Friday 27th November 2015
NEWS TICKER, THURSDAY, NOVEMBER 26TH: In the last six months River and Mercantile Group (R&M) says has been appointed to design, execute and provide ongoing management of over £1.7bn of structured equity options mandates for pension clients, including the Royal Mail Pension Plan and another FTSE 100 company’s pension scheme. James Barham, global head of Distribution at R&M, says, "With increased volatility in equity markets, we have seen a growing number of clients that are taking advantage of our market leading derivative capabilities to manage the downside exposure in their equity portfolios. The derivatives team at R&M has an exceptional long term track record in designing and managing structured equity solutions for clients over the last ten years. We continue to see significant demand from pensions and institutional clients for structured equity to actively manage the profile of their equity investment returns while maintaining their allocation to equities. The design and execution of these mandate demonstrates R&M’s ability to design innovative, outcome oriented solutions for our clients, which are delivered to meet their governance requirements.” - Demand to borrow Asian stocks surged in the wake of the recent market volatility reports Markit. While short sellers have since pulled back slightly, the current demand to borrow shares across the region is still up by a fifth since the start of the year. Short interest across Asia is up by 18% year to date, reaching 2.7% of free float. However, says Markit, Japanese short selling has been relatively flat since the start of the year. The firm adds that consumer sectors have made Australia the most shorted country in the region - Trayport, a provider of energy trading solutions to traders and exchanges, says Power Solutions Enerji Ticaret ve Danışmanlık Anonim Şirketi has chosen Trayport’s GlobalVision Broker Trading SystemSM (BTS) for trading in the Turkish power market. Power Solutions, founded in Turkey in 2015, provides OTC Brokerage services in the Turkish electricity market.. The Trayport BTS offers brokers access to a growing network of traders using Trayport’s trading technology - The Dutch residential mortgage-backed securities (RMBS) market remained strong during the three-month period ended September 2015, according to the latest indices published by Moody's The 60+ day delinquencies of Dutch RMBS, including Dutch mortgage loans benefitting from a Nationale Hypotheek Garantie, continued to decrease to 0.73% in September 2015 from 0.81% in June 2015. The 90+ day delinquencies also continued to decrease to 0.56% in September 2015 from 0.64% in June 2015. Cumulative defaults increased to 0.78% of the original balance, plus additions (in the case of master issuers) and replenishments, in September 2015 from 0.70% in June 2015. This compares to cumulative defaults of 0.49% in September 2014. Cumulative losses increased to 0.15% in September 2015 from 0.14% in June 2015. Moody's has assigned definitive credit ratings to two new transactions since the last publication of the Index on September 9th, including five classes of notes issued by STORM 2015-II BV. and two classed of notes issued by Hypenn RMBS IV BV. As of the end of September, the 107 Moody's-rated Dutch RMBS transactions had an outstanding pool balance of €217.9bn, representing a year-over-year decrease of 4.8% - Thanksgiving holidays in the US has coloured trading today. In the Asia-Pac, low commodities prices are weighing on the Australian economy. Australia's S&P/ASX 200 gained 0.3% in thin trading volumes across the whole Asia-Pac region. With the exception of the Australian dollar, trading volumes were ridiculously small EUR/USD traded within a 10 pips range between 1.0615 and 1.0625. Similarly, GBP/USD traded sideways between 1.5115 and 1.5131. According to Yann Quelenn, market analyst at Swissquote: “When commodities price lower, there is a transfer of wealth between exporters (producers) and importers of commodities. The decline favours industries that need commodities as primary source for manufacturing products. Australia is on the exporters’ side. Indeed, an important part of the Australian’s revenues accounts for the revenues on the extraction of gold, silver, platinum and other metals. Materials shares fell 1.3%, and are down 4.6% so far this week, with commodities like copper and nickel having tumbled to multiyear lows. In Japan, The Nikkei Stock Average ended the day up 0.5% at 19944.41, while and South Korea's Kospi rose 1.1%. The Shanghai Composite Index fell 0.3% and Hong Kong's Hang Seng Index closed flat. Japan shares have posted one of the strongest rebounds in the region since September. The Nikkei is the second-best performing market in Asia year to date with a gain of 14%. China's Shenzhen Composite Index is up 65% year to date. The Straits Times Index (STI) ended 6.89 points or 0.24% lower to 2884.69, taking the year-to-date performance to -14.28%. The top active stocks today were OCBC Bank, which declined 0.91%, SingTel, which gained 0.26%, UOB, which declined 1.79%, DBS, which declined 0.36% and Global Logistic, with a 1.91% fall. The FTSE ST Mid Cap Index declined 0.05%, while the FTSE ST Small Cap Index declined0.84%.In Brazil, the BCB left rates unchanged at 14.25% yesterday in spite of rampant inflation. The latest economic survey by the central bank showed that inflation expectations are not anchored yet as it is expected to reach 10.33% by year-end and 6.64% by the end of 2016. Broadly, expectations the U.S. Federal Reserve will raise interest rates in December has pushed the yen weaker. The currency has weakened 3.1% against the U.S. dollar in the past three months. Japan shares nevertheless remain vulnerable to global central bank moves and geopolitical tensions - The London Metal Exchange's three-month copper contract closed down 1.3% at $4,549 a metric ton on Wednesday. Copper last traded at $4,692.50 a metric ton, up from the opening price of $4,538 a ton on Thursday. Overnight, the latest U.S. report on jobless claims pointed to a strengthening employment picture, pushing the dollar higher. U.S. stocks ended mostly unchanged as consumer discretionary and health-care shares offset losses in other sectors on the last full trading day of the week before the Thanksgiving holiday. Brent oil futures fell 0.2% to $46.06 a barrel. US crude-oil futures rose 0.2% to $43.13 a barrel. Gold prices were up 0.3% at $1,073.50 a troy ounce.

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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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