Saturday 31st January 2015
NEWS TICKER FRIDAY, JANUARY 30TH: Morningstar has moved the Morningstar Analyst Rating™ of the Fidelity Japan fund to Neutral. The fund was previously Under Review due to a change in management. Prior to being placed Under Review, the fund was rated Neutral. Management of the fund has passed to Hiroyuki Ito - a proven Japanese equity manager, says Morningstar. Ito recently joined Fidelity from Goldman Sachs, where he successfully ran a Japanese equity fund which was positively rated by Morningstar. “At Fidelity, the manager is backed by a large and reasonably experienced analyst team, who enjoy excellent access to senior company management. While we value Mr Ito’s long experience, we are mindful that he may need some further time to establish effective working relationships with the large team of analysts and develop a suitable way of utilising this valuable resource,” says the Morningstar release - The Federal Deposit Insurance Corporation (FDIC) today released a list of orders of administrative enforcement actions taken against banks and individuals in December. No administrative hearings are scheduled for February 2015. The FDIC issued a total of 53 orders and one notice. The orders included: five consent orders; 13 removal and prohibition orders; 11 section 19 orders; 15 civil money penalty; nine orders terminating consent orders and cease and desist orders; and one notice. More details are available on its website - Moody's Investors Service has completed a performance review of the UK non-conforming Residential Mortgage Backed Securities (RMBS) portfolio. The review shows that the performance of the portfolio has improved as a result of domestic recovery, increasing house prices and continued low interest-rates. Post-2009, the low interest rate environment has benefitted non-conforming borrowers, a market segment resilient to the moderate interest rate rise. Moody's also notes that UK non-conforming RMBS exposure to interest-only (IO) loans has recently diminished as the majority of such loans repaid or refinanced ahead of their maturity date - The London office of Deutsche Bank is being investigated by the Financial Conduct Authority (FCA), according to The Times newspaper. Allegedly, the bank has been placed under ‘enhanced supervision’ by the FCA amid concerns about governance and regulatory controls at the bank. The enhanced supervision order was taken out some months ago, says the report, however it has only just been made public - According to Reuters, London Stock Exchange Group will put Russell Investments on the block next month, after purchasing it last year. LSE reportedly wants $1.4bn - Legg Mason, Inc. has reported net income of $77m for Q3 fiscal 2014, compared with $4.9m in the previous quarter, and net income of $81.7m over the period. In the prior quarter, Legg Mason completed a debt refinancing that resulted in a $107.1m pre-tax charge. Adjusted income for Q3 fiscal was $113.1m compared to $40.6m in the previous quarter and $124.6m in Q3 fiscal. For the current quarter, operating revenues were $719.0m, up 2% from $703.9m in the prior quarter, and were relatively flat compared to $720.1m in Q3 fiscal. Operating expenses were $599.6m, up 5% from $573.5m in the prior quarter, and were relatively flat compared to $598.4min Q3 of fiscal 2014. Assets under management were $709.1bn as the end of December, up 4% from $679.5bn as of December 31, 2013. The Legg Mason board of directors says it has approved a new share repurchase authorisation for up to $1bn of common stock and declared a quarterly cash dividend on its common stock in the amount of $0.16 per share. - The EUR faces a couple of major releases today, says Clear Treasury LLP, and while the single currency has traded higher through the week, the prospect of €60bn per month in QE will likely keep the euro at a low ebb. The bigger picture hasn’t changed, yesterday’s run of German data was worse than expected with year on year inflation declining to -.5% (EU harmonised level). Despite the weak reading the EUR was unperturbed - The Singapore Exchange (SGX) is providing more information to companies and investors in a new comprehensive disclosure guide. Companies wanting clarity on specific principles and guidelines on corporate governance can look to the guide, which has been laid out in a question-and-answer format. SGX said listed companies are encouraged to include the new disclosure guide in their annual reports and comply with the 2012 Code of Corporate Governance, and will have to explain any deviations in their reporting collateral. - Cordea Savills on behalf of its European Commercial Fund has sold Camomile Court, 23 Camomile Street, London for £47.97mto a French pension fund, which has entrusted a real estate mandate to AXA Real Estate. The European Commercial Fund completed its initial investment phase in 2014 at total investment volume of more than €750m invested in 20 properties. Active Asset Management in order to secure a stable distribution of circa 5% a year. which has been achieved since inception of the fund is the main focus of the Fund Management now. Gerhard Lehner, head of portfolio management, Germany, at Cordea Savills says “With the sale of this property the fund is realising a value gain of more than 40%. This is the fruit of active Asset Management but does also anticipate future rental growth perspectives. For the reinvestment of the returned equity we have already identified suitable core office properties.” Meantime, Kiran Patel, chief investment officer at Cordea Savills adds: “The sale of Camomile Court adds to the £370m portfolio disposal early in the year. Together with a number of other asset sales, our total UK transaction activity since January stands at £450m. At this stage of the cycle, we believe there is merit in banking performance and taking advantage of some of the strong demand for assets in the market.” - US bourses closed higher last night thanks to much stronger Jobless Claims data (14yr low) which outweighed mixed earnings results. Overnight, Asian bourses taken positive lead from US, even as Bank of Japan data shows that inflation is still falling, consumption in shrinking and manufacturing output is just under expectations. According to Michael van Dulken at Accendo Markets, “Japan’s Nikkei [has been] helped by existing stimulus and weaker JPY. In Australia, the ASX higher as the AUD weakened following producer price inflation adding to expectations of an interest rate cut by the RBA, following other central banks recently reacting to low inflation. Chinese shares down again ahead of a manufacturing report.” - Natixis has just announced the closing of the debt financing for Seabras-1, a new subsea fiber optic cable system between the commercial and financial centers of Brazil and the United States. The global amount of debt at approximately $270m was provided on a fully-underwritten basis by Natixis -

