Capital Product Partners L.P., an international diversified shipping company, released its financial results for the second quarter ended June 30, 2015.
The Partnership’s net income for the quarter ended June 30, 2015, was $14.1 million. After taking into account the preferred interest in net income attributable to the unit holders of the 12,983,333 Class B Convertible Preferred Units outstanding as of June 30, 2015 (the “Class B Units” and the “Class B Unitholders”), the result for the quarter ended June 30, 2015, was $0.09 net income per common unit, which is in line with the $0.09 net income per common unit from the previous quarter ended March 31, 2015 and $0.05 higher than the $0.04 net income per common unit in the second quarter of 2014.
Operating surplus for the quarter ended June 30, 2015 was $31.7 million, which is $1.8 million higher than the $29.9 million from the first quarter of 2015 and $4.8 million higher than the $26.9 million of the second quarter of 2014. The operating surplus adjusted for the payment of distributions to the Class B Unitholders was $28.9 million for the quarter ended June 30, 2015. Operating surplus is a non-GAAP financial measure used by certain investors to measure the financial performance of the Partnership and other master limited partnerships. Please refer to the section “Appendix A” at the end of the press release, for a reconciliation of this non-GAAP measure to net income.
Total revenues for the second quarter of 2015 were $54.5 million, compared to $47.4 million in the second quarter of 2014; the increase is mainly a result of (1) the improving employment daily rates for certain of the Partnership’s vessels, (2) the increased size of the Partnership’s fleet and (3) the $2.0 million in profit share earned by four of the Partnership’s vessels.
Total expenses for the second quarter of 2015 were $35.6 million compared to $35.5 million in the second quarter of 2014. The vessel operating expenses for the second quarter of 2015 amounted to $17.7 million for the commercial and technical management of our fleet under the terms of our management agreements, compared to $16.8 million in the second quarter of 2014. The increase reflects primarily the increased fleet size of the Partnership and expenses related to the dry docking of the M/T ‘Avax’, M/T ‘Akeraios’ and M/T ‘Agisilaos’. The total expenses for the second quarter of 2015 also include $15.0 million in depreciation and amortization, compared to $14.4 million in the second quarter of 2014, as a result of our increased fleet size. General and administrative expenses for the second quarter of 2015 amounted to $1.3 million, which is $0.3 million lower than the $1.6 million for the second quarter of 2014.
Total other expense, net for the second quarter of 2015 amounted to $4.8 million compared to $4.2 million for the second quarter of 2014. The increase reflects the lower other expense incurred in the second quarter of 2014, due to the reimbursement of certain expenses related to the redelivery of the M/T ‘Assos’ and M/T ‘Atrotos’ from their charterers in that quarter.
As of June 30, 2015, the Partners’ capital amounted to $972.3 million, which is $99.7 million higher than the Partners’ capital as of December 31, 2014, which amounted to $872.6 million. This increase reflects the issuance of 14,555,000 common units, which raised net proceeds before offering expenses of $133.3 million, and the net income for the six-month period ended June 30, 2015, partially offset by the payment of $59.1 million in distributions since December 31, 2014.
As of June 30, 2015, the Partnership’s total debt decreased by $46.2 million to $531.7 million, compared to total debt of $577.9 million as of December 31, 2014. The decrease was due to the prepayment of $115.9 million of principal amount under three of our credit facilities and the $2.7 million loan amortization in one of our credit facilities, partially offset by $72.4 million in drawdowns under our senior secured credit facility with ING Bank to fund the acquisition of: (1) the M/T ‘Active’, which was delivered on March 31, 2015, (2) the M/V ‘CMA CGM Amazon’, which was delivered on June 10, 2015, and (3) the M/T ‘Amadeus’, which was delivered on June 30, 2015.
