Thursday 31st July 2014
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TICKER - WEDNESDAY - JULY 30th: Avanti Mining Inc has entered into a debt financing mandate letter with a syndicate of six lenders to provide secured debt finance facilities worth $612m to develop the Kitsault molybdenum mine. Lenders include BNP Paribas, Caterpillar Financial Services Corporation, Export Development Canada, Korea Development Bank, Mizuho Bank and UniCredit Bank. The facility set out in the term sheet is comprised of $500m senior debt for a term of 10.5 years, $42m in equipment finance for a term of 5 years and $70m in the form of standby cost over-run facilities for a term of 8 years. The interest rate is LIBOR based, loan repayments are semi-annual or quarterly (for equipment finance) and there are mandatory prepayment provisions of a portion of excess free cash flow. The facility will include customary provisions for a financing of this type, including fees, representations and warranties, covenants, events of default and security customary for this type of financing - Jupiter Fund Management reports strong investment performance with assets under management rising to £33.1bn, with the asset manager benefitting from net mutual fund inflows of £875m over the first half of this year. The firm says it has maintained operating margins above 50%. Maarten Slendebroek, chief executive, says “We are pleased with the progress being made on the implementation of our growth strategy during the first half of 2014. The Board’s intention to increase cash returns to shareholders through a combination of ordinary and special dividends reflects this progress and confidence in our future growth potential. We believe this approach will allow shareholders to participate in our organic growth story while receiving an attractive yield.” There will be an analyst presentation to discuss the results on July 30th at 9.00am at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD and is also accessible via a live audiocast for those unable to attend in person - CME Clearing says it will remove the Exchange-For-Swap (EFS) identifier for all NYMEX, COMEX and DME exchange futures executed in accordance with CME Rule 538 (Exchange for Related Positions). CME products were removed from EFS eligibility in October of 2010, and CBT products were removed from EFS eligibility in July of 2012. With this final transition, EFS will no longer be a supported transaction type at CME. The EFS transaction type has been harmonized into, and falls under, the Exchange for Risk (EFR) transaction referenced in Rule 538. EFR transactions are privately negotiated transactions (PNT) and include the simultaneous exchange of an Exchange futures position for a corresponding OTC swap or other OTC instrument. In addition, NYMEX, COMEX and DME exchange products will continue to be eligible for Exchange for Physical (EFP) and Exchange of Options for Options (EOO) privately negotiated transactions. Currently, an EFS transaction is represented as a TrdTyp=”12” on TrdCaptRpt messages. Effective on the above date, the TrdTyp value for these transactions should be submitted as “11” (EFR). CME Clearing will reject any NYMEX, COMEX, or DME exchange privately negotiated futures message sent as an EFS. The trade will subsequently need to be resubmitted with a valid transaction type to CME Clearing. Additionally, CME Clearing will re-categorize the Exchange of Options for Options (EOO) transaction type for all CME, CBOT, NYMEX, COMEX, and DME products. Currently, an EOO is represented as an option on an exchange for swap (EFS) in clearing and on FIXML TrdCaptRpt messages. Going forward, an EOO transaction will be represented as an option on an Exchange for Risk (EFR) - Chi-X® Japan Limited, a wholly owned subsidiary of alternative market operator Chi-X® Global Holdings LLC, says local brokers Yamawa Securities Co., Ltd. and Ark Securities Co Ltd., have commenced trading on Chi-X Japan, bringing the total number of trading participants to 23. Yamawa Securities and Ark Securities will access its market centre through Intertrade’s platform - The upgrade of the cities of Bogota and Medellin by Moody’s follows the upgrade on Colombia's sovereign ratings and reflects the close economic and operational links that these cities have with the central government. The rating action also reflects Bogota and Medellin's relatively solid financial metrics and moderate debt levels. The ratings assigned to both Bogota and Medellin are supported by their strong economic position in Colombia that includes a high level of own-source revenues and diversified local economies. The positive prospects of economic growth in the country translate in supportive conditions for both cities through higher local economic growth and own-source revenue growth. The assigned ratings also consider the close oversight that Colombia's central government exerts over the country's regional and local governments. Bogota and Medellin show solid governance and management practices that have supported historical low to moderate debt levels and moderate cash financing requirements, says the ratings agency. Between 2011 and 2013, Bogota's cash financing requirements averaged -5.7% of total revenues and net direct and indirect debt averaged 18.4% of total revenues. Medellin's cash financing requirements over the same period averaged -5.8% of total revenues and debt levels averaged 17.6% of total revenues.

