$2 trillion rated debt under risk due to environment issues: Moody’s

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Aside from these legacy issues, the underlying asset trend for Indian banks will be stable because of a generally supportive operating environment, said Moody’s Vice President.

Many sectors, other than power and coal, face environmental risks that could translate into credit risk, according to Moody’s Investor Service. These include automobiles, oil & gas, mining, steel, and commodity chemicals. Moody’s has identified 11 sectors with around $2 trillion in rated debt as having credit exposure to environmental risks in the next five years.

At the same time, 57 sectors, representing $59 trillion of rated debt, are considered low risk, with environmental risks unlikely to materially impact credit quality. While some like telecommunication operate with fundamentally low exposure to environmental risks, others such as banks and insurance companies, have business diversity to mitigate their current exposures.

Unregulated power generators, which do not receive the benefits of cost recovery from their customers, coal mining and coal terminals, are the most exposed. Moody’s has developed a heat map that qualitatively scores the relative exposure of 86 sectors globally to environmental risks, in terms of both the materiality and timing of any likely credit effects. The amount of rated debt covered by this sector review is $67.9 trillion.

Environmental risks have been classified into two broad categories — the effects of environmental hazards, and the consequences of regulation designed to prevent or reduce those hazards.

Another set of 18 sectors, accounting for $7 trillion in rated debt, face environmental risks that could be material, but over five or more years. In this “emerging, moderate risk” category are developing economy sovereign and regional governments, integrated oil & gas companies and regulated power generation utilities. These have a clear exposure to environmental risks that could affect their credit quality. However, it is less certain that the identified risks will develop in a way to impact credit ratings for most issuers in these sectors.

“The longer runway to respond to risks could provide time to implement policy changes, adjust business models or financial profiles, or develop technological or lower-cost solutions, mitigating the impact of such risks,” said the report.

Sovereigns with developing economy as well as regional and local governments face increasing infrastructure challenges to manage environmental risks from water shortages, pollution or natural disasters. Unlike the overall scores, the sub-category scores were assessed based on the sector’s general level of exposure to that particular environmental risk, rather than any potential to affect ratings.

Source: http://www.business-standard.com/article/economy-policy/2-trillion-rated-debt-under-risk-due-to-environment-issues-moody-s-115113000680_1.html

ECB easing, US jobs data in focus

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European Central Bank (ECB) President Mario Draghi adddresses the European Banking Congress at the Old Opera house in Frankfurt, Germany November 20, 2015.

The world’s two biggest central banks will move decisively in opposing directions next week, with the European Central Bank (ECB) almost certain to ease policy on Thursday and a US jobs report likely to seal the case for a Fed rate hike in December.

Building a solid case for more easing on fears of anemic inflation, the ECB has all but committed itself to action, with the markets now guessing only about what exact steps it will take to kick-start price growth.

Still, there is plenty of room for surprises. The ECB will contemplate a wide range of measures, from a fairly uncontroversial deposit rate cut to more extreme – but highly unlikely – moves such as buying rebundled non-performing loans to resurrect bank lending.

“With expectations high, the risk of disappointment is also high but as concerns are correctly focused on the structural headwinds to the inflation outlook, there is really no point in holding back or saving ammunition at this stage,” Societe Generale said in a note to clients.

ECB President Mario Draghi has done his share to raise expectations. He has warned about increased risks to growth and inflation, and said “we will do what we must” to raise inflation as quickly as possible.

A Reuters poll of more than 50 economists predicted that the ECB would opt for a deposit rate cut to -0.3 per cent from -0.2 per cent, an expansion of its asset buying program to euro 75 billion per month from euro 60 billion, and an extension of that buying beyond September 2016.

There are a range of variations on this pattern, though. The ECB could opt for a deeper deposit rate cut, or it could add assets like corporate or municipal debt to those that it buys. It could even set a staggered deposit rate, punishing those who park large amounts of cash in its vaults.

The biggest complication to all this is the small but significant group of opponents to such action, led by Bundesbank chief Jens Weidmann and board member Sabine Lautenschlaeger, who broke ranks with their Governing Board peers recently to openly oppose further easing.

Overwhelm
Arguing that loose monetary policy poses risks and merely buys time to fix structural problems, Lautenschlaeger has taken a stance against any more steps, especially an expansion of the asset-buying program.

