that the country’s labour market is once again picking up steam. According to the report by the Department of Labor, non-farm payroll employment grew by 255,000 in July, beating expectations.
While June had seen 292,000 jobs added to the US economy, the prior month of May had seen particularly dismal results, with only 24,000 jobs added. The latest figures suggest that May’s disappointing results were a blip.
The strong expansion in employment also eases fears over a potential slowdown in the US economy and increased likelihood of rate hike by the Federal Reserve later in the year.
The strong expansion in employment also eases fears over a potential slowdown in the US economy
The report noted that the much of the jobs gains came in professional and business services, as well as the healthcare and financial sectors. Employment in the country’s energy sectors – including oil, gas and coal – continued to decline, as low prices continued to squeeze the sector. Manufacturing saw a modest expansion, contributing 9,000 new jobs.
The report also showed relatively strong gains for wage growth. Average hourly earnings for all private sector employees increased by eight cents in July, to $25.69, and by seven cents for private sector production and nonsupervisory workers in the same period, to $21.59. Over the past year, nominal hourly earnings for private sector workers increased by 2.6 percent, outpacing the one percent consumer price rate.
Labour force participation also strengthened slightly, by a tenth of a percentage, to 62.8 percent. Demographic pressures will continue to push down upon the labour force participation rate as more baby boomers reach retirement age, but the slight increase suggests that those in prime working age are now gradually re-joining the workforce.
For more on US labour force participation rates, look out for the special report on the topic in the next issue of World Finance.
The Bank of England has cut interest rates for the first time since 2009. On Thursday August 4, the central bank’s Monetary Policy Committee decided to cut the main lending rate from 0.5 percent to 0.25 percent.
The decision to bring rates down to historic lows was widely anticipated due to the slowdown of the UK’s economy following the UK electorate vote to leave the European Union.
The Bank of England stated: “Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly.”
The decision to bring rates down to historic lows was widely anticipated due to
the slowdown of the
UK’s economy
While the first half of 2016 saw relatively strong growth, this is expected to fall in the second half. As the bank noted: “Recent surveys of business activity, confidence and optimism suggest that the United Kingdom is likely to see little growth in GDP in the second half of this year.”
The bank, however, noted that with interest rates already at a historic low, the ability of monetary policy to spur on economic activity was limited. “As interest rates are close to zero”, the bank said, “it is likely to be difficult for some banks and building societies to reduce deposit rates much further, which in turn might limit their ability to cut their lending rates”.
In order to mitigate this, the Bank of England announced it would be launching a Term Funding Scheme. This is designed to “provide funding for banks at interest rates close to Bank Rate” and therefore “help reinforce the transmission of the reduction in Bank Rate to the real economy to ensure that households and firms benefit from the MPC’s actions”.
Emvelo’s Ilanga CSP 1 project is the first 100MW concentrated solar power (CSP) project with five hours of thermal storage in South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPP) to be developed and led by a local firm. Located at the 1.4GW Emvelo Karoshoek Solar Valley Park, the independent power producer project reached financial close in February 2015.
To date, Emvelo has contributed 550MW of CSP projects to the REIPPP. Ilanga CSP 1’s lenders are Nedbank, Standard Bank, Investec, Absa Bank, Industrial Development Corporation, Development Bank of Southern Africa, Public Investment Corporation, and Vantage. Norton Rose Fulbright is acting as the legal advisor for the project’s sponsors, while Baker & McKenzie will be acting for the lenders. Fieldstone Africa and Arista were the project’s financial advisors.
Airport Deal of the Year
Istanbul New Airport
Cengiz-Limak-Kolin-Mapa-Kalyon
The Istanbul New Airport project is one of the largest public-private-partnership-modelled airport projects in the world, both by capacity and by project cost.
The joint venture consortium of Cengiz-Limak-Kolin-Mapa-Kalyon Joint Venture Group won a 25-year lease agreement with its bid of more than €22bn, representing the largest project finance deal in the history of Turkey.
