Abraaj said a Cayman Court appointed provisional liquidators, allowing the troubled private equity group to launch a court-supervised restructuring plan, the Financial Times reported. The Dubai-based firm in a statement on Tuesday said a court order on Monday appointed executives from PwC as joint provisional liquidators of Abraaj Holdings and executives from Deloitte for the same role at the asset management arm, Abraaj Investment Management Limited, or Aiml. The court-supervised restructuring of Abraaj Holdings would have “minimum impact” on the day-to-day operations of the management of the funds and their portfolio companies, the statement said. The move protects Abraaj, which emerged as one of the world’s largest emerging markets investors, from creditor action against defaults. Complaints by investors that it had mishandled their money unravelled trust in the company, which had already been struggling owing to a liquidity squeeze. Read more. (Subscription required.)
The European Central Bank edged closer to gaining power over financial clearing, a lucrative business dominated by London and a flash point in the Brexit negotiations, Bloomberg News reported. Lawmakers on a European Parliament committee on Tuesday endorsed a bill that amends the ECB’s governing statute, explicitly granting it authority over clearinghouses for euro-denominated contracts. This matters to the U.K. because the vast majority of interest-rate swaps in euros are cleared at a London unit of the London Stock Exchange Group Plc. A previous attempt by the Frankfurt-based central bank to claim this power was shot down in 2015 by a European Union court. In the aftermath of the U.K.’s 2016 vote to quit the EU, the ECB decided to try again, arguing that it needs clearing oversight to protect financial stability and carry out monetary policy effectively. Read more.
In a related story, Reuters reported that an Abu Dhabi Financial Group company has made a conditional $50 million offer to buy private equity firm Abraaj’s investment management business, a document reviewed by Reuters shows. Abu Dhabi Capital Management’s (ADCM) bid is well below the $125 million offered by New York-based Cerberus Capital Management before Dubai-based Abraaj filed for provisional liquidation in the Cayman Islands last week, Reuters reported. It was unclear whether the terms of the offer that Cerberus made were different from the one made by ADCM. ADCM stated its terms in a letter to Abraaj’s financial adviser Houlihan Lokey dated June 17, which said it will not buy any companies owned by Abraaj and its affiliates and will not assuume any liabilities. Read more.
In a stock market where investors are used to being disappointed, Tuesday’s plunge still shocked, Bloomberg News reported. China’s benchmark equity gauge sank almost 5 percent at one point and by the close, the escalating tensions with the U.S. had sent 1,023 stocks down by the daily 10 percent limit -- or more than one in four. Greasing the losses was the Shanghai Composite Index’s slide below 3,000, a level previously breached during market crashes in 2015 and 2016. With Washington and Beijing threatening tit-for-tat moves over import tariffs, investors are worried a trade war will act as a brake on China’s economy and hollow out an already deflating equity market. Selling intensified last week after data showed weak spots in China’s economy. Rising corporate defaults and the government’s financial deleveraging campaign are also undermining sentiment. Read more.
Telstra Corp. plans to cut 8,000 jobs, sell assets and potentially spin off a new infrastructure business in a make-or-break attempt to fend off competition, Bloomberg News reported. The stock tumbled. Australia’s former phone monopoly, which has lost more than half its market value since early 2015, said it will almost double its cost-cutting program. An asset carve-off will raise as much as to A$2 billion, and one in four executive and middle management roles will go over the the next three years. “We are now at a tipping point,” Chief Executive Officer Andrew Penn said in a statement. “We must act more boldly. Our legacy is now holding us back.” Read more.
Central Bank governor Philip Lane said on Tuesday that he expected property prices in Ireland to “cool off” over time as supply increased, although he pointed to the continuing “strong fundamentals” of the market here, the Irish Times reported. Irish house prices have risen by 76 per cent from the post-crash trough, with Dublin residential property prices up 90.1 per cent from their February 2012 lows, while a recent survey from Knight Frank placed Ireland as the fourth fastest growing property market in the world. Speaking on Bloomberg TV from Portugal, Mr Lane, a European Central Bank governing council member, said that given continued price growth, the Central Bank was keeping “a close eye on the housing market”. Read more. (Subscription required.)
