UK union to take postal protest to banks
Trade unions opposing the privatisation of the British postal service will hold a protest next week at the London offices of the banks advising the government on the float.
Goldman Sachs and UBS, located in London's financial district, will be the focus of the protest, which forms the centrepiece of a week of activity planned by union branches across the country.
The government, which hopes to launch the stock market flotation of the country's 497 year-old postal service later this year, says the Royal Mail needs to access private capital and modernise. Royal Mail said the privatisation would allow it to secure as many jobs as possible.
But the plans have been criticised by unions, which say the sale will spark a decline in postal service provision and working conditions for the company's 150 000 employees.
"We're going to tour the city and take this campaign to the banks that are selling this company," said Kevin Slocombe, the head of the Communication Workers Union (CWU) campaign.
"This is a good attempt to really engage people in the city... the banks and the people who actually buy shares."
UBS and Goldman Sachs both declined to comment on the protest.
Royal Mail chief executive Moya Greene has acknowledged union members will never drop opposition to privatisation but glossed over whether investors had expressed concern at the level of response from the company's workforce.
The CWU protest plans were unveiled at a packed parliamentary lobby on Tuesday, where union members and lawmakers outside the current coalition government spoke to an audience of postal workers.
Three-day ultimatum for Greece - EU
Greece has three days to reassure Europe and
the International Monetary Fund it can deliver on conditions attached to its
international bailout in order to receive the next tranche of aid, four
eurozone officials said on Tuesday.
The lenders are unhappy with progress Greece has made towards reforming its public sector, a senior euro zone official involved in the negotiations said, while another said they might suspend an inspection visit they resumed on Monday.
Athens, which has about €2.2bn of bonds to redeem in August, needs the talks to conclude successfully. If they fail, the International Monetary Fund might have to withdraw from the €240bn bailout to avoid violating its own rules, which require a borrower to be financed a year ahead.
That would heighten the risk that concerted efforts by policymakers over the past nine months to keep a lid on the eurozone crisis could unravel, at a time when tensions are rising in other countries on the region's periphery.
Portugal's Finance Minister Vitor Gaspar, the architect of its austerity drive under an EU/IMF bailout, resigned on Monday in a potential blow to his country's planned exit from an EU-IMF rescue programme.
Political tension has also increased in Italy, where Prime Minister Enrico Letta called a government meeting after a coalition partner threatened to withdraw.
Athens and its creditors resumed talks on Monday to unlock €8.1bn ($10.6bn) of rescue loans, after a two-week break during which the government almost collapsed over redundancies at state broadcaster ERT.
"All agreed that Greece has to deliver (pledges) before the Eurogroup on Monday. That's why they must present again on Friday," a second source told Reuters.
Eurozone finance ministers are scheduled to meet on July 8 and discuss the situation in Greece, which is in its sixth year of recession and has seen unemployment surge to record highs.
Missed deadlines
"It is a very difficult negotiation," a senior Greek official participating in the talks said. "We're moving fast to wrap up as many issues as possible a soon as possible."
But Greece's financial overseers the IMF, the eurozone and the European Central Bank were unlikely to be able to conclude their review in July and might need to suspend the visit and resume it in September, a senior eurozone official said on condition of anonymity.
Representatives of the EU-IMF-ECB "troika" have been holding serial meetings with government ministers in Athens, struggling to agree on a host of outstanding issues.
If talks are not concluded by the middle of month, Athens risked missing the instalment, the Greek official added.
Athens has missed a June deadline to place 12 500 state workers into a "mobility scheme", under which they are transferred or dismissed within a year.
A shortfall of more than €1bn has emerged at state-run health insurer EOPYY, meaning automatic spending cuts may have to be agreed to bring it back on an even keel.
Athens and the troika are also at odds over an unpopular property tax and a sales tax for restaurants.
The government plans to ask its creditors to lower this year's privatisation target of €2.6bn after failing to find a buyer for natural gas company DEPA.
The beleaguered government of Prime Minister Antonis Samaras has ruled out imposing any new austerity measures on a population that is going through the sixth year of recession.
Unemployment has hit a record 27% and Greeks have lost about a third of their disposable income at an average as a result of bailout-imposed austerity policies.