The airport will be situated on 77 million sq metres of land, and the main terminal area will cover approximately 1.2 million sq m of space upon completion in 2030, making it the largest terminal in the world to date. With six runways and a final annual capacity of 150 million passengers, the project will be the greatest contributor to Istanbul’s global hub vision, with the majority of the airport’s traffic comprising of transfer and stopover passengers.
Greenfield Deal of the Year
Seabras-1
Seaborn Networks
Seaborn Networks is the developer, operator and co-owner of Seabras-1. The firm provides critical infrastructure for South America’s global communications requirements.
Seabras-1 is the first direct sub-sea fibre-optic cable route between the US and Brazil, and was the first sub-sea network project to be backed and financed by an export credit agency (ECA).
The project offers high-capacity and low-latency telecommunications between the business centres of New York and Sao Paulo. Of Seabras-1’s $500m financing package, $267m of credit facilities were underwritten by Natixis – the majority of which has been backed by COFACE, the French ECA – while the project’s facilities have been syndicated to Commerzbank, Santander and Intesa Sanpaolo, in addition to Natixis.
Sponsor of the Year
Acıbadem
Acibadem Syndication
Acıbadem Saglık Hizmetleri ve Ticaret As (Acıbadem) is a world-leading Turkish healthcare institution, operating across 21 hospitals and 18 outpatient centres. Acıbadem has a wide geographical coverage, operating in 12 cities across Turkey, Macedonia and Bulgaria.
Acıbadem is part of IHH Healthcare Berhad, the second largest private healthcare network in the world, and is pleased to announce the successful completion of its syndication loan facility, which was executed in June 2015. Having initially launched the facility at a cost of $450m, Acıbadem elected to increase the size of the facility to the equivalent of $500m. During syndication, Turkiye Garanti Bankasi, BNP Paribas Fortis and ING committed as mandated lead arrangers, while HSBC, Intesa Sanpaolo Istanbul and Sumitomo Mitsui Banking Corporation Europe committed as lead arrangers. Lastly, Bank of America Merrill Lynch acted as the project’s initial mandated lead arranger, sole bookrunner and facility agent.
Wind Deal of the Year
Borusan Wind Bundle
Borusan EnBW Energy
As part of the single largest financing deal in the Turkish wind-energy power-plant industry, four independent projects and companies have been merged into one special purpose equity. This move allowed them to benefit from economies of scale during the investment by combining the cash flows and securities.
Merchant risk, forex and interest risk have been properly addressed through the implementation of flexible mechanisms, which led to further cost-saving opportunities during project execution. This funding structure could set a benchmark for the sector and for Borusan EnBW, an investment company with strong parents and ambitious growth targets. Throughout this project, ECAs covered $211m in buyer’s credit with a 16-year repayment plan.
Oil & Gas Deal of the Year
Cidade de Saquarema FPSO
SBM Offshore
The pre-salt oil reservoirs in Brazil are among the world’s largest recent discoveries. SBM Offshore, a leading global provider of floating production storage and offloading units, is an important contributor to the success of the Cidade de Saquarema FPSO project, as it will produce around 40 percent of the pre-salt production on behalf of Petrobras upon the completion of the project.
SBM Offshore, along with sponsors Mitsubishi Corporation, NYK and QGOG Constellation, closed a record $1.55bn project financing to fund the construction of the venture in July 2015. The financing was coordinated by ING Bank and includes significant support from the ECAs of Italy, Japan, the Netherlands and the UK.
Project Bond Deal of the Year
Red Dorsal
Azteca Comunicaciones Peru
The Peruvian Ministry of Transport and Communications’ Red Dorsal project – otherwise known as the National Optical Fibre Backbone Network – aims to meet the demand for broadband and fibre optic services throughout Peru. Project financing was accomplished through the Section 4(a)2 securitisation of irrevocable and unconditional payment obligations of the Government of Peru.
