Cash-strapped Evergrande revises payment plan for wealth unit investors: Reuters | Arab News

2021-12-31 11:01:37 By : Mr. yuanfei zhou

https://arab.news/jj8p6

China Evergrande Group on Friday dialled back plans to repay investors in its wealth management products, in a move that highlights the deepening liquidity squeeze at the property developer that has failed to meet its offshore debt obligations, according to Reuters.

Evergrande, whose $19 billion in international bonds are deemed to be in cross-default by rating agencies after the developer missed a deadline to pay coupons earlier this month, did not pay offshore coupons due earlier this week.

The developer has been scrambling to raise cash by selling assets and shares to repay suppliers and creditors.

Evergrande said on Friday that each investor in its wealth management product could expect to receive 8,000 yuan ($1,257) per month as principal payment for three months starting this month irrespective of when the investment matures.

Once China’s top selling developer and now reeling under more than $300 billion in liabilities, Evergrande had earlier not mentioned any amount and had agreed to repay 10% of the investment by the end of the month when the product matures.

It had also agreed to make follow up payments to the wealth management product investors every three months afterwards, until the debt Evergrande owed to an investor is cleared, according to state media reports earlier this year.

Evergrande said in a statement posted on the wealth unit’s website on Friday that the company would “actively raise funds”, and update the repayment plan in late-March. The company did not elaborate.

The situation is not “ideal”, the statement said, as the development’s wealth unit tries to recover capital from the projects it invested in previously and, therefore, the original repayment plan was hard to implement.

Evergrande, in common with other heavily-indebted conglomerates, had issued high-yielding wealth management products to investors — a popular way of borrowing from ‘mom-and-pop’ investors that sidesteps government lending restrictions.

As the liquidity crisis deepened at Evergrande, the firm’s wealth unit in late September missed a payment on one of its products, leading to protests by investors who fear they will never get their money back.

Some of its wealth investors had refused to accept the embattled company’s plan to provide payment with discounted apartments, offices, stores and parking units.

LONDON: Emerging market stocks broke a two-year winning run, but were set to end the last day of 2021 on a positive note on Friday boosted by China shares, while Turkey’s lira seesawed in thin trade after hefty losses this week, according to Reuters.

MSCI’s index of EM shares rose 0.8 percent to three-week highs as China blue-chips climbed 0.4 percent, while battered Hong Kong shares jumped 1.2 percent.

On the year, however, the Chinese indexes lost as a regulatory crackdown in the country had hammered heavyweight technology, internet and gaming stocks, while debt default risks at heavily indebted real estate developer China Evergrande Group hurt the property sector.

The broader EM index is on track to close about 4.5 percent lower on the year, compared with a more than 25 percent rise in the US benchmark S&P 500.

Turkey’s BIST index which surged more than 60 percent to record highs this year as stocks were rendered cheap by a lira fall and supported by looser monetary policy, was set to end the year up 27 percent. It cut a chunk of losses this month as investors lost faith in the central bank following continued unorthodox monetary policy demanded by the country’s President Tayyip Erdogan.

Turkey’s lira moved between 13.0 and 13.4 this morning after sinking around 20 percent this week, giving back a chunk of last week’s more than 50 percent surge that followed some support measures by the central bank.

But the interventions do not tackle the core problem, which should see the currency weaken further, analysts said.

“Inflation will accelerate further amid claims that (central bank) policy rates will continue to decline, while other emerging markets are fighting inflation with often unprecedented rate hikes,” said Marek Drimal, EMEA strategist at Societe Generale.

“The lira is therefore likely to weaken further until credibility in inflation targeting picks up.”

The lira is set to end the year down about 43 percent — its worst year in two decades, and the worst performance among EM currencies.

The US Federal Reserve signalling tighter monetary policy next year and uncertainty around the coronavirus pandemic add to local pressures in emerging markets, such as an election in Brazil, new policies under a new government in Chile, geopolitical tensions in Russia, Ukraine and Belarus, among others.

Russia’s rouble slipped further towards 75 a dollar after a call between President Vladimir Putin and US counterpart Joe Biden yielded no deal to defuse tensions over Moscow’s military build-up near Ukraine. Putin warned against more US sanctions.

The rouble is down about 0.8 percent this year, with higher oil prices cushioning the fall for the exporter. Russian stocks gained 15 percent in 2021.

South Africa’s rand was flat and looked to end the year down about 7 percent. South Africa said it passed the peak of its fourth COVID-19 wave and lifted a midnight to 4 a.m. curfew on Thursday.