The lenders are unhappy with progress Greece has made towards reforming its public sector, a senior euro zone official involved in the negotiations said, while another said they might suspend an inspection visit they resumed on Monday.
Athens, which has about €2.2bn of bonds to redeem in August, needs the talks to conclude successfully. If they fail, the International Monetary Fund might have to withdraw from the €240bn bailout to avoid violating its own rules, which require a borrower to be financed a year ahead.
That would heighten the risk that concerted efforts by policymakers over the past nine months to keep a lid on the eurozone crisis could unravel, at a time when tensions are rising in other countries on the region's periphery.
Portugal's Finance Minister Vitor Gaspar, the architect of its austerity drive under an EU/IMF bailout, resigned on Monday in a potential blow to his country's planned exit from an EU-IMF rescue programme.
Political tension has also increased in Italy, where Prime Minister Enrico Letta called a government meeting after a coalition partner threatened to withdraw.
Athens and its creditors resumed talks on Monday to unlock €8.1bn ($10.6bn) of rescue loans, after a two-week break during which the government almost collapsed over redundancies at state broadcaster ERT.
"All agreed that Greece has to deliver (pledges) before the Eurogroup on Monday. That's why they must present again on Friday," a second source told Reuters.
Eurozone finance ministers are scheduled to meet on July 8 and discuss the situation in Greece, which is in its sixth year of recession and has seen unemployment surge to record highs.
Missed deadlines
"It is a very difficult negotiation," a senior Greek official participating in the talks said. "We're moving fast to wrap up as many issues as possible a soon as possible."
But Greece's financial overseers the IMF, the eurozone and the European Central Bank were unlikely to be able to conclude their review in July and might need to suspend the visit and resume it in September, a senior eurozone official said on condition of anonymity.
Representatives of the EU-IMF-ECB "troika" have been holding serial meetings with government ministers in Athens, struggling to agree on a host of outstanding issues.
If talks are not concluded by the middle of month, Athens risked missing the instalment, the Greek official added.
Athens has missed a June deadline to place 12 500 state workers into a "mobility scheme", under which they are transferred or dismissed within a year.
A shortfall of more than €1bn has emerged at state-run health insurer EOPYY, meaning automatic spending cuts may have to be agreed to bring it back on an even keel.
Athens and the troika are also at odds over an unpopular property tax and a sales tax for restaurants.
The government plans to ask its creditors to lower this year's privatisation target of €2.6bn after failing to find a buyer for natural gas company DEPA.
The beleaguered government of Prime Minister Antonis Samaras has ruled out imposing any new austerity measures on a population that is going through the sixth year of recession.
Unemployment has hit a record 27% and Greeks have lost about a third of their disposable income at an average as a result of bailout-imposed austerity policies.
Putin backs white-collar crimes amnesty
Russia's lower house of parliament on Tuesday passed a Kremlin-drafted bill that grants an amnesty to white-collar criminals in a bid to improve the country's frigid business climate.
The amnesty, backed by Russian President Vladimir Putin, covers individuals who have committed an economic crime for the first time.
But critics said the bill was extremely weak and would only affect a tiny minority of prosecuted businessmen.
Kremlin representative Garri Minkh presented the bill to the lawmakers, saying it would impact 1 299 ongoing criminal cases and 22 people who are currently in pre-trial jail.
Minkh said 340 people would be freed from jail due to the amnesty, according to the State Duma website.
Human rights groups have expressed concern that the measure is too limited because it would not cover some of the biggest Putin critics who have been jailed for disputed business crimes.
Putin said the new law would cover only those who committed business-related crimes for the first time and not apply to repeat offenders.
Boris Titov, a business ombudsman who backed the bill, expressed disappointment that the result was not a wider amnesty.
It will not affect Russia's jailed former oil tycoon and repeated Kremlin critic Mikhail Khodorkovsky - now serving his second consecutive jail sentence for white-collar crimes he disputes.
Opposition leader Alexei Navalny, currently on trial for fraud in a timber deal, would also not benefit from the amnesty.
Khodorkovsky's attorney Vadim Klyuvgant said on June 22 that the bill was so weak that it looked like the government was only trying to score public relations points instead of actually changing the legislation.