Amendments to Certain of our Credit Facilities
Between April 28 and April 30, 2015, we entered into amendments to our 2007, 2008 and 2011 credit facilities providing for:
(i) the prepayments made on April 30, 2015, and funded by the proceeds of the April 2015 offering of common units, of the scheduled quarterly amortization payments in 2016 and the first quarter of 2017 (in the respective aggregate amounts of $64.9 million, $46.0 million and $5.0 million),
(ii) the deferral, following the prepayments described above, of any further scheduled amortization payments until November 2017 for the 2007 and 2008 credit facilities and until December 2017 for the 2011 credit facility,
(iii) an extension of the final maturity date to December 31, 2019 for the 2007 and 2008 credit facilities, and
(iv) an increase of the interest rate under our 2007 credit facility to 3.0% over LIBOR from 2.0% over LIBOR.
All other terms in our existing credit facilities remained unchanged.
Quarterly Common and Class B Unit Cash Distribution
On July 23, 2015, the Board of Directors of the Partnership declared a cash distribution of $0.2365 per common unit for the second quarter of 2015, which represents an increase of $0.002 from $0.2345 per common unit for the first quarter of 2015. The second quarter common unit cash distribution will be paid on August 14, 2015, to common unit holders of record on August 7, 2015.
In addition, on July 23, 2015, the Board of Directors of the Partnership declared a cash distribution of $0.21775 per Class B Unit for the second quarter of 2015, in line with the Partnership’s Second Amended and Restated Partnership Agreement, as amended. This represents an increase of $0.002 compared to the $0.21575 for the first quarter of 2015. The second quarter Class B Unit cash distribution will be paid on August 10, 2015, to Class B Unitholders of record on August 3, 2015.
On June 15, 2015, the Partnership announced that on June 10, 2015 it took delivery of the M/V ‘CMA CGM Amazon’ (ex Akadimos) (115,145 dwt / 9,288 teu, Eco-Flex, Wide Beam Containership built 2015, Daewoo-Mangalia Heavy Industries S.A.). The M/V ‘CMA CGM Amazon’ commenced its time charter to CMA-CGM S.A. for five years (-30/+90 days) at a gross daily charter rate of $39,250.
On July 1, 2015, the Partnership announced that on June 30, 2015 it took delivery of the M/T ‘Amadeus’ (50,000 dwt, IMO II/III Eco Chemical/Product Tanker built 2015, Samsung Heavy Industries (Nigbo) Co. Ltd.). The M/T ‘Amadeus’ commenced its time charter to Capital Maritime & Trading Corp. (‘Capital Maritime’ or our ‘Sponsor’) for a minimum term of 24 months (+/- 30 days) at a gross daily rate of $17,000 plus 50/50 profit share on actual earnings settled every six months.
During the second quarter of 2015, the Partnership also announced new time charter employment or time charter extensions for four of its vessels at increased daily rates:
The M/T ‘Active’ (50,000 dwt, IMO II/III Eco Chemical/Product Tanker built 2015, Samsung Heavy Industries (Nigbo) Co. Ltd.) has been chartered to Cargill International S.A. (‘Cargill’) for a period of two years (+/- 30 days) at a gross daily rate of $17,700. The vessel was previously employed by Capital Maritime at a gross daily rate of $17,000 plus 50/50 profit share. Capital Maritime agreed to terminate its existing charter earlier, following the unanimous consent of the conflicts committee, in order for the vessel to commence its employment with Cargill in early June 2015. The earliest redelivery under the new charter is in May 2017.
The M/T ‘Anemos I’ (47,782 dwt, Ice Class 1A IMO II/III Chemical/ Product Tanker built 2007, Hyundai Mipo Dockyard Ltd., South Korea) continues its time charter employment with Capital Maritime for an additional year (+/- 30 days) at a gross daily rate of $17,250. The vessel was previously earning $14,850 gross per day. The earliest redelivery under the new charter is in May 2016.
Capital Maritime exercised an option under its current charter of the M/T ‘Atrotos’ (47,786 dwt, Ice Class 1A IMO II/III Chemical/ Product Tanker built 2007, Hyundai Mipo Dockyard Ltd., South Korea) to extend its employment for an additional year at a gross daily rate of $15,250, which represents an increase of $500 per day compared to its previous daily rate. As a result, the earliest charter expiration has been extended to April 2016.
