Author: Helen

US housing market picks up

Posted on by Helen

The US housing market appears to be picking up, according to the latest data released by the National Association of Home Builders (NAHB). In August, builder confidence in the market for the construction of single-family homes rose by two index points. Its score is now 60, as measured by the organisation’s Housing Market Index (HMI), released in collaboration with Wells Fargo.

“Builder confidence remains solid in the aftermath of weak GDP reports that were offset by positive job growth in July”, NAHB’s Chief Economist Robert Dietz noted. “Historically low mortgage rates, increased household formations and a firming labour market will help keep housing on an upward path during the rest of the year.”

In August, builder confidence in the market for the construction of single-family homes rose by two index points

The HMI is based on a survey in which market actors are asked to give their assessment of the general economic outlook of the US and housing market conditions, including present sales figures of new homes, expected future new home sales, and the level of interest from prospective buyers. Any reading over 50 is an indication of optimism.

August saw gains in the first two components in particular, with current sales rising by two points to 65, and expected sales rising by one point to 67. However, buyer traffic weakened by one point to 44.

Regionally, results also diverged. The south of the US saw gains on an already strong reading, up by two points to 63, while the west went unchanged, sitting at 69. The midwest and northeast were comparatively weaker, with the northeast gaining one point to the low figure of 41, while the midwest dropped two points to 55.

As has been the case for a number of years, the northeast and midwest are increasingly seeing people migrate to many southern and western states – occasionally termed ‘the sunbelt’ – lured by better job prospects. Of the 11 fastest-growing American cities with populations over 50,000 in 2016, all are located in southern or western states, with nearly half located in Texas alone.

BHP Billiton reports record loss of $6.4bn

Posted on by Helen

After a catastrophic year, BHP Billiton has posted a record annual loss of $6.4bn. It is the first annual loss the company has recorded since BHP and Billiton merged in 2001. After stripping away one-off costs, the miner reported underlying earnings of $1.22bn.

The global slump in commodity prices and the cost of the Samarco mine tragedy have both weighed heavily on BHP’s results this year.

The full impact and extent of the Samarco mining disaster is yet to become clear. The 2015 collapse of the Brazilian dam jointly maintained by BHP and Vale left at least 19 people dead, 700 homeless and polluted more than 400 miles of river. It is the worst manmade disaster to have occurred in Brazil’s history.

The global slump in commodity prices and the cost of the Samarco mine tragedy have both weighed heavily on BHP’s results this year

In a statement, BHP said the results of an external investigation into the disaster would be published in the coming weeks. The mining company has already approved a $1.3bn provision after the disaster, but the BBC reports it is still facing a $48bn compensation lawsuit that is likely to drag on for years.

However, the biggest impact to the Anglo-Australian miner’s profits came from the worldwide slump in commodity prices. It is a situation affecting the entire mining industry, thanks to slowing growth in China hurting international demand.

“While commodity prices are expected to remain low and volatile in the short-to-medium term, we are confident in the long-term outlook for our commodities, particularly oil and copper”, said BHP Billiton’s Chief Executive Andrew Mackenzie in a statement.

The company has also cut its payout to shareholders, paying a final dividend of 14 cents per share for an annual dividend of 30 cents, down 75 percent on the previous year. Earlier this year it ended it progressive dividend policy, where shareholders received gradually higher payouts.

PwC sued for $5.5bn over bank collapse

Posted on by Helen

Accountancy firm PricewaterhouseCoopers (PwC) has been taken to court in Florida for failing to spot a billion-dollar scam that contributed to the collapse of the Taylor Bean & Whitaker Mortgage Corporation and the lender’s parent company, Colonial Bank. The case is the largest accounting negligence lawsuit to ever go to trial.

Between 2002 and 2009, executives for Taylor Bean & Whitaker crafted loan documents for a number of mortgages that either did not exist or had been pledged to other investors. By 2007, Colonial reportedly held $1.5bn in non-existent loans, which contributed to the bank’s 2009 collapse – the sixth-largest US bank failure in history.

Taylor Bean & Whitaker was the largest customer of Colonial’s mortgage lending division. Executives at the firm were jailed after the fraud was exposed, including former chairman Lee Farkas.

By 2007, Colonial reportedly held $1.5bn in non-existent loans, which contributed to the bank’s 2009 collapse – the sixth-largest US bank failure in history

At debate are PwC’s clean audits of Colonial Bank’s documents between 2002 and 2008. Lawyers on behalf of trustees for the Taylor Bean & Whitaker Mortgage Corporation are claiming PwC was negligent in its audits and missed the significant cases of fraud.