The bond is the first of its kind in Peru to have a delayed draw funding structure in US dollars. The delayed payment structure strongly reduces the negative carry for the concessionaire, while the bond structure mitigates construction, completion and operating risks for the investors. The bond was placed with large institutional investors in Peru and the US.
MLA of the Year
Project Duqm
Bank Muscat
Bank Muscat is the mandated lead arranger of Project Duqm. This deal involved providing $117.8m in greenfield project financing, which equated to 60 percent of the $196m cost of the permanent accommodation for contractors (PAC) project. The deal is structured on a limited recourse basis, with completion support for cost overruns being provided by the main sponsor, Renaissance.
This PAC will be the largest such project in Oman and will provide a full suite of accommodation, recreation and catering facilities to more than 16,000 people in the Duqm Special Economic Zone (DSEZ). The project achieved one of the longest innings for a project finance transaction in Oman, especially in the newly
developed DSEZ.
China’s service sector suffered from slowing growth in July. According to the latest figures released by the Caixin PMI for China, the world’s second largest economy saw its service sector decline to 51.7 in July, down from its peak of 52.7 in the month prior.
At 51.7, China’s service sector is still expanding – anything over 50 is an expansion in the PMI gauge – but the new figure nonetheless represents a marked slowdown.
The cooling of China’s service sector expansion is perhaps a worrying sign for the country’s authorities. Since the beginning of China’s gradual economic slowdown, much of the focus of state policy has been on developing China’s service sector and creating a growing domestic market. This was intended to allow the country’s economy to start moving away from its export-led manufacturing and heavy state-led investment model.
The cooling of China’s service sector expansion is perhaps a worrying sign for the country’s authorities
China, however, does not seem to be moving in the desired direction. China’s manufacturing sector actually saw a rather strong showing, with the Caixin July manufacturing survey recording a better-than-expected expansion. At the same time, the Caixin’s composite PMI – combining both manufacturing and services sectors – rose to 51.9, a figure not seen in China since 2014.
However, some concern has been raised over the cooling of the both the construction and property services sector, as noted in the index. This has raised fears that China’s long-awaited property crash is on the horizon. However, determining whether China is facing am inflated or bursting property bubble is inherently difficult.
Angola’s state energy group, Sonangol, has backed out of a $1.8bn deal with Cobalt International Energy. The two companies reached a sale agreement a year ago, however Sonangol’s newly appointed boss, Isabel dos Santos, has now written to Cobalt to recommend that it sell elsewhere.
Cobalt’s Chief Executive Officer, Tim Cutt, has recently engaged in talks with dos Santos and members of her executive team in Angola to discuss the status of the sale of Angola Blocks 20 and 21. The two agreed that Cobalt would market Cobalt’s 40 percent working interest in Blocks 20 and 21 to sell the assets to a third party. Dos Santos confirmed Sonangol would support such marketing and sales.
Cutt said in a press release: “Although we would prefer the transaction with Sonangol to close, I am pleased that we can remarket these attractive liquid rich assets to third parties. The development cost environment has improved substantially, the fundamentals for medium to long-term liquids pricing remains strong and have delivered two new discovers on Block 20.”
Cutt has announced he will invite other potential buyers to a data room this week in order to reach a new deal by the end of the year.
The independent oil producer’s staggering net loss comes as no shock to the oil industry, following a crisis that has plagued the global
oil markets over the past
two years
A difficult year Cobalt, which had hoped the deal would be the final act of its eventful transition in Africa’s second-biggest oil producing country, has also announced a net loss from continuing operations of $200.4m, equating to $0.49 per basic share for the second quarter of 2016.
The oil exploration company’s net loss has quadrupled over the past year, compared to a net loss from continuing operations of $53.5m – or $0.13 per basic and diluted share – for the second quarter of 2015.
The loss has also been attributed to the write off associated with the Goodfellow exploration well, totaling an estimated $149.9m. Capital and operating expenditures from continuing operations for the quarter ending June were approximately $154m.