The legislation is now expected to be comfortably passed by the Federation Council upper house of parliament before Putin signs it into law.
Lack of capital may curb airline growth
The International Air Transport Association
(Iata) called for new thinking on the relationships between partners in the air
transport value chain in order to attract the $4-5trn that will be needed over
the next 20 years to meet the growing demand for aviation-enabled connectivity.
An Iata study, supported by analysis from McKinsey & Company, shows that returns on capital invested in airlines have improved in recent years, but are still far below what investors would normally expect to earn.
“Aviation supports some 57 million jobs globally and we make possible $2.2trn worth of economic activity. By value, over 35% of the goods traded internationally are transported by air,” said Tony Tyler, Iata’s Director General and CEO.
“But in the 2004-2011 period, investors would have earned $17bn more annually by taking their capital and investing it in bonds and equities of similar risk.”
Unless the airline industry could, therefore, find ways to improve returns for its investors, it may prove difficult to attract the capital needed to serve the expansion in connectivity, especially to support growth in developing economies.
During the 2004-2011 period, returns on capital invested in the airline industry worldwide averaged 4.1%. This is an improvement on the average of 3.8% generated in the previous business cycle over 1996-2004.
However, this is nowhere near the average cost of capital of 7.5%, which represents the return on capital that investors would expect to earn by investing in assets of similar risk outside the airline industry.
While some airlines have consistently created value for equity investors, these are few in number. On average industry returns were just sufficient for the industry to service its debt, with nothing left to reward equity investors for risking their capital.
The study showed that over the past 40 years virtually all industries have generated higher returns on invested capital (ROIC) than the airline industry.
Moreover, airlines are the least profitable segment of the air transport value chain while other segments consistently generate good returns for their investors.
The biggest cost for airlines today is fuel and companies in this sector benefited from an estimated $16-48bn of their annual net profits generated by air transport.
The most profitable part of the rest of the value chain is in distribution, with the computer reservation systems businesses of the three global distribution system companies generating an average ROIC of 20%, followed by freight forwarders with an ROIC of 15%.
“More effective partnerships are required among stakeholders in the air transport industry. Efficiency gains are a win-win for all concerned,” said Tyler.
An agenda for governments is also outlined in the study.
“Smart regulation is needed from governments around the world in order to maximise the economic benefits of connectivity jobs and growth,” said Tyler.
“Unfortunately, high taxation and poorly designed regulation in many jurisdictions make it difficult for airlines to develop connectivity. On top of the cost issues, airlines also face a hyper fragmented industry structure owing to government policies that discourage cross-border consolidation.”
An Iata study, supported by analysis from McKinsey & Company, shows that returns on capital invested in airlines have improved in recent years, but are still far below what investors would normally expect to earn.
“Aviation supports some 57 million jobs globally and we make possible $2.2trn worth of economic activity. By value, over 35% of the goods traded internationally are transported by air,” said Tony Tyler, Iata’s Director General and CEO.
“But in the 2004-2011 period, investors would have earned $17bn more annually by taking their capital and investing it in bonds and equities of similar risk.”
Unless the airline industry could, therefore, find ways to improve returns for its investors, it may prove difficult to attract the capital needed to serve the expansion in connectivity, especially to support growth in developing economies.
During the 2004-2011 period, returns on capital invested in the airline industry worldwide averaged 4.1%. This is an improvement on the average of 3.8% generated in the previous business cycle over 1996-2004.
However, this is nowhere near the average cost of capital of 7.5%, which represents the return on capital that investors would expect to earn by investing in assets of similar risk outside the airline industry.
While some airlines have consistently created value for equity investors, these are few in number. On average industry returns were just sufficient for the industry to service its debt, with nothing left to reward equity investors for risking their capital.
The study showed that over the past 40 years virtually all industries have generated higher returns on invested capital (ROIC) than the airline industry.
Moreover, airlines are the least profitable segment of the air transport value chain while other segments consistently generate good returns for their investors.
The biggest cost for airlines today is fuel and companies in this sector benefited from an estimated $16-48bn of their annual net profits generated by air transport.