Europe has finally emerged from its debt crisis with healthy economic growth, but it can’t shake one relic of its troubled times: negative interest rates. The policy was tried by Sweden briefly in 2009 and 2010 but eventually was implemented by Denmark, the eurozone, Switzerland and Sweden again over the subsequent five years before landing in Japan two years ago, The Wall Street Journal reported. Negative rates—where the central bank charges commercial banks for money held at the central bank—helped safeguard economic recoveries by lowering borrowing costs across fixed-income markets and, in some cases, boosting exports via weaker exchange rates. None of these economies seems willing to be the first to lift rates above zero for fear of derailing their recoveries. Read more. (Subscription required.)
A bruising trade fight with the U.S. lands at a difficult time for China as its economy contends with rising headwinds, constraining Chinese President Xi Jinping’s options, The Wall Street Journal reported. While Chinese officials have been bracing for a trade war for months—promising to match the Trump administration measure for measure—signs are rising that China’s recent economic expansion is ebbing, from weakening investment and household consumption to increasing corporate defaults, in part due to a key Xi initiative to contain debt and fend off financial risks. That slowdown is triggering mounting calls from some corners of the government for Beijing to reopen the credit spigot and ease off on Mr. Xi’s program before the trade conflict further dents growth. Read more. (Subscription required.)
The European Central Bank could ditch a plan to impose new rules on all euro zone banks under its watch to reduce their bad loans, and could instead move toward a “case-by-case approach”, the head of its supervisory body said on Tuesday. Plans by the ECB’s Single Supervisory Mechanism (SSM) to force banks to set aside cash within a given timeframe against the large pile of soured credit they hold has met resistance from bankers, lawmakers and even within the central bank, Reuters reported. The EU parliament has argued the ECB does not have a mandate to impose general capital rules and can only act on specific lenders that it deems in trouble. In what appears to be a concession to its critics, ECB supervisor Daniele Nouy told the economic committee of the European Parliament the solution could be to revert to a case-by-case approach, which reflects the ECB’s usual prerogatives. Read more.
There have been high-profile insolvencies of many real estate and housing development companies across the country, ZeeBiz reported. Scores of homebuyers, particularly in NCR, have some relief as now they will be treated as financial creditors. Homebuyers are recognised as financial creditors under the insolvency law, with the government promulgating an ordinance. President Ram Nath Kovind gave his assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 last week. What are the next steps to take? How do you protect your financial interest? DNA Money spoke to top experts to get the answers. It is important to understand which homebuyers will be eligible to be represented as financial creditors. Read more. (Subscription required.)
On Aug. 20, Greece is due to graduate from its third international rescue program. The country is still saddled with a towering public debt — nearly 180 percent of national income — and Europe’s other governments are divided over how much more relief to grant, Bloomberg News reported. Without a sizable package of new concessions, Greece’s debt burden is unlikely to stabilize. Creditors are seeking assurances that the country won’t go back to the spending that brought the economy to the brink of collapse in 2009. Between 2008 and 2016, the Greek economy contracted by 28 percent — one of the deepest recessions in modern history. Lately, though, the economy has been doing better. Output is on course to grow by 1.9 percent this year, according to the European Commission. Read more.
The cost of insuring Bahrain’s sovereign debt against default is at an historical high, amid continuing concerns over the country’s ability to tap international markets to stave off a potential financial crisis, Reuters reported. Bahrain’s credit default swaps went up to 413 basis points last week, surpassing previous peaks of 412 basis points in February 2016, when oil prices were at around $30 per barrel, and a peak of around 400 basis points in early 2012, in the aftermath of the political uprising of the previous year. A decline in oil prices over the past few weeks, from around $80 per barrel in mid-May to $74 on Sunday, has lifted the CDS of Saudi Arabia and Qatar by 7 bps and 10 bps, respectively. Bahrain’s CDS soared 82 points since mid-May. Read more.
In March 2011, just as Britain’s new coalition government was preparing to dramatically cut back on public spending, Carillion paid £306m to buy a company that helped consumers to take advantage of government-funded energy schemes, the Financial Times reported. Even by the now bankrupt outsourcing group’s somewhat indifferent standards, it would be a spectacularly mistimed move. Based in Newcastle upon Tyne, where, perhaps ominously, it occupied the semi-deserted steel and glass tower built to house Northern Rock’s headquarters just before the bank’s 2008 collapse, Eaga was a contractor for public programmes promoting energy efficiency among the less well off. Floated on the stock market in 2007, Eaga initially expanded rapidly, picking up disparate contracts, such as one to help the BBC complete the switch from analogue to digital TV. Read more. (Subscription required.)
