Focus: US corporate debt

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Updated 05 May 2020
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Focus: US corporate debt

What happened:
An EU-led, G20-supported multilateral fund-raising drive to fund research and manufacturing of COVID-19 vaccines and medicines was able to raise €7.5 billion ($8 billion) — including €4 billion going toward vaccines and €2 billion toward medicines.

Apple and others continued the dash for refinancing their debt and shoring up their balance sheets. They are taking advantage of low interest rates and the fact that the Fed widened its bond-purchasing program to the corporate bond sector.

The number of people furloughed in Europe surpassed 40 million.

First quarter revenues for Adecco, the world’s leading provider of temporary and permanent staffing, were down by 9 percent. They were down by 19 percent in March and by about 40 percent for April, reflecting the dire employment situation in OECD countries.

BNP Paribas reported net income of €1.3 billion, down 33 percent for the same quarter last year. Like most of its peers it shored up loan-loss provisions, which now stand at €502 million.

Vestas posted a €54 million loss while sales for the first quarter had risen by 29 percent to €2.2 billion. The wind turbine manufacturer had abandoned guidance for the rest of the year.

The last two of the big integrated oil companies reported on Monday: Total’s first quarter net profit was down by 35 percent and came in at $1.8 billion. Unlike Shell, the company will maintain dividend. CAPEX for 2020 was cut by 20 percent.

Repsol reported a net loss of €487 million for the first quarter and CAPEX was cut by 26 percent.

After more than 50 percent of companies have reported, we can see three trends weaving through the earnings season. More than 50 percent of companies abandoned guidance, most banks shored up their loan-loss provisions significantly in anticipation of what the lockdown would do to their loan portfolios. All major oil companies slashed Capex by at least 20 percent. Some of them maintained dividend, namely Aramco, BP and Total, whereas others cut them — most remarkably Shell, which did so for the first time since World War II. The dividend cut came in at 66 percent.

Background:
Ten investment-grade companies tapped into the US corporate bond market on Monday alone. The most prominent was Apple, which issued $8.5 billion worth of bonds. The company had missed its forecast for the first-time last week and already sits on a $200 billion cash pile. Other companies, including Avis, raised $400 million and Oneok Inc, a mid-stream oil company, raised $1.5 billion, rated by Standard and Poor’s just above junk.

Several of the “fallen angels” companies that were downgraded because of faltering financials due to the corona crisis had tapped the markets as well. They included, among others, Starbucks and Kraft Heinz.

A dash to the fixed-income markets started in mid-March when the Fed announced it would start buying corporate bonds. Companies are taking advantage of low interest rates as well as the Fed generating additional demand for their bonds.

On one hand, it makes sense for many of these companies to shore up their balance sheets and liquidity at reasonable cost to weather the uncertain times. On the other hand, it increases corporate indebtedness if the amounts they raise are larger than the debt they are refinancing on more advantageous terms. This will add to the debt overhang, which already exists in the system and will become a lot worse when we are exiting lockdown.

In Europe the market was more muted due to the sluggish economy and worries of the White House rhetoric reigniting US-China trade wars.

Going forward:
US Secretary of Treasury Steven Mnuchin announced that he would raise another $3 trillion, which will allow the US-debt-to-GDP-ratio to skyrocket to hitherto-unseen proportions.

Germany’s constitutional court declared aspects of the ECB’s Public Sector Purchase Programme, which was the quantitative easing program during the financial crisis, as not violating the constitution per se but not conforming with aspects of the European treaties. The court has given the ECB three months to address issues pertaining to the Pandemic Emergency Purchase Programme (PEPP).  In the next issue we shall look into how this ruling could affect PEPP going forward.

— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.
Twitter: @MeyerResources


Aramco signs agreement to advance SASREF expansion

Updated 4 min 3 sec ago
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Aramco signs agreement to advance SASREF expansion

RIYADH: Energy giant Saudi Aramco and China-based Rongsheng Petrochemical Co. have signed a framework agreement to boost the expansion of a subsidiary of the state-owned oil company.