The most profitable part of the rest of the value chain is in distribution, with the computer reservation systems businesses of the three global distribution system companies generating an average ROIC of 20%, followed by freight forwarders with an ROIC of 15%.
“More effective partnerships are required among stakeholders in the air transport industry. Efficiency gains are a win-win for all concerned,” said Tyler.
An agenda for governments is also outlined in the study.
“Smart regulation is needed from governments around the world in order to maximise the economic benefits of connectivity jobs and growth,” said Tyler.
“Unfortunately, high taxation and poorly designed regulation in many jurisdictions make it difficult for airlines to develop connectivity. On top of the cost issues, airlines also face a hyper fragmented industry structure owing to government policies that discourage cross-border consolidation.”
Saudi taps new oil areas
Saudi Aramco plans to develop two less
productive areas of major oilfields, industry sources said, as Riyadh takes
care to maintain excess capacity for the long term, even while non-Opec oil
supplies are on the rise.
The plan to increase capacity from Khurais and Shaybah by a total of 550 000 barrels per day (bpd) by 2017 will take the strain off Ghawar, the world's largest conventional oilfield, two sources familiar with the plans said.
Such projects are not intended to raise Saudi production capacity beyond the current stated 12.5 million bpd, Saudi oil officials have previously said.
After pumping its biggest fields at near record rates to make up for lost supplies from Libya and Iran over the last two years, the kingdom wants to focus on less productive fields to ease pressure on aging reservoirs to help keep their output robust.
"The targeted area includes the two fields south of Khurais, Abu Jiffan and Mazalij, which are smaller complex fields that have not produced much oil in past years," Sadad al-Husseini, a former top executive at Saudi Aramco, said.
"As for Shaybah field, they want to mainly raise production from the south where the reservoir is less productive and to gather large volumes of additional natural gas liquids, which are recovered from the associated gas."
By 2017, Saudi Aramco aims to boost capacity at Khurais by 300,000 bpd to 1.5 million bpd and at Shaybah by 250,000 bpd to 1 million bpd, the sources said.
The company could not immediately be reached for comment.
Saudi Arabia had planned in 2008 to increase production capacity to 15 million bpd but then put the plan on hold after the financial crisis.
A surge in North American unconventional oil over the last few years, meanwhile, has taken pressure off Riyadh. Officials now say there is no plan to expand beyond the kingdom's current capacity.
Aramco is still investing in new production projects, however, to increase its options and take pressure off big fields such as Ghawar and Abqaiq that have been the main source of wealth for the economy for decades.
Husseini said the expansion plans would require new oil and gas processing facilities and a dedicated pipeline to transport natural gas liquids from Shaybah.
Aramco completed a large capacity expansion plan in 2009-2010, which included the start-up of Khurais and the expansion of Shaybah to 750 000 bpd.
Khurais contains highly prized Arab Light crude, which is easily converted into transport fuels.
The plan to increase capacity from Khurais and Shaybah by a total of 550 000 barrels per day (bpd) by 2017 will take the strain off Ghawar, the world's largest conventional oilfield, two sources familiar with the plans said.
Such projects are not intended to raise Saudi production capacity beyond the current stated 12.5 million bpd, Saudi oil officials have previously said.
After pumping its biggest fields at near record rates to make up for lost supplies from Libya and Iran over the last two years, the kingdom wants to focus on less productive fields to ease pressure on aging reservoirs to help keep their output robust.
"The targeted area includes the two fields south of Khurais, Abu Jiffan and Mazalij, which are smaller complex fields that have not produced much oil in past years," Sadad al-Husseini, a former top executive at Saudi Aramco, said.
"As for Shaybah field, they want to mainly raise production from the south where the reservoir is less productive and to gather large volumes of additional natural gas liquids, which are recovered from the associated gas."
By 2017, Saudi Aramco aims to boost capacity at Khurais by 300,000 bpd to 1.5 million bpd and at Shaybah by 250,000 bpd to 1 million bpd, the sources said.
The company could not immediately be reached for comment.
Saudi Arabia had planned in 2008 to increase production capacity to 15 million bpd but then put the plan on hold after the financial crisis.