If PwC had identified the scam earlier, they claim, it could have saved the bank from collapse. Taylor Bean & Whitaker’s trustees are seeking $5.5bn in damages.

“Year after year, Pricewaterhouse didn’t do their job, they didn’t follow the rules and they failed to detect the fraud”, said an attorney for the trustee Steven Thomas in the opening statements of the trial.

The case raises the question of whether a financial auditor is responsible for identifying fraud. In a 2007 interview with The Wall Street Journal, PwC’s Global Chairman, Dennis Nally, said the audit profession has always had a responsibility for the detection of fraud. Nally retired in June this year.

Beth Tanis, a lawyer for PwC, said in a statement to the Financial Times: “As the professional audit standards make clear, even a properly designed and executed audit may not detect fraud, especially in instances when there is collusion, fabrication of documents, and the override of controls, as there was at Colonial Bank.”

Japan experiences slower growth than expected in second quarter

Posted on by Helen

New preliminary data released on August 15 revealed that Japan’s economy grew much less than expected in the second quarter. Instead of an annualised growth rate of 0.7 percent, as predicted by economists earlier in the year, only 0.2 percent was actually achieved. There is now far greater pressure on the Japanese Government and Prime Minister Shinzō Abe to create sustainable long-term growth.

As indicated by the newly released figures, the country’s sluggish growth can be attributed to slow private consumption, which was compounded further by the global economy’s ongoing poor performance.

Japan’s sluggish growth can be attributed to slow private consumption, which was compounded further by the global economy’s ongoing poor performance

Despite growth of 0.1 percent in the first quarter, during the period from April to June, Japanese exports fell by 1.5 percent, thus reflecting how low demand from overseas and a stronger yen have affected the industry. Capital expenditure also dropped by 0.4 percent for the second consecutive quarter, which is particularly discouraging given that this area is viewed by Tokyo as a key component to strengthening the economy.

While Abe’s stimulus programmes are failing to create consistent growth, the Bank of Japan’s loose monetary policy has helped to reduce mortgage rates, which in turn resulted in a five percent surge in housing investments.

Nonetheless, overall it seems that ‘Abenomics’ is simply not providing the sustainable growth that parties both in and out of Japan had anticipated. In turn, further action by the Bank of Japan is expected in September, following its comprehensive assessment of Abe’s stimulus programmes.

Following the data release, Finance Minister Taro Aso explained there is a strong need for the government to implement structural reforms as a means of boosting both domestic and foreign demand. As such, a big overhaul to Japan’s policy framework may be the only way forward for this struggling economy.

China’s economy disappoints in July

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According to a range of indicators, China has seen a slowdown of economic activity in July, suggesting that the country’s economy could be running out of steam. Data released on Friday showed that July’s industrial production output stood at six percent higher than a year before, down from June’s 6.2 percent year-on-year growth.

China also saw fixed asset investment such as in buildings or factories in non-rural areas grow by only 8.1 percent between January and July – the slowest rate of growth in 17 years. In particular, fixed asset investment from private firms declined sharply. This means that state firms now heavily dominate fixed asset investment in China. Real estate investment has also markedly slowed.

July’s industrial production output stood at six percent higher than a year before, down from June’s 6.2 percent year-on-year growth

Earlier released data from the Caixin PMI for China also showed that the country’s service sector output slipped in July, with its measure falling from 52.7 in June down to 51.7 in July. At this level, the country’s service sector is still expanding – anything over 50 is an expansion in the PMI gauge – but the new figure shows a marked slowdown.

One area that has seen strong growth in China is the car industry. July saw car sales rise at the fastest monthly rate in over three years. As Reuters reported: “Auto sales grew 23 percent year-on-year to 1.9 million vehicles in July from a year earlier, the highest monthly growth since January 2013, the China Association of Automobile Manufacturers said on Friday.”

However, much of the growth can be attributed to a recent government tax cut on small engine vehicles, as well as weak comparative growth in the prior year.

According to the Nikkei Asia Review, economists are predicting that China’s central bank will cut interest rates in response to the country’s slowing economy: “JP Morgan expects another 25 basis points as soon as October.”

German economy slows less than expected

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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.

US sees longest streak in falling productivity since 1979

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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.

UK think tank expects £39bn fallout after Brexit

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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.

Trump outlines tax reform plan

Posted on by Helen

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.

TIAA agrees to $2.5bn EverBank acquisition

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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.

US economy sees employment and wage growth in July

Posted on by Helen

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.

Bank of England slashes lending rates

Posted on by Helen

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”.

Project Finance Deals of the Year 2016

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IPP Deal of the Year

Ilanga CSP 1

Emvelo

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 sees slowing growth

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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 state energy group pulls out of $1.8bn Cobalt deal

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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.