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The European Review

By Patrick Artus, chief economist at Natixis

France’s industrial crisis: predictable and set to last

Friday, 03 August 2012 Written by 
France’s industrial crisis: predictable and set to last France’s industrial sector is in the midst of a steadily worsening crisis. There has been a decline in production, employment and productive investment, the external deficit remains significant, and export market shares are declining rapidly. We would argue that this situation was foreseeable, particularly if we add up issues with supply, domestic and external demand, and the impact of the eurozone crisis. Unfortunately, not a lot can be done about the weakness of demand, and the remedies to the supply problem are difficult to implement rapidly. http://www.ftseglobalmarkets.com/

France’s industrial sector is in the midst of a steadily worsening crisis. There has been a decline in production, employment and productive investment, the external deficit remains significant, and export market shares are declining rapidly.

We would argue that this situation was foreseeable, particularly if we add up issues with supply, domestic and external demand, and the impact of the eurozone crisis. Unfortunately, not a lot can be done about the weakness of demand, and the remedies to the supply problem are difficult to implement rapidly.

Let’s go through these issues, their causes and their implications.

Cause no. 1: The supply problem

Supply conditions for goods and services continue to deteriorate in France. The low profitability of companies discourages investment hence the production capacity of French industry is on the decline.

Since 2001, French industry sales prices have been falling relative to unit wage costs. Such falls reflect the excessive level of unit wage costs compared to the sophistication of industrial production in France. The downmarket nature of French industrial production prevents an increase in its selling prices, because of the high level of the price elasticity of demand for industrial products made in France: 0.9 versus 0.3 in Germany.

However, the rise in the unit wage cost – relative to selling prices – does not come as a result of the trend in productivity, but what has been happening to wages. This is because the level of costs is pushed up by the level of employers’ welfare contributions.

The subsequent fall in French industry’s profitability is substantial, reducing its capacity to invest and create jobs. This leads to the off-shoring of production capacity to countries where industrial profitability is higher, thereby weakening industry financially and threatening it with a serious crisis in the event of a recession and falling demand.

Cause no. 2: The demand problem

Between 2011 and 2012, French industry suffered from the weakness of both domestic and external demand. This resulted in a lower capacity utilisation rate than normal, which makes the problem of low profitability even more detrimental. And the decline in demand may deteriorate further if there is a fall in real wage incomes and government expenditure.

Cause no. 3: The euro-zone crisis

The eurozone crisis has two negative effects on French industry:

  1. it weakens demand and therefore imports in the eurozone countries that usually would have been France’s customers. This is significant because the eurozone accounts for 46% of French exports – the United Kingdom, which is also mired in a recession, accounts for 6%;
  2. it reduces domestic demand and capacity utilisation rates in Spain and Portugal and persuades industrial companies in these countries to turn to exports. As wage costs are lower in these countries, there is an increase in the competition that has a direct impact on French industry. France’s export market share tends to decline, whereas those of PortugalSpain and Ireland have recovered.

Remedies are very difficult to implement

Of the three issues mentioned, weakness of demand and the effects of the eurozone crisis cannot be controlled, particularly in a situation where there is private-sector deleveraging and a reduction in fiscal deficits. The question for French industry is therefore which remedies can be implemented on the supply side? We have put together the following list of possible measures:

 

  • an improvement in the sophistication of industrial production and in the differentiation of products, which will require innovation, investments, and marketing;
  • increased geographical diversification in companies' sales to increase the weight of emerging countries, which is currently quite low in France;
  • a major reform of the financing of social welfare in France to reduce the weight of welfare contributions paid by companies;
  • a fall in the hourly labour cost, either through a fall in the per capita wage, or through an increase in the number of hours worked (which is obviously a source of conflict).

 

However, these measures are all very difficult to implement rapidly.

It is also important to understand the major fragility of companies that are not very profitable (i.e. they have a shortfall in supply) when they are faced with a significant and lasting decline in demand.

Unfortunately, it looks as though this French industry crisis is not going to go away any time soon.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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