A consortium led by top oil trader Vitol has entered exclusive talks to acquire stakes in Nigerian offshore fields that are held by Brazil’s Petrobras and its partners, industry sources said, Reuters reported. The assets are estimated to be worth up to $2.5 billion, the two banking sources and one industry source told Reuters. The buyers are talking to state-controlled Petroleo Brasileiro SA, known as Petrobras, which is leading the sale, the sources added. The buying consortium comprises Vitol, Vancouver-based Africa Oil and Delonex Energy, an Africa-focused oil company backed by private equity fund Warburg Pincus and the International Finance Corporation (IFC). Delonex, Petrobras and Vitol declined to comment. Africa Oil did not respond to a request for comment. Read more.
Jeff Mueller has little time for many of the junk bonds investment banks are pitching to him these days. The Eaton Vance portfolio manager is so unimpressed by what he sees, he now turns away most of the new issues he’s offered, Bloomberg News reported. That’s a reality check for borrowers who have used a six-year bull run in Europe’s $400 billion high-yield bond market to slash pricing and water down investor protections known as covenants. Since March, seven companies have withdrawn new deals after investors balked at the pricing and terms they asked for. “Our participation rate has been pretty low,” Mueller said in an interview in London. “We’d like to see better covenants overall and that’s why we’ve stayed out of so many deals.” Read more.
A 200 basis-point increase in interest rates could spark a sharp rise in the proportion of emerging market corporate debt issues at risk of default, with Brazilian and Indian firms most vulnerable, a report from McKinsey Global Institute showed. Following a decade of loose monetary policy and historically low interest rates aimed at boosting economic growth after the 2008-9 financial crisis, global central banks including the U.S. Federal Reserve and the European Central Bank are either raising interest rates or signalling an end to accommodative policies, Reuters reported. That is pushing many central banks in the developing world into raising rates too, with India for instance upping rates for the first time since 2014. Read more.
Noble Group Ltd. suspended its shares in Singapore on Monday pending an announcement, as efforts to get shareholder agreement on its controversial $3.5 billion debt restructuring plan drag on longer than expected, Bloomberg News reported. The stock fell to a record low of 5 Singapore cents last week before closing at 5.4 cents on Thursday prior to a public holiday. Once Asia’s largest commodity trader, the company has seen its market value shrink to about $50 million from more than $10 billion in 2010. After three years of decline featuring billions of dollars in losses, a debt default, law suits and, more recently, public sparring with shareholder Goldilocks Investment Co., the trader is struggling to secure a rescue deal that will swap half the debt for equity and hand control to creditors. Read more.
Dubai-listed Air Arabia said on Monday it has an investment in Abraaj funds, without elaborating further on its exposure to the private equity group which last week filed an application for provisional liquidation, Reuters reported. Abraaj’s founder Arif Naqvi is a board director of the Middle East low-cost carrier, according to Air Arabia’s website. The airline said it has appointed a team of experts who are “actively engaged with all stakeholders and creditors involved with the matter to ensure Air Arabia’s investment and business interest is protected.” Read more.
Mozambique’s central bank reduced its benchmark lending rate for the sixth consecutive meeting as inflation lingered near a 2015 low and the regulator tries to spur an economy that’s forecast to expand at the slowest pace in 18 years, Bloomberg News reported. The Monetary Policy Committee cut the benchmark interbank rate, known by its Portuguese acronym MIMO and introduced in April 2017, by 75 basis points to 15.75 percent, Banco de Mocambique Governor Rogerio Zandamela told reporters Wednesday in Maputo, the capital. It held the permanent lending facility at 18 percent. Mozambique’s economy is struggling in the wake of a foreign debt crisis, even as higher prices for its biggest exports, coal and aluminum, help bolster foreign exchange reserves. Read more.
The UK “now faces another extended period of weak growth”, according to the British Chambers of Commerce (BCC). The business group has downgraded its 2018 growth GDP forecasts from 1.4% to 1.3%, which would be the worst performance since 2009 when the global economy was dealing with the credit crunch, Economia reported. It has also dropped its 2019 outlook form from 1.5% to 1.4%. The BCC cites uncertainties around Brexit, possible trade wars and rising oil prices and interest rates as factors set to drag on the economy. The services sector, which typically drives a large portion of UK GDP growth, is expected to slow to 1.2% in 2018, which would be the weakest outturn since 2010. The BCC’s prediction backs up ICAEW’s latest forecast published on Friday, which slashed its 2018 GDP growth forecast for the UK from 1.7% to 1.3%. Read more.