A surge in North American unconventional oil over the last few years, meanwhile, has taken pressure off Riyadh. Officials now say there is no plan to expand beyond the kingdom's current capacity.
Aramco is still investing in new production projects, however, to increase its options and take pressure off big fields such as Ghawar and Abqaiq that have been the main source of wealth for the economy for decades.
Husseini said the expansion plans would require new oil and gas processing facilities and a dedicated pipeline to transport natural gas liquids from Shaybah.
Aramco completed a large capacity expansion plan in 2009-2010, which included the start-up of Khurais and the expansion of Shaybah to 750 000 bpd.
Khurais contains highly prized Arab Light crude, which is easily converted into transport fuels.
Emerging market borrowers left stranded
Developing countries that did not take
advantage of historically low yields by selling international bonds in the first
half of 2013 are finding themselves left high and dry as borrowing costs rise.
Emerging market borrowers sold more than $200bn of bonds between January and July, a record-breaking streak that culminated in April with the startling sight of Rwanda issuing a 10-year dollar bond at a yield of less than 7%.
But the US Federal Reserve's indication that it will turn off the liquidity taps which have depressed interest rates in the West and fuelled demand for higher-yielding assets has burst a bubble that had developed in emerging debt, bankers say.
"In March/April, some valuations were very high - investors were awash with liquidity and were desperate for higher-yielding instruments," said Chris Tuffey, head of EEMEA debt capital markets at Credit Suisse. "Prices got to levels driven by technicals rather than fundamentals."
Issuance fell dramatically last month, when only 25 bonds were issued, according to Thomson Reuters data, compared with 82 in May, 103 in April, and 66 in June 2012. Emerging debt prices have fallen as a sharp rise in US yields robs riskier borrowers of their usual yield appeal.
Countries such as Bahrain, Nigeria and Russia have continued to hold investor presentations, known as roadshows, or assigned lead managers for planned international debt sales, but no bonds have followed.
Borrowers have regularly held "non-deal" roadshows since the 2008/09 financial crisis made them nervous of committing to a particular timetable for issuing debt, although investors say such pitches always take place with a bond sale in mind.
Markets have been so favourable until recently, however, that even unfamiliar names, such as last year's debut borrower Zambia, were able to raise money as soon as their roadshows ended, drawing massive demand.
Costing rising
Emerging market debt was yielding on average less than 5% in April, an unprecedentedly low level, but that has now risen to around 7 percent, meaning that borrowers will have to pay much more for their funding.
Rising interest costs could make life difficult for countries already struggling with high debt and deficits.
"A lot of issuers have not fully woken up to the fact that issuance at higher yields will significantly change the debt sustainability picture," said David Hauner, head of EEMEA fixed income strategy at BofA-Merrill Lynch Global Research.
Nigeria finished a roadshow last week but no bond followed, while African countries waiting in the wings include Kenya and Tanzania.
Other countries which have held roadshows in the past few weeks include Latvia and Ukraine, according to Thomson Reuters market news and information service IFR.
Some, such as Kenya, which has made and dropped plans for its first Eurobond several times since 2007, may not have any pressing need to borrow, while others may find alternative and cheaper sources of funding.
Ukraine's debt insurance costs have recently hit 18-month highs, however, as investors worry that without an International Monetary Fund deal, the country will not be able to refinance its debt. Kiev sold a $1 billion 10-year Eurobond in April and said it aimed to raise another $2.5bn this year.
More regular sovereign borrowers may also struggle to complete their annual issuance programmes, let alone borrow in advance of next year's plan, as countries often seek to do.
Turkey has raised $4.2bn of its $6.5bn borrowing target for this year, while Hungary has completed $3.25bn of a 2013 target of around $5.5bn.
"People used to do a lot of pre-funding and that won't be the case any more," said Gorky Urquieta, co-head of emerging markets debt at asset manager Neuberger Berman.
Holding back
Companies and financial firms, which made up the vast bulk of this year's issuance, are also holding back.
Turkish banks Ziraat and Yapi Kredi are among those who have said they are waiting for better market conditions, while Nigeria's Diamond Bank ended a roadshow last week without a deal.