Finally, Total S.A. exercised the option to extend the current employment of the M/T ‘Alkiviadis’ (36,721 dwt, Ice Class 1A IMO II/III Chemical/ Product, built 2006 Hyundai Mipo Dockyard Company Ltd., South Korea) for an additional 12 months at an increased rate of $15,125 gross per day. The charter extension will commence in September 2015 with earliest charter expiration in August 2016. The vessel is currently earning $14,125 gross per day.
As a result of the three newbuildings deliveries and the new charters, the Partnership’s charter coverage for 2015 and 2016 stands at 93% and 74%, respectively.
Capital Product Partners L.P. is an international owner and operator of vessels registered as a master limited partnership under the laws of the Marshall Islands. CPLP owns vessels that are flagged or registered in Liberia or the Marshall Islands, and operate in international shipping markets. The commercial and technical manager of our vessels, Capital Ship Management Corp., operates through offices in Athens, London, New York, Singapore and Constanza, Romania. CPLP’s business is U.S. dollar based, its vessels are chartered to international companies and its debt capital is provided under credit facilities with consortia led by international banks, including HSH Nordbank AG, ING Bank N.V. and Credit Agricole Corporate and Investment Bank.
The product tanker market continued improving in the second quarter of 2015, with spot freight rates at the highest level since the third quarter of 2008. Growing global oil demand and high refining margins in both Asia and Europe have been supporting refined product movements. In the Atlantic, product tankers generated strong returns in the spot market on the back of increased imports into U.S. East Coast. Concurrently, exports from the U.S. Gulf remained close to record levels during the second quarter, contributing to the strong sentiment in the market. East of Suez, firm naphtha demand and refinery capacity additions, including the start-up of Aramco’s Yanbu refinery and the expansion of the Ruwais refinery in the UAE, further stimulated products tanker activity.
The positive developments in the spot market saw medium range (‘MR’) time charter product tanker rates rising to the highest level, since the first quarter of 2009, while activity in the period market was firm during the quarter ended June 30, 2015.
On the supply side, ordering activity for MR product tankers in the second quarter of 2015 was minimal, in line with the slow contracting activity seen in the first quarter of 2015 and in the second half of 2014, as most quality shipyards have exhausted their capacity through 2016. In addition, the product tanker orderbook continued to experience slippage during the first half of 2015, as approximately 42% of the expected MR and handy size tanker newbuildings were not delivered on schedule. Analysts expect that net fleet growth for product tankers for 2015 will be in the region of 5.9%, while overall demand for product tankers for the year is estimated to grow at 4.7%.
Suezmax spot rates modestly declined in the second quarter of the year compared to the previous quarter but remained at very strong levels, particularly for this time of the year. Overall, the quarter was the strongest second quarter since 2009. The counter-seasonal surge has been driven by multi-decade highs in production, record China imports and minimal tanker supply growth year to date. As a result of the improving spot market, Suezmax period rates have increased to multi-year highs.
On the supply side, the Suezmax orderbook represented approximately 18.1% of the current fleet by the end of the second quarter of 2015. Analysts however estimate that slippage for the first half of 2015 amounted to 40% of the expected deliveries for the same time period. Suezmax tanker demand is projected to continue growing in 2015, on the back of stronger European crude imports and increased growth in long-haul trades to India and China from the Atlantic. Overall, industry analysts forecast that Suezmax vessel demand will grow by approximately 2.4% in the full year 2015, while the fleet is projected to expand by 1.0%.
Mr. Jerry Kalogiratos, Chief Executive and Chief Financial Officer of the Partnership’s General Partner, commented:
“In line with our newly established long term distribution growth objective, we have increased our quarterly distribution to our unitholders for the second consecutive quarter. During the second quarter of 2015, we successfully completed an equity offering and raised net proceeds of $133.3 million before offering expenses. This has enabled us to further strengthen our balance sheet by prepaying a significant part of our debt, to defer the Partnership’s debt amortization installments under three of our facilities until the fourth quarter of 2017, extend the maturity of our two largest facilities to the end of 2019 and improve our expected future cash flows available for distribution to our unitholders.