According to a press statement, the tripartite agreement outlines a cooperation framework and detailed plans to design and develop Saudi Aramco Jubail Refinery Co. or SASREF. The initiative is expected to enhance SASREF’s refining and petrochemical capabilities.

The deal follows an announcement made in April that Aramco and Rongsheng Petrochemical had signed a partnership agreement related to the planned formation of a joint venture in SASREF. 

Aramco’s long-standing relationship with China spans more than three decades.

This new framework agreement is part of the company’s broader strategy to solidify its position in the global energy landscape while supporting the Kingdom’s economic growth.

“By aligning our efforts, Aramco and Rongsheng Petrochemical aim to deliver additional value to our stakeholders,” said Aramco Downstream President Mohammed Al-Qahtani.

He added: “This development framework agreement underscores Aramco’s intentions to foster closer collaboration with key partners and progressing its strategic downstream expansion, both in Saudi Arabia and internationally. It also highlights the potential of the Kingdom’s downstream sector to attract overseas players.”

Li Shuirong, chairman of Rongsheng Petrochemical, said that the collaborative project will contribute to Saudi Arabia’s Vision 2030 program and China’s Belt and Road initiative. 

“The signing of the development framework agreement sets the stage for Rongsheng Petrochemical’s in-depth participation in the SASREF expansion project,” said Shuirong. 

He added: “Saudi Arabia has abundant energy resources and significant market potential, and Rongsheng Petrochemical will bring strong momentum to the partnership through our excellent operation and management capabilities and market competitiveness.” 

The SASREF expansion project is located in Jubail Industrial City along the Arabian Gulf coast in the Kingdom’s Eastern Province. 

The project, which is currently in the pre-front-end engineering design stage, envisages the construction of large-scale steam crackers and the integration of associated downstream derivatives into the existing SASREF complex, enhancing its ability to meet the growing demand for high-quality petrochemical products, the statement added. 

Earlier in November, Aramco, in partnership with China Petrochemical & Chemical Corp. and Fujian Petrochemical Co., started the construction of a refinery and petrochemical complex in the Asian nation’s Fujian province. 

The undertaking, which is expected to be fully operational by the end of 2030, includes an oil refinery with a capacity of 320,000 barrels per day, according to a press statement.

It will also have a 1.5 million tonnes-per-year ethylene unit, a 2 million tonnes paraxylene and downstream derivatives capacity, and a 300,000 tonnes crude oil terminal.


Publisher defends prize-winning French novel after Algerian victim’s claims

Updated 3 min 32 sec ago
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Publisher defends prize-winning French novel after Algerian victim’s claims

  • Kamel Daoud’s novel “Houris” centered on Algeria’s civil war between the government and Islamists in the 1990s
  • Survivor of a massacre alleged on Algerian TV that the main character in the book is based on her experiences

PARIS: The publisher of the novel that won France’s top literary price has strongly defended its French-Algerian author after an Algerian survivor of a 1990s massacre in the North African country claimed the book is based on her story used without her consent.
French-Algerian writer Kamel Daoud this month won the Goncourt for his novel “Houris” centered on Algeria’s civil war between the government and Islamists in the 1990s.
The novel, banned in Algeria, tells the story of a young woman who loses her voice when an Islamist cuts her throat as she witnesses her family being massacred during the civil war.
However the survivor of a massacre during the period has alleged on Algerian TV that the main character in the book is based on her experiences.
The woman, Saada Arbane, said she had told her story during a course of treatment to a psychotherapist who is now Daoud’s wife. She accused Daoud of then using the details narrated during their therapy sessions in his book.
Publishers Gallimard however said Daoud and his wife were the victims of orchestrated attacks after the banning of the book in Algeria, adding that the publishing house had also been banned from Algeria’s main book fair earlier this month.
“Although Houris is inspired by tragic events that occurred in Algeria during the civil war of the 1990s, its plot, characters and heroine are purely fictional,” said publisher Antoine Gallimard who heads the Gallimard publishing house.
“Since the publication of his novel, Kamel Daoud has been the subject of violent defamatory campaigns orchestrated by certain media close to a regime whose nature is well known,” he added.
Arbane has alleged that she told the psychotherapist not to reveal her story but has found that there are details in the life of the main character in the book — Aube — that would only have been known to the doctor.
Speaking on television with a speech aid, she has described the book as a “violation of my intimacy” and accused the psychotherapist of going back on a promise that her story would not feature in Daoud’s work.
But Gallimard said: “It is now the turn of his wife — who in no way is a source for ‘Houris’ — to be attacked over her professional integrity.”
Daoud, who used to work as a journalist and columnist in Algeria, has stirred controversy with his analyzes of society in Algeria and elsewhere in the Arab world in French and international media.