ECAs and Sovereign Debt

Monday, 01 August 2005
ECAs and Sovereign Debt Latest news in brief from around the world.

Latest news in brief from around the world.


The Export-Import Bank of the United States (Ex-Im Bank) has renewed its offer to reduce the Bank's exposure fee by one-third on asset-backed financings of new US manufactured large commercial aircraft for buyers in countries that sign, ratify and implement the Cape Town Treaty  (namely Ethiopia, Nigeria, Oman, Pakistan and Panama) and the related aircraft protocol. The Treaty, formally known as the Convention on International Interests in Mobile Equipment, came into force in November 2001 and  is designed to expand the sources, increase the amount and lower the cost of financing available to airlines, allowing them to upgrade their fleets and support job creation in the aerospace industry. Ex-Im Bank’s offer now covers approvals issued through to the end of September next year. The offer enables eligible foreign buyers to receive an Ex-Im Bank exposure fee of as low as 2%, a one-third reduction of the current minimum 3% exposure fee on asset-backed financings of new large commercial aircraft. More favourable financing terms also apply to asset-backed financings of spare engines to such buyers. In a change from its current policy, the Board also voted to extend preferential financing terms to leasing companies, but only if the aircraft leasing company and the airline lessee under the initial operating lease are both based in a Cape Town Treaty country and make the appropriate declarations under the Treaty and aircraft protocol.

Ex-Im Bank's board has also voted to invite European export credit agencies to work with Ex-Im Bank to develop a common approach to offering improved financing terms to airlines based in countries that ratify and implement the Cape Town Treaty, and offered to consider transitioning to that common approach prior to the September 30, 2006 expiration of Ex-Im Bank's current improved terms. "Ex-Im Bank strongly believes that the Cape Town Treaty will reduce certain risks associated with cross-border, asset-backed financings and leases of aircraft and aircraft engines," said Philip Merrill, Ex-Im Bank’s chairman and president.


American International Group, Inc. (AIG) has announced that its subsidiary, American International Underwriters Insurance Company (AIUI), has been notified that it will receive a license from the government of Vietnam to operate a wholly owned general insurance company in Vietnam. It is the first general insurance license granted by Vietnam to a US based insurer.

The license allows AIG to operate a general insurance company throughout Vietnam. The name of the company will be AIG General Insurance (Vietnam) Company Limited (AIG Vietnam), which will market property-casualty insurance products to both individuals and businesses. AIG Vietnam will be headquartered in Hanoi. AIG Vietnam expects to begin operations as soon as all regulatory approvals are in place, which are anticipated by the end of the year.


A $28m contract won by Motorola Limited to supply mobile telephone infrastructure equipment to Russia’s leading mobile phone operator has been underwritten by the UK’s Export Credits Guarantee Department (ECGD), the official export credit and insurance provider.  The contract – most of which will be sourced from Motorola’s Swindon factory – will supply radio base transceiver stations, soft switches and associated software to be used by Russia’s OJSC Mobile TeleSystems (MTS). As in many other countries, the constraints of the existing fixed line network have boosted interest in mobile telephone technology, particularly among business users, leading to rapid growth and development. MTS currently has over 32m subscribers in Russia and around 10m users in Ukraine, Belarus and Uzbekistan.