“Furthermore, during the second quarter, we took timely delivery of two additional dropdown vessels that we had agreed to acquire from Capital Maritime in 2014. Based on our previously completed equity offerings and credit facilities in place, we believe that we have secured the financing for the acquisition of the remaining two dropdown vessels and have established the basis for continued growth of the Partnership. Importantly, we maintain the option to grow our fleet by exercising the right of first refusal that our Sponsor granted us on six additional eco MR product tankers.
“Finally, we are pleased to see a number of our vessels being re-chartered at higher daily rates to an increasingly more diversified customer base and for longer periods, which reflects the improving fundamentals of the product and crude tanker markets and the strength of their respective period markets.
“Based on the above factors, it is our objective to continue to increase our common and Class B distributions between 2-3% per annum in the foreseeable future.”
JFE Holdings Inc., Japan’s second-biggest steelmaker, cut its forecast for the year after first-quarter profit fell amid a global supply glut.
Operating profit fell 22 percent to 24.6 billion yen ($198 million) for the three months ended June 30, the Tokyo-based company said Thursday in a statement. JFE reduced its current profit forecast for the full year to 200 billion yen, down 13 percent on last year’s level. Sales over the quarter slipped 8 percent as the company cut output.
JFE cited delays in reducing domestic inventories, further declines in overseas markets, and oversupply as China’s economic slowdown boosts that nation’s steel exports. JFE will cut its crude steel output by 1 million metric tons in the first half to about 13.5 million tons.
The company said it expects a recovery in steel production and prices in the second half of the year. It will also take a 5 percent stake for 27 billion yen in a joint venture that’s constructing Vietnam’s first integrated steelworks, Shinichi Okada, executive vice president, said at a briefing in Tokyo. The venture will invest $10.5 billion in the first phase of the project.
JFE’s stock, having dropped initially on the earnings announcement, rallied to close 4.5 percent higher at 2,418.5 yen in Tokyo.
While net income rose 12 percent to 17.3 billion yen, it missed analysts’ expectations of 23.2 billion yen. The year-ago figure was deflated by a one-time charge.
JFE joins domestic rival Nippon Steel & Sumitomo Metal Corp. in cutting output to cope with excess supply. Nippon Steel said Wednesday that current profit will likely fall 18 percent to 370 billion yen for the full year.
Singapore’s unemployment increased more-than-expected in the second quarter amid softer economic conditions, preliminary figures released by the Ministry of Manpower revealed Thursday.
The overall jobless rate rose to a seasonally adjusted 2 percent in the second quarter from 1.8 percent in the preceding quarter. Economists had expected the rate to rise to 1.9 percent.
After seasonal adjustments, the total number of unemployed people in Singapore came in at 73,300, out of which 56,100 were Singapore citizens.
Overall employment grew by 15,700 sequentially to 3.63 million, which represented a 2.4 percent increase year-over-year in the second quarter. However, the growth rate over the year was lower than the 2.7 percent seen in the first quarter.
Employment in the services sector increased at a faster pace in the second quarter, while that in the manufacturing sector dropped at a slower pace. On the other hand, construction employment rebounded from the previous quarter.
Layoffs fell to 3,100 from 3,500 in the preceding quarter, as fewer workers were made redundant in the construction and manufacturing sectors.
The Bank of Japan must be vigilant to the risk its massive stimulus programme could overheat the economy and create financial imbalances, board member Koji Ishida said on Thursday.
The former banking executive said he saw no immediate signs the central bank’s aggressive money printing was sowing the seeds of an asset bubble, and that such risks were something to worry about in the long-term.
But his warning about the rising costs of the BOJ’s aggressive money printing contrasts with the views of Governor Haruhiko Kuroda, who has mostly dismissed such risks and talked up the near-term benefits of the stimulus programme.
“It’s necessary to look carefully, from a long-term perspective, whether there is no build-up in risks to Japan’s financial system,” Ishida told business leaders in Kyoto, western Japan.
Ishida was among four of the nine board members who voted against the BOJ’s decision to expand stimulus last October to prevent slumping oil prices, and a subsequent slowdown in inflation, from delaying a sustained exit from deflation.