G20 summit calls for more aid to Gaza and an end to the war in Ukraine

Updated 6 min 10 sec ago
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G20 summit calls for more aid to Gaza and an end to the war in Ukraine

The document, which includes calls for a global pact to combat hunger, more aid for Gaza and the end of the war in Ukraine, was heavy on generalities and short on specifics
The joint statement was endorsed by group members but fell short of complete unanimity

RIO DE JANEIRO: Leaders of the world’s 20 major economies gathered once again on Tuesday with a lighter schedule after they issued a joint declaration the night before.
The document, which includes calls for a global pact to combat hunger, more aid for Gaza and the end of the war in Ukraine, was heavy on generalities and short on specifics.
The joint statement was endorsed by group members but fell short of complete unanimity. It also called for a future global tax on billionaires and for reforms allowing the eventual expansion of the UN Security Council beyond its five permanent members.
At the start of the three-day meeting which formally ends Wednesday, experts doubted Brazilian President Luiz Inácio Lula da Silva could convince the assembled leaders to hammer out any agreement at all in a gathering rife with uncertainty over the incoming administration of US President-elect Donald Trump, and heightened global tensions over wars in the Middle East and Ukraine.
Argentina challenged some of the language in initial drafts and was the one country that didn’t endorse the complete document.
“Although generic, it is a positive surprise for Brazil,” said Thomas Traumann, an independent political consultant and former Brazilian minister. “There was a moment when there was a risk of no declaration at all. Despite the caveats, it is a good result for Lula.”
Condemnation of wars, calls for peace, but without casting blame
Taking place just over a year after Hamas’ attack on Israel on Oct. 7, 2023, the declaration referred to the “catastrophic humanitarian situation in the Gaza and the escalation in Lebanon,” stressing the urgent need to expand humanitarian assistance and better protect civilians.
“Affirming the Palestinian right to self-determination, we reiterate our unwavering commitment to the vision of the two-State solution where Israel and a Palestinian State live side by side in peace,” it said.
It didn’t mention Israel’s suffering or of the 100 or so hostages still held by Hamas. Israel isn’t a G20 member. The war has so far killed more than 43,000 Palestinians in Gaza, according to local health officials, which don’t distinguish between civilians and combatants when counting the dead, and more than 3,500 people in Lebanon following Israel’s offensive against Hezbollah, according to Lebanon’s Health Ministry.
The omitted acknowledgment of Israel’s distress appeared to run contrary to US President Joe Biden’s consistent backing of Israel’s right to defend itself. It’s something Biden always notes in public, even when speaking about the deprivation of Palestinians. During a meeting with G20 leaders before the declaration was hammered home, Biden expressed his view that Hamas is solely to blame for the war and called on fellow leaders to “increase the pressure on Hamas” to accept a ceasefire deal.
Biden’s decision to ease restrictions on Ukraine’s use of longer-range US missiles to allow that country to strike more deeply inside Russia also played into the meetings,
“The United States strongly supports Ukraine’s sovereignty and territorial integrity. Everyone around this table in my view should, as well,” Biden said during the summit.
Russian President Vladimir Putin didn’t attend the meeting, and instead sent Foreign Minister Sergey Lavrov. Putin has avoided such summits after the International Criminal Court issued a warrant that obliges member states to arrest him.
The G20 declaration highlighted the human suffering in Ukraine while calling for peace, without naming Russia.
“The declaration avoids pointing the finger at the culprits,” said Paulo Velasco, an international relations professor at the State University of Rio de Janeiro. “That is, it doesn’t make any critical mention of Israel or Russia, but it highlights the dramatic humanitarian situations in both cases.”
The entire declaration lacks specificity, Velasco added.