Draghi may have his work cut out bridging the gap between their views, as the ECB rarely votes at meetings and instead decides on policy with the broadest possible consensus.

His opponents could also make it tough for Draghi to continue his practice of promising big things, then exceeding the already heightened expectations.

“Expectations have increased further ahead of next week’s ECB meeting and ECB speakers have not done much to rein in expectations.

Draghi has overdelivered in the recent past but it could be harder this time given how much has been promised,” Deutsche Bank analysts wrote in a note to investors.

Citigroup said that to surprise the markets, the ECB would need to cut the deposit rate, increase its monthly bond-buying and adjust its forward guidance by extending the program or removing its reference to ending it next September.

While the euro area struggles with weak growth and high unemployment, the US is continuing to create jobs quickly. Data on Friday is expected to show that US non-farm payrolls increased by 200,000 in November, keeping the jobless rate at a 7-1/2 year low of 5.0 per cent.

But even if the figures disappointed somewhat, the Fed is still expected to hike at its meeting on December 15-16 given near full employment, with the debate likely shifting to future rate hikes rather than near term moves.

The biggest headwind for the Fed could be the dollar’s rapid firming against major currencies in recent months, which has already effectively tightened monetary conditions. But U.S. trade is less exposed to currency moves than elsewhere, such as in Europe, so the impact on policy is smaller.

Fed Chair Janet Yellen’s testimony to the Joint Economic Committee of the Senate on the economic outlook, due at the same time as Draghi’s press conference, will likely give more clues about the Fed’s next moves.

Among other top central banks, the Reserve Bank of Australia and the Bank of Canada are both expected to keep rates on hold with their respective economic outlooks in line or slightly better than their previous forecasts.

UAE earmarks key sectors like railways, housing, ports, roads for investments in India

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It is part of the $ 75 bn announced during Prime Minister’s August trip to the Gulf nation that marked a paradigm shift in bilateral strategic and economic partnership.

Oil-rich United Arab Emirates (UAE) has identified key sectors including railways, housing, ports, roads and renewable energy (mainly solar) for investments in India as part of the $75 billion announced during Prime Minister’s August trip to the Gulf nation that marked a paradigm shift in bilateral strategic and economic partnership.

UAE had announced to investment $75 billion for various sectors in India when Narendra Modi made a two-day trip to Abu Dhabi and Dubai last August — first by an Indian PM to the Gulf nation in three decades. Earlier this month, Finance Minister Arun Jaitley was in UAE to discuss this investment proposal among other issues and met senior officials of the Abu Dhabi Investment Authority (ADIA), one of the largest sovereign funds in the Gulf nation, officials from Abu Dhabi said.

ADIA would contribute to the $75-billion fund allotted for investments in India in sectors including railways, roads, housing, ports and renewable energy (solar initiatives) where the Modi government is seeking foreign direct investment to boost economy, officials from the Gulf state indicated. The Indian PM is likely to announce a solar mission at the Paris climate change summit.


However, UAE is pushing to begin the process of investments in near future by various ministries in keeping with Modi’s promise. “India is now a strategic partner for UAE and Abu Dhabi wants to invest in India’s growth and seeking expedition of the process on the ground,” a person familiar with the developments told ET.
With this goal in mind Jaitley met Sheikh Hamdan Bin Rashid Al Makhtoum, Minister of Finance, UAE, to discuss issues of mutual cooperation in the field of economic and trade development during his trip there. His visit follows that of UAE’s Foreign Minister to India within weeks of Modi’s trip to Abu Dhabi and this shows the seriousness of both nations which have now expanded their counter terror cooperation amid growing threat from IS and other terror groups in South Asia. Strengthening counter-terror cooperation also figured during Jaitley’s deliberations with UAE leadership.

The finance minister also invited large participation and investment in recently constituted National Investment and Infrastructure Fund (NIIF) by the Sovereign Wealth Funds and Pensions Funds of the UAE. He said the investment in NIIF will ensure good returns on investment as the government will invest these funds in infrastructure projects.

Source: http://economictimes.indiatimes.com/articleshow/49976782.cms

 

Brics bank may give first loans to India, China in their currencies

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The New Development Bank (NDB), referred to as Brics bank, may give the first batch of loans to India and China in their respective currencies in April, sources said, even though the default operating currency of the NDB is US dollar.

The New Development Bank (NDB), referred to as Brics bank, may give the first batch of loans to India and China in their respective currencies in April, sources said, even though the default operating currency of the NDB is US dollar.