ECGD has guaranteed, under its buyer credit finance facility, a $23.8mbank loan from Barclays Bank to finance MTS’s purchases.  The deal marks the first time in which the UK’s official export credit agency has taken clean balance sheet risk on a Russian corporate buyer, as opposed to requiring third party security, for example, in the form of an acceptable Russian bank guarantee. MTS will also have the ability to finance further contracts placed with Motorola within the facility’s two year ordering period without having to negotiate separate loan agreements for each one.

At present, mobile phone market penetration is about 41% in Russia, while in its capital Moscow, the largest and most lucrative market, the figure is nearer 90%, very high even by Western European standards.


At a meeting of the UK-Iraq joint economic commission in Amman in mid-July Iraqi Finance Minister Ali Abdulameer Allawi and Ross Connelly, acting president and chief executive officer of the Overseas Private Investment Corporation (OPIC), have signed a bilateral agreement formally opening all OPIC programs and services in Iraq. The agreement should pave the way for increased US investment and business activities in the developing Iraqi economy.

Working with the transitional authorities in Iraq over the past year, OPIC has already committed more than $144m in financing and political risk insurance to seven projects in Iraq, including financing for a $131m Citigroup lending facility designed to revitalize small and medium-sized enterprises in the country. Today’s agreement with the new, democratically elected government is the first-ever investment incentive agreement undertaken by OPIC in Iraq.


Peru has offered Paris Club creditor to prepay up to US$2bn principal maturities of its debt falling due between August 2005 and December 2009. At the time of the announcement in late June Deputy Treasury Minister Luis Carranza said that the country's "aggressive" pitch to the Paris Club of creditor nations was designed initially to purchase back US$1.5bn of debt to ease a looming repayment hump. The government announced that it intended to issue up to $1.5bn in new paper on local and international markets to help finance its Paris Club debt, anticipating that a third of the funds required would be raised in Peru, the rest overseas. It is Peru's first debt deal with the club since 1997.

The prepayment will be made at par and offered to all creditors. The debt covered by this offer is the debt not granted under Official Development Assistance (ODA) conditions. The interest savings achieved through this prepayment will support the Republic of Peru in the implementation of a cautious and balanced debt management strategy. Participation in the prepayment programme is voluntary. The majority of Peru's creditors have indicated that they are likely to participate. Payments to creditors will be made on August 15, 2005. Peru's debt not granted under ODA conditions (that is owed to the Paris Club prior to any prepayment) was worth $4.2bn at the beginning of July.

The Peruvian authorities “are making progress in increasing the resilience and efficiency of the financial sector, “ says a recent IMF report. “They are strengthening prudential regulations on lending to unhedged economic agents and improving the supervision of offshore bank subsidiaries. The authorities also intend to discourage mortgage lending in foreign currency, and are promoting greater efficiency in financial intermediation, including through the development of the domestic capital market. It will be important that the authorities strictly observe the limit on consumer lending by the state-owned bank, Banco de la Nación.

Peru's share of international aid has declined in recent years. The most recent programme to close is that of the UK's Department for International Development (DFID), whose office in Peru closed its doors at the end of March this year, according to Project Peru, the UK based pressure group. “By far the largest donor left in Peru is USAID (US Agency for International Development), whose main rationale is to fight 'the war on drugs', not the war on poverty,” says Project Peru’s website.

NIGERIA: Paris Club creditor countries have said they are ready to enter begin talks with the Nigerian authorities in the months on a comprehensive debt treatment. The agreement comes at time when Nigeria has decided to develop closer relations with international funding institutions – a move noted by the Paris Club, together with the country’s efforts to implement a stringent reform programme begun in 2003.   The announcement takes place after Nigeria has recently been declared eligible to IDA-only borrowing status.

Creditors have welcomed Nigeria's willingness to conclude a policy support instrument (PSI) as soon as this new instrument is approved by the board of the IMF, to pay all its arrears towards Paris Club creditors and to treat them equitably. On this basis, this debt treatment would include debt reduction up to Naples terms on eligible debts and a buy back at a market related discount on the remaining eligible debts after reduction.

The agreement would be phased in relation with appropriate IMF review under the PSI. This exceptional treatment of Nigeria's debt would offer a fair, sustainable and definitive solution to Paris Club creditors and Nigeria, say Paris Club officials.  The significant debt relief would ensure long term debt sustainability and would represent an important contribution by Nigeria's Paris Club creditors to its economic development. It would also help Nigeria in its fight against poverty. Paris Club creditors say they are ready to invite Nigeria to negotiate in Paris as soon as it has concluded a policy support instrument with the IMF.