DEEP BOARD RIFT
His comments underscore a deep rift within the BOJ board between members confident of the success of the bank’s stimulus programme, and those becoming increasingly worried about its demerits – such as distorting market functions.
Many BOJ officials see no need to expand stimulus again in the near future. Their view is that inflation, which has ground to a halt due to last year’s oil-price rout, will accelerate toward the BOJ’s 2 percent target by September next year as the economy improves steadily.
Ishida is reluctant to top up asset purchases, even as core consumer inflation – the BOJ’s key price gauge – has ground to a halt.
He said the BOJ must look at various indicators in measuring inflation including one gauge that strips away the effect of housing costs, which have kept falling.
Measured by that index, annual consumer inflation hit 1.5 percent in May, near the BOJ’s target, according to a graph Ishida showed the business leaders.
Ishida was cautious about Japan’s prospects.
China’s economic slowdown and lingering weakness in Asian emerging markets may weigh on Japanese exports, while it is uncertain whether factory output will pick up as recent declines in commodity prices hit raw material firms, he said.
“There’s a risk the recent softness in exports and output may hurt corporate sentiment just when companies were beginning to turn more aggressive on investment,” Ishida said.
Source: Reuters (Reporting by Leika Kihara; Editing by Richard Borsuk)
German engineering orders declined in June, but the drop in demand masked strong gains in eurozone orders, industry group VDMA said Thursday.
“Demand from within the eurozone is clearly recovering and we expect this trend to continue in the coming months,” said Olaf Wortmann, economist at VDMA, which represents more than 3,000 midsize companies. Eurozone orders jumped 12% in June from the year-earlier period.
U.S. demand is also picking up and the country has overtaken China as the biggest trading partner of German engineering firms, Mr. Wortmann said. “That is also due to a weaker euro exchange rate” that makes German goods more competitive outside the eurozone, he added.
Total orders for Germany’s plant and machinery industry in June declined 4% from the year-earlier period. Domestic orders rose 7%, but VDMA said that a collapse in demand from outside the eurozone depressed the overall result.
Orders from outside the eurozone slumped 15% because of a “base effect”, as there was a high volume of big ticket orders in June 2014, Mr. Wortmann said.
VDMA earlier in July slashed its production forecasts for 2015 following “serious downward revisions” in the official machinery production indexes by Germany’s federal statistics office.
Plant and machinery production in the first five months of this year was down 2.5% from the same period a year ago, VDMA said. It now predicts 2015 engineering output to be flat, in price-adjusted terms, well below its previous forecast of a 2% increase.
Japan’s factory output rose modestly in June after a big drop in the prior month, highlighting worries of a second-quarter economic slump as exports weaken and manufacturers are saddled with large inventories.
Analysts expect the economy to bounce modestly in the current quarter, helped by a pick-up in private consumption as household incomes improve, but some warn of a prolonged lull as China’s economic slowdown takes its toll on external demand.
Industrial production rose 0.8 percent in June from the previous month, trade ministry data showed on Thursday, exceeding a median market forecasts for a 0.3 percent gain after May’s 2.1 percent drop.
“You cannot rule out the possibility of output sliding for two straight quarters to September, forcing the economy to stall,” said Koya Miyamae, senior economist at SMBC Nikko Securities. “The main risk is China’s slowdown, which will keep a drag on exports.”
Reflecting expectations of a gradual pick-up in factory activity ahead, manufacturers surveyed by the ministry expect industrial output, which accounts for roughly 18 percent of Japan’s gross domestic product, to rise 0.5 percent in July and 2.7 percent in August.
Still, the underlying weakness in output could reinforce a view that the economy probably slowed sharply in April-June from the prior quarter, or even contracted, keeping the central bank under pressure to deploy fresh monetary stimulus.
The factory data, which is strongly correlated with economic growth, will be closely scrutinised by the Bank of Japan, along with a batch of indicators due on Friday.
The BOJ is widely expected to keep monetary policy steady next week and is in no mood to act any time soon, arguing that the economy will emerge from a soft patch in the current quarter, helping inflation hit its ambitious 2 percent goal by around September next year.
But some analysts are bracing for fresh BOJ stimulus as early as October, with signs of weakness in the economy adding to doubts whether inflation will accelerate as quickly as the central bank projects.