Nevertheless, Cobalt, which is active in the deepwater US Gulf of Mexico and offshore West Africa, updated its full year guidance for capital expenditures to approximately $500-550m in 2016, with total cash uses for 2016 of $650-700m. The company also expects to spend an estimated $138m on a bet basis for operations in Angola.
The independent oil producer’s staggering net loss comes as no shock to the oil industry, following a crisis that has plagued the global oil markets over the past two years. However, as reported by The Wall Street Journal, oil watchdog IEA believes the market is likely to balance out and oversupply by 800,000 barrels a day due to increasing demand in Asia.
Cobalt still has reason to remain optimistic, despite its second quarter 2016 results and the collapse of its deal with Sonangol, as the ever-changing situation in the oil market could mean its report this time next year is a different story.
Japan’s much-awaited new stimulus plan has been approved by the country’s cabinet. The JPY 28trn package is Prime Minster Shinzō Abe’s attempt to revive Japan’s beleaguered economy. The world’s third largest economy, Japan has been suffering from slow demand and a strong yen depressing exports.
However, when broken down, the large headline figure amounts to much less in actual spending: of the JPY 28trn, only JPY 6.2trn is new government spending, and JPY 4.6trn will be spent this year, accounting for less than one percent of GDP.
The spending aims to address a number of areas of Japan’s economy, including JPY 6.2trn dedicated to new infrastructure projects, such as improving port facilities and speeding up the creation of a new high-speed maglev train line between Tokyo and Osaka.
The spending aims to address a number of areas of Japan’s economy, including JPY 6.2trn dedicated to new infrastructure projects
As Japan struggles with an ageing population, JPY 3.4trn will also go towards programmes to assist any negative outcomes of this growing demographic change, while JPY 1.3trn will go towards helping smaller businesses, more challenged regional economies and any emerging risks associated with Brexit.
Cash handouts will also be attempted as a form of stimulus, with up to 22 million low-income Japanese citizens receiving JPY 15,000 from the government.
The huge fiscal stimulus package comes after repeated failed attempts to boost Japan’s economy through monetary policy, with the Bank of Japan embracing negative interest rates. However, while the stimulus package is the largest pursued by the Japanese Government since the financial crisis, its results are expected to be relatively modest: according to Koya Miyamae, Economist at SMBC Nikko Securities, it is expected to boost growth by just 0.4 percent, as reported by the Wall Street Journal.
China and Europe trade well over €1bn every day, according to EC statistics. Haitong Bank – the product of the acquisition of Portugal’s BESI by China’s Haitong Securities – offers Europe and China a platform for even greater trade and investment. The bank’s CEO, José Maria Ricciardi, explains why it has launched a New China Index, to track the transformation of China’s economy from one dependent on manufacturing and heavy industry, to a more service-driven, technological one. He also highlights the key sectors that China is investing in overseas, including €21bn into Europe last year. And he suggests that the potential for Chinese capital renewing Europe’s ageing infrastructure could be enormous.
World Finance: China and Europe trade well over €1bn every day, according to EC statistics. Haitong Bank – the product of the acquisition of Portugal’s BESI by China’s Haitong Securities, offers Europe and China a platform for even greater trade and investment. The bank’s CEO, José Maria Ricciardi, joins me now.
José let’s start with the toughest question: trust. Because there is this long-standing, historical mistrust of China because of government intervention, issues with intellectual property rights. So how would you describe Europe’s relationship with China today?
José Maria Ricciardi: In the past we could understand that. But China has made an enormous effort to become a much better regulated economy, and is making an enormous fight against corruption.
Lack of transparency, a certain opacity: this is no more the reality.
World Finance: Haitong has created the New China Index; tell me about this, why have you created it and what does it track?
José Maria Ricciardi: It’s a very good indicator for western investors, to see exactly the sectors and the activities where they can invest in China.