Italy’s export credit provider SACE signed an agreement in Moscow with the Russian Federation in mid July for the prepayment of approximately $2bn worth of debt, reducing SACE’s effective exposure by around 40%. The prepayment transaction—paid out from Russia’s Oil Stabilisation Fund— is the most substantial ever to take place within the Paris Club and is part of the Russian Federation’s plan to increase its credit worthiness. Market watchers have responded positively to the move. “It is the most efficient use of money,” says Dimitri Shemetilo at Commerzbank Securities’ emerging markets strategy group in London, “particularly when the macro story is one where corporates in the more developed markets are de-leveraging and where the performance of the equity markets is not that exciting.”

The agreement with SACE follows a rumoured repayment of $5.8bn to Germany in early July, although this has not been confirmed at the time of going to press. However soon after the SACE agreement was announced Russian Finance Minister Alexei Kudrin and the French Ambassador to Russia, Jean Cadet, signed an accord for the repayment of 40% of its Paris Club obligations to France ahead of time.

Shemetilo thinks that the repayment is likely, given that the value of Russia’s Oil Stabilisation Fund, “which has been on an upward trajectory all year has suddenly fallen by a considerable amount.” At the beginning of June for instance, the Fund held $33.64bn and yet by July 1 it held only $21.58bn, which he says “is the first drop this year and shows the impact of the repayments.” Russia is repaying the obligations following a multi-lateral agreement on repayments to Paris Club members in mid-May. The Paris Club was formed in 1956. It is an informal group of creditor governments from major industrialized countries. It meets on a monthly basis in Paris with debtor countries in order to agree with them on restructuring their debts. Russia’s agreement covers repayments of $15bn dollars of debt (Italy is currently the Russian Federation’s second largest creditor after Germany, which up till the end of June held $17bn worth of Russian debt). The 19 members of the Paris Club will choose individually whether to participate in Russia’s debt buyback programme. Rising oil receipts means Russia has the opportunity to improve its balance of payments, reduce its annual interest payments by 30% and pay off nagging foreign debts. In particular, the agreement reduces Russia's Paris Club obligations to about US$25bn. In February, Russia paid off the last $3.33bn instalment of a $22bn International Monetary Fund debt. It was due to complete repayment of this debt in 2008. A further $6bn to $13bn is likely to be paid back to creditors this year, including France and the United States.

Russia will make the payments to SACE in two instalments: the first in mid July and the second just before the end of the month.  The agreement exclusively relates to Italian credits owned by SACE. The export credit provider will also benefit from a capital gain on account of the repayment being made at nominal value (100% of the credits’ value), as opposed to the rest of SACE’s portfolio, which is held at market value.

Commerzbank’s Shemetilo anticipates a ratings upgrade for Russia, which had recently been upgraded to investment grade BBB- by the major ratings agencies; “All the ratings agencies report either a stable or positive outlook,” says Shemetilo. In terms of exposure, Russia ranks among the primary countries in SACE’s portfolio and the signal importance of the Russian import market to Italy is underscored by SACE’s plans to open an office in Moscow in the autumn.


Moody's Investors Services has revised its approach to evaluating corporate sector government-related issuers (GRIs) in Europe, the Middle East and Africa (EMEA). GRIs are essentially rated companies which are deemed to be less likely to default because of their direct links with government and  account for approximately 20% of all publicly rated debt issued by corporates in EMEA.

Moody’s has examined all affected rating and has updated them accordingly. The new approach is more transparent says the ratings agency and analysis of European GRIs will consider the stringent regulatory limitations on state aid imposed by the European Treaty. “Moody’s can now much more clearly communicate how we have dimensioned [sic] the key components of our analysis of these credits,” explains Karl Pettersen, vice president and senior analyst and author of the report.   Moody’s new rating methodology applies to any entity with full or partial government ownership or control, a special charter, or a public-policy mandate from a national or local government. While Moody’s has always incorporated the likelihood of support from a state shareholder to individual GRIs, the new approach formally disaggregates the ratings into four components. These are:

  • the GRI's baseline credit risk which reflects the likelihood that the GRI will require an extraordinary bail-out by the government,
  • the credit risk of the supporting government,
  • the default dependence between the GRI and the government, and
  • the likelihood of government support to avoid a default on the GRI's debt obligations.

“Articulating these concepts in practice – in particular, the likelihood and nature of support from a state shareholder – is a complex exercise, and the European market context has in many ways served as a benchmark for our global analysis,” says Pettersen.

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