The move is aimed at allowing the new multilateral agency headquartered in Shanghai to use a larger basket of currencies for lending and borrowing.

The NDB could raise funds by issuing rupee bonds in India or rupee-linked bonds overseas (masala bonds) for its rupee loans operations in the country.

In the past, the Asian Development Bank (ADB) has issued both domestic and overseas rupee bonds to finance projects in India.

The NDB, set up earlier this year, has an authorised capital of $100 billion. To start with, the it would begin with $50-billion subscribed capital, split equally among BRICS (Brazil, Russia, India, China and South Korea) countries.

It will scale up later by inducting more countries as members and raise resources from the market.

India, which needs $1-trillion investment in infrastructure in five years through 2017, could be one of the big beneficiaries of the new institution. The country is already the largest borrower of the World Bank and the ADB.

Even though NDB, sources said, is likely to give loans in local currencies to India and China, it would stick to US dollar as the default currency for raising funds from global markets as well in its lendings to countries. Exceptions will be made depending on the appetite for local currency loans in member countries, sources said.

With the process of operationalising the NDB (on the lines of the World Bank) gathering momentum, its board of directors met on November 20 to discuss and frame draft lending, borrowing and environmental policies for the bank before it commences operations in early 2016.

These norms will be ratified by the board of governors in March-April.

In the meantime, a pipeline of projects are being readied to seek the board of governors’ approval. India has already submitted three proposals including the Centre’s Green Energy Corridor and Grid Strengthening Project for evacuation power from renewable energy sources such as solar.

In this project, the NDB could be a co-financier along with the World Bank and the Asian Development Bank, sources said.

Two other projects sent to the NDB relate to a power project as well as an irrigation project in Rajasthan.

More projects will be sent to the bank after state governments submit their proposals to the Centre, sources said.

Source: http://www.financialexpress.com/article/economy/brics-bank-may-give-first-loans-to-india-china-in-their-currencies/171513/

 

Japan pledges $10 billion for climate policies in developing nations

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Japanese Prime Minister Shinzo Abe today promised to give $10.6 billion to developing nations by 2020 to help them implement policies against global warming, ahead of the UN climate talks in Paris next week.

The decision to offer 1.3-trillion yen ($10.6 billion) came after Japan gave a roughly combined 2.0 trillion yen for the same purpose in 2013 and 2014.

The government said in a statement that the money covers a one-year period but did not specify which year, only that it would be offered by 2020.

“We attach great importance to the notion that all nations will participate in agreeing to a new international framework,” Abe said in a meeting on global warming with members of his cabinet.

He added that Japan wanted to to encourage active participation in climate change by developing nations.

The pledged money will be funded both by the private and public sectors, said Chief Cabinet Secretary Yoshihide Suga.

He said Abe would announce details of the pledge at the UN climate conference to be held in Paris, which is set to be the biggest gathering of world leaders on climate in history.

“COP 21 will be an extremely important meeting as we aim to agree on an international framework against global warming that will replace the Kyoto Protocol,” Suga said.

“Prime Minister Abe will announce (Japan’s climate programmes) to the world at the COP 21 summit,” Suga said of the gathering.Suga said of the gathering

Japan has aggressively promoted use of its energy efficient technologies and infrastructure, such as train systems and power generation stations, to developing nations.

Foreign banks buy up bulk of Indian state government debt

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Offshore units of Nomura, Standard Chartered and Bank of America Merrill Lynch bought about Rs 3,000 crore of the Rs 3,500 crore on offer. (Photo: Reuters)

Three banks snapped up almost 90 percent of bonds sold by Indian states to foreigners, and turned them into derivatives, raising the prospect of more volatility in one of Asia’s best performing debt markets.

Several market participants involved in the sale said offshore units of Nomura, Standard Chartered (STAN.L) and Bank of America Merrill Lynch (BAC.N) bought about 30 billion rupees ($451 million) of the 35 billion rupees on offer in October, the first window for foreigners to buy in.

Much of that debt was then sold for a hefty fee as derivatives known as total return swaps to offshore clients keen for the bonds’ higher yields, compared with India’s already popular sovereign debt, and with similar guarantees.

In contrast, traditional buyers of the illiquid bonds are state banks, who hold the debt to maturity.

When contacted by Reuters, the three banks declined to comment.