“It is very much in line with what Brazil hoped for ... but if we really analyze it carefully, it is very much a declaration of intent. It is a declaration of goodwill on various issues, but we have very few concrete, tangible measures.”
Fraught push to tax global billionaires
The declaration did call for a possible tax on global billionaires, which Lula supports. Such a tax would affect about 3,000 people around the world, including about 100 in Latin América.
The clause was included despite opposition from Argentina. So was another promoting gender equality, said Brazilian and other officials who spoke on condition of anonymity because they weren’t authorized to speak publicly.
Argentina signed the G20 declaration, but had issues with references to the UN’s 2030 sustainable development agenda. The South American country’s conservative president, Javier Milei, has referred to the agenda as “a supranational program of a socialist nature.” It also objected to calls for regulating hate speech on social media, which Milei says infringes on national sovereignty, and to the idea that governments should do more to fight hunger.
Milei has often adopted a Trump-like role as a spoiler in multilateral talks hosted by his outspoken critic, Lula.
Concrete steps for fighting global hunger
Much of the declaration focuses on eradicating hunger — a priority for Lula.
Brazil’s government stressed that Lula’s launch of the global alliance against hunger and poverty on Monday was as important as the final G20 declaration. As of Monday, 82 nations had signed onto the plan, Brazil’s government said. It is also backed by organizations including the Rockefeller Foundation and the Bill & Melinda Gates Foundation.
A demonstration Sunday on Rio’s Copacabana beach featured 733 empty plates spread across the sand to represent the 733 million people who went hungry in 2023, according to United Nations data.
Viviana Santiago, a director at the anti-poverty nonprofit Oxfam, praised Brazil for using its G20 presidency “to respond to people’s demands worldwide to tackle extreme inequality, hunger and climate breakdown, and particularly for rallying action on taxing the superrich.”
“Brazil has lit a path toward a more just and resilient world, challenging others to meet them at this critical juncture,” she said in a statement.
Long-awaited reform of the United Nations
Leaders pledged to work for “transformative reform” of the UN Security Council so that it aligns “with the realities and demands of the 21st century, makes it more representative, inclusive, efficient, effective, democratic and accountable.”
Lula has been calling for reform of the UN Security Council since his first two terms in power, from 2003 to 2010, without gaining much traction. Charged with maintaining international peace and security, its original 1945 structure hasn’t changed. Five dominant powers at the end of World War II have veto power — the US, Russia, China, the UK and France — while 10 countries from different regions serve rotating two-year terms.
Virtually all countries agree that nearly eight decades after the United Nations was established, the Security Council should be expanded to reflect the 21st century world and include more voices. The central quandary and biggest disagreement remains how to do that. The G20 declaration doesn’t answer that question.
“We call for an enlarged Security Council composition that improves the representation of the underrepresented and unrepresented regions and groups, such as Africa, Asia-Pacific and Latin America and the Caribbean,” the declaration said.
The United States announced shortly before a UN summit in September that it supports two new permanent seats for African countries, without veto power, and a first-ever nonpermanent seat for a small island developing nation. But the Group of Four — Brazil, Germany, India and Japan — support each other’s bids for permanent seats. And the larger Uniting for Consensus group of a dozen countries including Pakistan, Italy, Turkiye and Mexico wants additional nonpermanent seats with longer terms.

Three Palestinians killed in Israeli West Bank raid

Updated 9 min 58 sec ago
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Three Palestinians killed in Israeli West Bank raid

  • The three men were between 24 and 32 years old
  • Violence in the West Bank, particularly in the north, has soared since the war in Gaza broke out on October 7 last year