BOJ board member Koji Ishida signalled his reluctance to top up an already radical stimulus programme, though he sounded less convinced about the economy’s recovery prospects.
“There’s a risk the recent softness in exports and output may hurt corporate sentiment just when companies were beginning to turn more aggressive on investment,” he told business leaders in Kyoto, western Japan, on Thursday.
Source: Reuters (Reporting by Tetsushi Kajimoto, additional reporting by Leika Kihara; Editing by Eric Meijer)
Eurozone businesses were untroubled by the threat of a Greek departure from the eurozone in July, becoming more upbeat about their prospects even as consumers grew more wary.
A European Commission survey released Thursday recorded a surprising strengthening of confidence across a range of businesses and in most of the major eurozone economies.
The survey was carried out as Greece edged as close to departure from the currency area as any member has ever reached, before an agreement was secured on July 13 that could pave the way for fresh loans from the rest of the eurozone to the country over a three-year period.
The pickup in business confidence suggests that a recent rise in investment spending and employment is likely to continue, supporting the currency area’s modest economic recovery.
The commission’s headline Economic Sentiment Indicator–which aggregates the business and consumer measures–rose to 104.0 from 103.5, reaching its highest level since July 2011 and remaining well above the average of 100.0 going back to the start of the series in 1990. Economists surveyed by the Wall Street Journal last week had expected a modest decline to 103.3.
The Commission confirmed that consumer confidence weakened during the month, but manufacturers, service providers and retailers became more upbeat. Construction companies and banks were slightly more downbeat.
With its future as member of the currency area in doubt and its banks closed, Greek confidence evaporated, with the ESI for the country falling to 81.3 from 90.7. But it was a very different story elsewhere in the eurozone, as sentiment strengthened in Germany, France and Spain.
The wider eurozone economy has been little affected by the deterioration in Greece’s relationship with fellow eurozone members since the start of the year. The economy grew at the same modest pace in the first quarter as in the final three months of 2014, and most indications point to a continuation of that performance in the second quarter. Figures released earlier Thursday showed Spain’s economy continued to gain momentum in the three months to June, growing by 1% from the previous quarter, its most rapid expansion in seven years.
Contagion from Greece’s financial difficulties have proved much weaker than in previous periods of heightened concern about the durability of the eurozone, as yields on bonds issued by other eurozone governments remained relatively unchanged even as those of Greece soared.
However, a final deal between the Greek government and its creditors faces an array of challenges, including growing skepticism over whether the bailout plan can return Greece’s ravaged economy to health.
Exports from Arab countries to Brazil reached $3.377 billion (Dh12.4 billion) during the first half of 2015, according to the statistics released by Brazil’s Ministry of Development, Industry and Foreign Trade and compiled by the Arab-Brazilian Chamber of Commerce.
Exports from Qatar grew 87.96 per cent to reach $424.5 million in H1 2015 from $226 million for the same period of 2014.
Exports from Saudi Arabia to Brazil totalled $776 million, followed by Kuwait at $243 million and the UAE at $239 million.
Other Arab countries, including Egypt, Oman and Bahrain also contributed toward exports to Brazil at $54.36 million, $41.45 million, and $33.36 million, respectively.
Dr. Michel Alaby, Secretary General and CEO of Arab-Brazilian Chamber of Commerce, said: “The flourishing exports from the Arab Nations to Brazil, which reached $3.377 billion during H1 of 2015, demonstrate increasing popularity of the regional products among Brazilian population. Arab region is a vital trading partner for Brazil, contributing significantly to address the growing national demand for commodities such as mineral fuel and oil, aluminium, and fertilisers, among others. In the near future, Brazil will be in need of more exports from the region to support its booming economy. Arab-Brazilian Chamber of Commerce continues to play a central role in enhancing business ties between Arab region and Brazil by facilitating more avenues for business leaders and traders to meet, explore and sign trading deals.”
At $2.53 billion, minerals, fuel and oil etc were the most exported commodity from the Arab region to Brazil during H1 of 2015, followed by fertilizers at $445 million.