ABU DHABI: Mubadala Investment Company is selling its stake in North American datacenter provider Cologix as fellow investor Stonepeak recapitalizes the company with new partners. Cologix will be transferred from Stonepeak Infrastructure Fund II LP and co-investors to another Stonepeak-managed vehicle made up of some existing Fund II investors and new third-party investors. The transaction is expected to close in early 2022, Mubadala and Stonepeak said in a statement. Mubadala took a stake in Cologix with Stonepeak Fund II in January 2020 since when it has grown both organically and through acquisitions, the Abu Dhabi state investor said. Cologix describes itself as North America’s leading network-neutral interconnection and hyperscale edge data center company with more than 600 networks and over 300 cloud providers across the platform. It provides IT infrastructure to more than 1,600 customers through its operations that span 40 interconnection and hyperscale data centers in 11 North American markets. “Our success as a leading investor lies in our ability to identify uniquely-placed quality businesses to venture into, and equally importantly, assess monetization opportunities to ensure that we maintain significant capital growth and a healthy portfolio of business investments,” said Khaled Al Qubaisi, CEO, Real Estate and Infrastructure Investments at Mubadala. “We firmly believe that our involvement with Cologix ticked all those boxes from the outset and we are pleased to have contributed to this successful partnership.”

RIYADH: The Saudi Central Bank, also known as SAMA, will start using Bloomberg’s auction system for repo, reverse rep, and open market operations from January 2022. The bank had announced in 2018 the completion of the development of the SAMA Bills and Murabaha issuance system using Bloomberg, it said on Dec. 30. The system aims to provide a safe and secure environment to issue and buy back debt, and perform other open market operations including repo and reverse repo auctions, all from a single integrated platform. “This collaboration with Bloomberg marks the next stage in developing the central bank’s operations,” said the bank’s Vice Governor Ayman Alsayari. “The increased efficiency of liquidity management operations will have a positive impact on the banking sector.” “It also aligns with international best practice in liquidity management through electronic trading,” he said. Bloomberg’s auction system is part of its enterprise solution for central banks and government financial agencies, and is used by market participants to track auction tenders electronically and enter bids.

RIYADH: Digital solutions company Elm will make 30 percent of its shares available through the Saudi stock market, it has announced.

The firm, wholly-owned by the Saudi Public Investment Fund, is set to list 24 million shares on the Tadawul.

Elm’s profits hit SR279 ($74.3 million) in the first six months of 2021.

The company targets key sectors in the Kingdom, including technology solutions, outsourced business procedures, operation management, consultancy, and human resource services.

Elm was founded in Riyadh in 1988, and provides services to the government, the corporate sector and individuals.

LONDON: From the great lockdown, to the great rebound? At the start of this year the world was optimistic that the development of pioneering vaccines would restrict the global spread of COVID-19. December 2020 marked the date when vaccinations for the virus first began to be administered around the world. Since then, the death toll has tripled according to the World Health Organization. While the vaccine was never going to end the pandemic, the hope was that it would contain its spread, and that global trade and finance could resume unhindered.

Vaccine inspires confidence However, as vaccine inspired confidence returned during 2021, a surge in demand exacerbated pre-pandemic supply chain disruption. Inflationary pressures in the logistics chain were led by global energy prices. The price of a barrel of Brent crude oil started 2021 at $50 and hit $85 by October.

More significant was the sharp spike in natural gas prices that month. Europe’s TTF, the benchmark for wholesale gas, hit a record €137 per megawatt hour in October, an increase of more than 75 percent. In Asia, LNG prices soared above the equivalent of more than $320 a barrel of oil.

The gas price rise, particularly in terms of Europe, was exacerbated by a drop in exports from Russia’s Gazprom, partially caused by regulatory problems with its Nord Stream 2 gas pipeline, which is set to double gas supplies to Germany but circumvents Ukraine. Against the backdrop of current geopolitical events between Russian President Vladimir Putin and the West, another gas price spike looks likely to occur in the first quarter of the new year.

Supply chain crunch Meanwhile, the supply chain crunch brought the system of outsourcing production across the globe and just in time delivery into sharp focus. In March the container vessel Ever Given became the most famous ship since the Titanic when it got stuck in the Suez Canal for six days. Lloyd’s List estimated the Ever Given held up an estimated $9.6 billion of trade for each day it was stuck. Estimates suggest the stricken vessel knocked up to 0.4 percentage points off global trade growth.

Global inflation While the sharp rise in global inflation was initially dismissed as transitory and attributed to a temporary mismatch in demand and supply as economies opened up again, price pressures now appear to be more entrenched and will be the unwanted gift from 2021 to 2022. The other big issue for the world’s economies, particularly gulf oil producers, during 2021 was climate change.