JENIN: Three Palestinians were killed in an Israeli military operation near Jenin in the occupied West Bank on Tuesday, Israeli security forces said.
A joint statement from the army, police and Shin Bet security agency said the three militants died in an exchange of fire in Qabatiya village, where undercover border police attempted to arrest a wanted man.
The Israeli forces came under fire from a building where the suspect, Raed Hanaysha, was hiding, the statement said, before killing him and “two armed terrorists.”
The Israeli army said it seized weapons from the scene, “destroyed two bomb-making labs,” and that its forces were still active in the area.
“There are three bodies of martyrs that are now with the Israeli side, after they killed them,” local governor Kamal Abu Al-Rub said, citing the office in charge of liaising between Israeli and Palestinian authorities in the West Bank.
The Palestinian health ministry said the District Coordination Office had also informed it of the deaths of “three young men shot by Israeli forces near Qabatiya,” which is in the Jenin governorate.
The three men were between 24 and 32 years old, a ministry statement said, identifying Raed Hanaysha as one of the dead.
Israeli security forces said Hanaysha had been involved “in shooting and bombing attacks” recently against the army.
Violence in the West Bank, particularly in the north, has soared since the war in Gaza broke out on October 7 last year.
Israeli troops or settlers have killed at least 771 Palestinians in the West Bank since the start of the Gaza war, according to the Ramallah-based health ministry.
Palestinian attacks on Israelis have also killed at least 24 people in the same period in the West Bank, according to official Israeli figures.


Roger Federer tells friend and rival Rafael Nadal that he made him enjoy tennis more

Updated 12 min 42 sec ago
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Roger Federer tells friend and rival Rafael Nadal that he made him enjoy tennis more

  • Federer began his message with the word “Vamos” and said: “As you get ready to graduate from tennis, I’ve got a few things to share before I maybe get emotional”
  • “Let’s start with the obvious: you beat me — a lot. More than I managed to beat you”

MALAGA, Spain: Roger Federer says Rafael Nadal made him enjoy tennis “even more” during a rivalry that spanned 40 matches over 15 years.
Writing on social media Tuesday, hours before the start of the Davis Cup Final 8, Nadal’s last event before heading into retirement, Federer began his message with the word “Vamos” and said: “As you get ready to graduate from tennis, I’ve got a few things to share before I maybe get emotional.”
“Let’s start with the obvious: you beat me — a lot. More than I managed to beat you. You challenged me in ways no one else could,” Federer said. “On clay, it felt like I was stepping into your backyard, and you made me work harder than I ever thought I could just to hold my ground. You made me reimagine my game — even going so far as to change the size of my racquet head, hoping for any edge.”
Federer, now 43, was established at No. 1 in the rankings when Nadal, now 38, came along. Federer started his career with a 7-0 record in Grand Slam finals before his first loss at that stage arrived against Nadal in the 2006 French Open final, the first of their three consecutive title matches in Paris — each with the same result.


Nadal also defeated Federer in the 2008 Wimbledon final, ending the Swiss star’s bid for a sixth championship in a row at the All England Club.
In all, Nadal led their head-to-head series 26-14, including 10-4 at Grand Slam tournaments and 6-3 in Slam finals.
Still, Federer told Nadal in his post, referring to him by the nickname Rafa: “You made me enjoy the game even more.”
They helped form the Big Three of men’s tennis along with Novak Djokovic, who is still active at age 37 and has won a men’s-record 24 major trophies. Nadal is next on the list with 22, followed by Federer with 20.
“What an incredible run you’ve had,” Federer posted. “Including 14 French Opens — historic! You made Spain proud ... you made the whole tennis world proud.”
When Federer left the sport by playing a doubles match at the Laver Cup in September 2022, his partner was Nadal. The two sat side-by-side afterward, crying.
“It meant everything to me that you were there by my side — not as my rival but as my doubles partner,” Federer wrote Tuesday. “Sharing the court with you that night, and sharing those tears, will forever be one of the most special moments of my career.”
Nadal’s Spanish team was scheduled to meet the Netherlands in the Davis Cup quarterfinals Tuesday. Neither Nadal nor Spain’s captain, David Ferrer, would say Monday whether Nadal will play singles or doubles, both — or neither.
“Rafa, I know you’re focused on the last stretch of your epic career. We will talk when it’s done,” Federer wrote. “I want you to know that your old friend is always cheering for you, and will be cheering just as loud for everything you do next.”