Aluminium witnessed the maximum growth at 184 per cent to reach $50.38 million, followed by salt, sulphar, earth stone at 37 per cent to touch $60 million.
Other top selling products from Arab countries to Brazil include plastic, inorganic chemicals and rare earth, electrical machinery, and fish and seafood.
In three months marred by volatility, bond markets in Asia stood out for their relative calm. Local investors are to thank.
While the Shanghai Composite Index surged 16 percent only to plunge double that, Asia’s riskiest notes rose 0.8 percent. As Greece teetered toward default and an index of European government bonds slumped 2.2 percent, Asian corporate dollar bonds lost 0.5 percent.
Such resilience is due in part to home bias. The share of dollar debt from Asia able to be purchased by U.S. investors dropped to 22 percent this year from 47 percent in 2010 because not as many notes have Securities and Exchange Commission registration or 144a rights, which are requirements for North American participation. As a result, almost 75 percent of all dollar notes sold over the past 12 months have been bought by investors in the region, Bloomberg data show.
“The fact more investors closer to home have put their money in Asian bonds means there’s less panic,” said Neel Gopalakrishnan, an emerging markets fixed income analyst at Credit Suisse Group AG’s private banking and wealth management unit. “There are fewer U.S. investors involved, who tend to be sell first, ask questions later when negative news breaks.”
Bonds in Asia have resisted even the recent turbulence in Chinese stocks. Equities in Shanghai are mostly traded by local individuals who don’t have access to international debt markets, said Ben Sy, the Hong Kong-based head of fixed income, currencies and commodities for Asia at JPMorgan Chase & Co.’s private banking unit.
When Shanghai shares dropped 8.5 percent Monday, their biggest one-day plunge since February 2007, China Petrochemical Corp.’s $2.5 billion of 2020 securities — the most liquid of all offshore corporate notes from China — barely flinched, rising 0.04 cents to 98.082 cents on the dollar, the highest in more than two weeks.
Agile Property Holdings Ltd.’s shares have tumbled 31 percent over the past three months. Its $500 million of 8.375 percent 2019 debentures have returned 3.8 percent since April 30, prices compiled by Bloomberg show. That strength is also partly due to millionaires in the region, who bought 44 percent of the debt.
“I believe one of the reasons the Chinese corporate market has remained so resilient in the face of the stock market volatility is the robust and sticky private banking bid,” said Todd Schubert, the head of fixed-income research at Bank of Singapore, Oversea Chinese Banking Corp.’s private banking unit.
According to a June 17 Cap Gemini SA and Royal Bank of Canada report, the rich got richer faster in the Asia-Pacific region last year than any place in the world. People with at least $1 million in investable assets grew their wealth by 11 percent to $15.8 trillion, surpassing North America’s 9 percent and Europe’s 4.6 percent.
The region’s bonds have also proven immune to turbulence in Europe caused by Greece. And because Asia is a net importer of oil, the drop in commodity prices is a boon.
Crude has fallen 20 percent since April 30 and shares of China National Offshore Oil Corp. have decreased 27 percent. The state-owned company’s bonds due 2019, its most liquid, have lost only 2.8 percent.
“Asia is a safe haven of sorts,” Sy said. Investors “have to invest somewhere, there’s still a lot of liquidity around the world.”
Another magnet is Asia’s relative strong economic growth. Although expansion in China was the weakest last year in more than two decades, 7.4 percent’s not bad compared with Russia at 0.6 percent, Brazil at 0.2 percent and the 2.4 percent the U.S. turned in.
“Most Asian economies are fundamentally strong with relatively stable currencies,” said Brigitte Posch, the London-based head of emerging-market corporate debt at Babson Capital Management LLC, which managed $219 billion as of June 30. “Asian bonds have also historically enjoyed strong local support with private banks — local investors — having been large sponsors of bond issues.”
German consumer prices has remained very weak this month, data from states around the country suggests, bolstering the European Central Bank’s (ECB) case for pressing ahead with its bond-buying plan to lift inflation across the euro zone.