The Chinese economy is changing from this traditional, heavy, manufacturing industry with pollution; for a service, technological economy. And this New China Index looks to reflect the new reality of the Chinese economy: namely, consumer spending, travel volumes, online and mobile usage, shadow banking. All these new realities that in China are becoming more and more important in their economy, and are sustaining a certain level of growth
Giving you an example: in 2015, the country that was most important in luxury consuming goods was China. And this shows that the main brands of the western world have understood this change in the behaviour of the Chinese consumers, and they’ve invested in a very considerable way in their economy.
So, we really think and believe that this index is going to be an enormous opportunity for all investors to see how the growth is going to go on such an important economy in a very, very fast pace.
World Finance: And money is moving the other way as well; China is investing all over the world. Last year it invested €21bn into Europe. What kinds of sectors is China exploring?
José Maria Ricciardi: They are exploring many sectors that are related to technology issues. Also in the food sector, because for them it’s very important to enhance their food production.
They are also investing in the financial sector. For them it’s very important because a presence in the financial sector in the western world assists the investments of their companies in the western world.
Fintech is going to be very important for them. It’s such a big population, so everything related to this new online, new electronic world of finance.
World Finance: And how does Haitong Bank fit into this, as a platform of trade between the two regions?
José Maria Ricciardi: Haitong Group is the second largest investment bank in China, and it’s the leading investment bank in Hong Kong, and has a growing presence in what we normally call southeast Asia; so in Singapore, Tokyo and other places.
But it wants to become a global bank. To assist and to advise its clients. And so for Haitong Bank, this is a huge opportunity to be of the first movers, one of the players in this movement. Not only, if I may say, in the M&A traditional activities, but also in capital markets, from DCM to ECM activities. And even later on, for FICC and cash equity activities. In Europe, and also in the US, and also as I said in certain very important emerging markets. But also the other way around; our western clients.
World Finance: Finally, what advice would you give to European investors looking to explore China, and vice versa?
José Maria Ricciardi: Europe is the most important trading partner of China. They have established a strategy that says ‘One Belt, One Road.’ They want to become closer to Europe. Europe lacks capital. Europe lacks long-term finance for infrastructure investments.
If we are clever with the way we deal with China, if we overcome our cultural differences in a pragmatic way; for Europe, this is going to be very important.
And I hope that Haitong Bank will also be a part of this new, enormous cross-border flow of deals between the main economy in the east, and the most important economic block of the world; which is the European one.
On July 29, the European Banking Authority (EBA) published the results of its EU-wide stress test. Of the 51 banks tested in a crisis scenario, only the Italian bank Monet dei Paschi di Siena was likely to have all its capital buffers wiped out after three years. However, many other European banks showed greater weakness than hoped.
UK banks suffered some of the greatest shocks in the stress test’s crisis scenario. Both RBS and Barclays – two of the UK’s largest financial institutions – found themselves at the bottom of the test’s rankings for capital strength. Under the scenario set out by the stress test, RBS saw its common equity Tier 1 ratio drop from 15.5 percent to roughly eight percent, the third worst drop among banks tested.
Both RBS and Barclays – two of the UK’s largest financial institutions – found themselves at the bottom of the test’s rankings for
capital strength
Ireland’s banks also had a poor showing: Allied Irish Banks had the second poorest results of all banks tested. German banks also came under pressure, with a total of four banks featuring on the list of the 10 worst affected banks under the stress test crisis scenario. However, Deutsche Bank – which has been a source of growing concern within the continent’s financial system – saw better results than expected, just missing the list of the top 10 worst performers.
Italy’s fraught banking sector produced the worst results, with the beleaguered Monet dei Paschi di Siena shown to have all its capital buffers wiped out in the three-year stress scenario. Under the scenario of the stress test, it was calculated that the bank’s common equity Tier 1 ratio would fall into the negative, reaching -2.44 percent. Banco Popolare and UniCredit were also shown to be less able to the deal with the stress test than the other bank’s tested.