Bankers involved in emerging market debt remain optimistic the recent rise in US Treasury yields may be temporary, saying this month's US employment numbers and Federal Reserve meeting could put a different complexion on the Fed's intentions.
If that is the case, for emerging market borrowers, "the summer should be active, rather than quiet," said Credit Suisse's Tuffey.
But countries and companies who missed the window which closed in April will have to resign themselves to borrowing at higher rates.
"Emerging markets will never have it as good again," BofA-ML's Hauner said.
Emerging market borrowers sold more than $200bn of bonds between January and July, a record-breaking streak that culminated in April with the startling sight of Rwanda issuing a 10-year dollar bond at a yield of less than 7%.
But the US Federal Reserve's indication that it will turn off the liquidity taps which have depressed interest rates in the West and fuelled demand for higher-yielding assets has burst a bubble that had developed in emerging debt, bankers say.
"In March/April, some valuations were very high - investors were awash with liquidity and were desperate for higher-yielding instruments," said Chris Tuffey, head of EEMEA debt capital markets at Credit Suisse. "Prices got to levels driven by technicals rather than fundamentals."
Issuance fell dramatically last month, when only 25 bonds were issued, according to Thomson Reuters data, compared with 82 in May, 103 in April, and 66 in June 2012. Emerging debt prices have fallen as a sharp rise in US yields robs riskier borrowers of their usual yield appeal.
Countries such as Bahrain, Nigeria and Russia have continued to hold investor presentations, known as roadshows, or assigned lead managers for planned international debt sales, but no bonds have followed.
Borrowers have regularly held "non-deal" roadshows since the 2008/09 financial crisis made them nervous of committing to a particular timetable for issuing debt, although investors say such pitches always take place with a bond sale in mind.
Markets have been so favourable until recently, however, that even unfamiliar names, such as last year's debut borrower Zambia, were able to raise money as soon as their roadshows ended, drawing massive demand.
Costing rising
Emerging market debt was yielding on average less than 5% in April, an unprecedentedly low level, but that has now risen to around 7 percent, meaning that borrowers will have to pay much more for their funding.
Rising interest costs could make life difficult for countries already struggling with high debt and deficits.
"A lot of issuers have not fully woken up to the fact that issuance at higher yields will significantly change the debt sustainability picture," said David Hauner, head of EEMEA fixed income strategy at BofA-Merrill Lynch Global Research.
Nigeria finished a roadshow last week but no bond followed, while African countries waiting in the wings include Kenya and Tanzania.
Other countries which have held roadshows in the past few weeks include Latvia and Ukraine, according to Thomson Reuters market news and information service IFR.
Some, such as Kenya, which has made and dropped plans for its first Eurobond several times since 2007, may not have any pressing need to borrow, while others may find alternative and cheaper sources of funding.
Ukraine's debt insurance costs have recently hit 18-month highs, however, as investors worry that without an International Monetary Fund deal, the country will not be able to refinance its debt. Kiev sold a $1 billion 10-year Eurobond in April and said it aimed to raise another $2.5bn this year.
More regular sovereign borrowers may also struggle to complete their annual issuance programmes, let alone borrow in advance of next year's plan, as countries often seek to do.
Turkey has raised $4.2bn of its $6.5bn borrowing target for this year, while Hungary has completed $3.25bn of a 2013 target of around $5.5bn.
"People used to do a lot of pre-funding and that won't be the case any more," said Gorky Urquieta, co-head of emerging markets debt at asset manager Neuberger Berman.
Holding back
Companies and financial firms, which made up the vast bulk of this year's issuance, are also holding back.
Turkish banks Ziraat and Yapi Kredi are among those who have said they are waiting for better market conditions, while Nigeria's Diamond Bank ended a roadshow last week without a deal.
Bankers involved in emerging market debt remain optimistic the recent rise in US Treasury yields may be temporary, saying this month's US employment numbers and Federal Reserve meeting could put a different complexion on the Fed's intentions.
If that is the case, for emerging market borrowers, "the summer should be active, rather than quiet," said Credit Suisse's Tuffey.
But countries and companies who missed the window which closed in April will have to resign themselves to borrowing at higher rates.
"Emerging markets will never have it as good again," BofA-ML's Hauner said.
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