India has been one of the most resilient emerging markets, with foreign buyers taking up about $9.7 billion of debt this calendar year, nearly exhausting available limits on sovereign debt purchases.

Those purchases have helped domestic debt return 7.8 percent so far this year, the highest in Asia, according to HSBC.

Given that appetite and a need to expand its investor base, India let foreigners buy state bonds and also relaxed the investment ceiling in government bonds by around 56 billion rupees in September: the first step in a gradual opening.

“The main objective of (Reserve Bank of India) in opening these limits is to attract diverse and new sets of investors to the Indian bond market,” said a senior foreign bank treasury official based in Mumbai.

“But if eventually the FII (offshore) units of the foreign banks in India get to corner the limits, elbowing out the long term investors, then that leaves open a big risk of these trades unwinding and disrupting the Indian debt market.”

India’s central bank has sought to discourage “bond tourists”, favouring what it calls “real” investors, who would not flit in and out of the market.

Although currency and market risks have been passed on to other buyers, a sharp sell-off could see these investors re-selling the derivatives back to the banks and forcing them to swap the debt or sell at a discount.

But with foreigners owning only 4 percent of Indian government debt versus 47 percent in Indonesia, for example – the impact of even a significant sell-off would likely be muted.

“We are less concerned as the liquidity in IGBs is one of the highest in the region, and foreign positioning remains a very low component of the outstanding market,” said Rohit Arora, interest rate strategist at Barclays in Singapore, referring to Indian government bonds.

The next window for foreigners to buy state government debt is on Jan. 1.

($1 = 66.450 Indian rupees)

(Writing by Clara Ferreira Marques; Editing by Rafael Nam and Jacqueline Wong)

 

Failure to implement reforms may hamper India investment: Moody’s

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A failure to implement reforms in India could hamper investment amid weak global growth, global ratings agency Moody’s Investors Services cautioned on Wednesday.

It said it was highly unlikely that major reforms would be enacted in the upper house of parliament where the ruling coalition is in a minority. The agency said despite overall supportive domestic conditions for the country’s companies, potential headwinds loom from a loss of reform momentum.

The Modi administration so far this year has been unable to enact legislation on key reforms, including a unified goods and services tax and the Land Acquisition Bill, it said.

The government hopes to get the GST Constitution Amendment bill approved in parliament and is keen to push the legislative business. It has reached out to the opposition parties to forge a consensus and ensure the passage of the crucial GST bill. The Narendra Modi government has identified implementation of GST as a key reform initiative. The government has unveiled a flurry of reforms after the rout in Bihar assembly elections and Modi has promised to accelerate the reforms drive.

Moody’s Investors Service says that most non-financial corporates it rates in India (Baa3 positive) will benefit from strong domestic growth and accommodative monetary policy, although weak global growth and a potential US rate hike will weigh on businesses.

“Healthy 7.5% GDP growth for India for the fiscal year ending March 2017 (FY2017) and a pick-up in manufacturing activity will be broadly supportive of business growth,” says Vikas Halan, a Moody’s Vice President and Senior Credit Officer.

“However, the corporates remain vulnerable to the volatile Indian rupee as against the US dollar and to low commodity prices, which has in turn led to a sharp decline in external trade,” said Halan while releasing the agency’s 2016 outlook presentation for Indian non-financial corporates.

The fall in commodity prices has benefited many Indian corporates given the country’s status as a net important of raw materials and its recent history of high inflation.

The resultant moderating inflation should result in lower borrowing costs for corporates and yields on corporate bonds, said Moody’s.

The ratings agency expects upstream oil and gas companies to benefit from lower fuel subsidy burdens, although low crude and domestic natural gas prices will continue to hurt profitability.

Refining and marketing companies meanwhile should benefit from healthy margins as demand growth outpaces expected capacity additions.

The agency’s negative outlook for the steel industry reflects elevated leverage and an extended period of low prices due to continuing steel imports, while the negative outlook for metals and mining companies reflects bleak global commodity prices.

In the real estate sector the agency expects demand to improve in 2016 on the back of lower interests rates, although approval delays could push back project launches for property developers.

It expects retail auto sales volumes to grow 6% in 2016 on the back of sustained growth in passenger vehicles sales and a recovery in commercial vehicle sales.

The telecom companies that the agency rates in India have reported improving revenue per user (ARPU) and EBITDA margins, however competition remains intense and the regulatory framework continues to evolve.