COP26 In August, a UN report warned in stark terms that the world’s governments needed to do more to combat climate change and reduce greenhouse emissions. Even the International Energy Agency warned investors to stop funding new oil and gas projects to ensure the world reaches net-zero emissions by 2050. The US and China top the global emissions charts. However, while US President Joe Biden brought America back into the Paris Climate Agreement, and China agreed to stop financing coal-fired power plants overseas, carbon emissions increased in 2021 as economies bounced back from the first phase of the pandemic. At November’s critical COP26 UN Climate Conference in Glasgow countries pledged to take steps to address climate change, but intentions fell way short of implementation. While President Biden warned COP26 of the need to end fossil fuels he also asked OPEC to pump more oil as American gasoline prices jumped to record levels, pushing US wider inflation to 40-year highs. Meanwhile, China ratcheted up its domestic coal production. COP26 ended with a rather weak pledge to “phase down” coal power and end “inefficient” fossil fuel subsidies.

Just a few days later, Biden authorized the release of 50 million barrels of oil from the US strategic reserve to his domestic market and vowed to release more to curb energy prices. Instead of bringing prices down, the release pushed crude higher in the short term. In short, while support for the 1.5C limit received fresh political backing in 2021, it looks like it will remain out of reach in 2022. However, climate change continued to impact oil and gas, as environmental, social, and governance issues and other pressures came to bear on the industry, sending investment down by more than a third globally. A report released this week by Rystad Energy also revealed global oil and gas discoveries are on track to hit their lowest full-year level in 75 years if the final weeks of 2021 fail to yield any significant finds.

Capital markets Another highlight of the global economy this year has been the overall strength of the capital markets despite the pandemic. In November, in the US, both the Standard and Poor’s 500 and Dow Jones Industrial Average hit all-time highs, as did the tech-heavy NASDAQ. Rising oil prices and mining stocks have also pushed the blue chip FSTE 100 higher this year. The sharp rise in oil prices also boosted Saudi Arabia’s Tadawul All Share Index, which rose more than a third this year. The Kingdom’s strong showing also boosted the wider MSCI GCC Countries Index. The index, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, increased by a similar amount over the year. Strong equity markets were key to global mergers and acquisitions, which hit a record high in 2021, topping $5 trillion for the first time ever. M&A volumes soared 63 percent to $5.6 trillion by 16 December, according to a report by Dealogic, way above the pre-credit crunch crisis record of $4.4 trillion in 2007. The increase was driven partly by pent-up demand from last year when the pace of M&A activity fell to a three-year low.

Crypto market And 2021 was also the year the crypto market came of age. After a roller-coaster year, the total value of cryptocurrencies rose to $3 trillion last month, led by Bitcoin. Looking forward to 2022, pandemic fueled easy money policy, the salient feature of the global economic support in 2021, is finally set to end in 2022. The economic outlook is now dominated by the impact of inflationary pressures and increasingly tighter monetary policy as well as uncertainty around omicron, all of which could set back economic recoveries worldwide. Central banks, most notably the Federal Reserve and the Bank of England have signalled persistent elevated inflationary pressures will lead to higher interest rates in the coming year. The Bank of England recently hiked its benchmark interest rate from 0.1 percent to 0.25 percent. The US Fed has indicated it is aiming for three rate hikes next year. The European Central Bank is also shifting to a tighter policy, albeit more gradually.

Inflation US inflation is currently running at 6.8 percent, across the eurozone it is almost 5 percent. In Germany, Europe’s largest economy, it is 6 percent, and in the UK 5 percent. Central banks are set to slash debt purchases next year by an estimated $2 trillion across the four big advanced economies. JPMorgan estimates central bank bond demand across the US, the UK, Japan, and the eurozone will fall by $2 trillion in 2022, following a $1.7 trillion reduction during 2020. That retrenchment is necessary after an International Monetary Fund report released this month noted that 2020 saw the largest one-year debt surge since the Second World War, with the total rising to $226 trillion. Borrowing by governments accounted for more than half of that figure. 

The IMF report reveals global debt increased 28 percent to 256 percent of world output. The starker figure though, against the backdrop of tighter monetary policy, is the increase in private debt, which accounts for 178 percent of global gross domestic product. As interest rates climb, global debt defaults could increase next year, particularly as both the rise of the omicron COVID-19 variant, as well as the Delta variant identified last summer, have already seen governments across the world impose fresh restrictions on economic activity. Against that backdrop, the odds on another lockdown and delayed rebound are getting shorter by the day. Berenberg chief economist Holger Schmieding now expects a 1 percent quarterly drop in eurozone and UK GDP in the first quarter of 2022, downwardly revising earlier growth predictions. Suddenly, this year’s bullish growth projections of a global recovery made by the IMF of 5.9 percent this year, and 4.9 percent in 2022, are starting to look very optimistic.