In North Rhine-Westphalia (NRW), the federal state that tends to act as a bellwether for the national inflation rate, price pressures eased to 0.2 percent on the year in July from 0.3 percent the previous month.
In three other states, yearly inflation slowed and it was unchanged in two more states. State data is used to calculate Germany’s national inflation rate, due out at 1200 GMT.
Capital Economics economist Jennifer McKeown said data from the states suggested annual consumer prices in Europe’s largest economy held steady at 0.1 percent when harmonised to compare with other European countries.
But ING economist Carsten Brzeski said the harmonised rate could even slip to zero, though he said this would not reflect badly on the ECB’s attempts to push inflation in the euro zone back towards its target of just below 2 percent over the medium term via bond-buying, or quantitative easing (QE).
“You could rather see it as a confirmation of the stance of the ECB not to follow the premature calls of some market participants calling for early tapering of QE,” he said, noting that a drop in energy prices had been a major factor in slowing inflation in some German states.
“The success of the ECB’s QE programme can, at least up until now, not be measured in headline inflation data – it’s going to take while before we really see the impact on the real economy from QE,” he said.
The ECB is pumping around 1 trillion euros into the economy by buying government bonds and other assets via the QE scheme.
Economists polled before the states’ data was published predicted that harmonised annual inflation would remain stable at 0.1 percent.
Other data published on Thursday showed Spanish EU-harmonised consumer prices turned negative in July after a reading of zero percent the previous month.
That, along with data from German states, could mean flash euro zone data due on Friday shows inflation slowed to 0.1 percent in July after a 0.2 percent rise in June, Brzeski said.
Economists polled by Reuters had expected that reading to remain stable.
Separate data showed the number of Germans out of work climbed in July but the jobless rate stayed at a post-reunification low of 6.4 percent and economists said this, combined with weak inflation, pointed to stronger consumption ahead.
British lending to non-financial businesses plummeted in June by the largest amount since records began more than four years ago, Bank of England data showed on Wednesday.
The BoE figures also showed that mortgage approval rose last month to 66,582, compared with 66,000 expected in a Reuters poll of economists, and lending to consumers continued to rise strongly. And the value of mortgage lending rose by the largest amount in almost seven years.
While a volatile data series, lending to non-financial businesses fell by 5.487 billion pounds in June, the biggest decline since records started in May 2011 and compared with a 818 million pound increase in May.
The BoE said it did not have anecdotal evidence for the decline for business lending, which policymakers consider key to driving a sustainable economic recovery.
Finance minister George Osborne said earlier this month that he was giving a new remit to the Bank of England’s Financial Policy Committee that stressed the importance of banks lending for productive investment.
However, lending to small and medium-sized businesses rose by 353 million pounds.
The figures suggested Britain’s housing market upturn is back on track after the number of approvals fell throughout most of 2014, cooling house price growth and easing concerns about a bubble in the housing market.
Tighter rules on mortgage lending took effect last year, requiring banks and building societies to make more rigorous checks on whether borrowers can afford their loans.
But there have been signs that the housing market is heating up again. Mortgage approvals have risen in most months this year and the pace of price rises has started picked up.
Net mortgage lending, which lags approvals, rose 2.615 billion pounds in June, the biggest increase since July 2008 and comfortably beating a Reuters poll consensus of 2.05 billion pounds.
The BoE said consumer credit grew by 1.22 billion pounds in June. Economists had expected an increase of 1.1 billion pounds. Consumer credit grew 7.6 percent year-on-year in June, the biggest rise since April 2006.
Despite only weak rises in wages for much of the past five years, Britain’s economic recovery is still heavily reliant on spending by households.
Source: Reuters (Reporting by Andy Bruce and Ana Nicolaci Da Costa)
Russian banks hobbled by sanctions are exploring funding sources in Hong Kong to help the nation’s companies refinance $117 billion in external debt due in the coming year.
OAO Gazprombank, Russia’s third-largest lender, is applying for licenses to offer securities services in the city, while Vnesheconombank and OAO Sberbank said they are monitoring opportunities. The yield on October 2015 yuan bonds of VTB Bank JSC, the nation’s second-largest, was 8.04 percent on Tuesday, 121 basis points below its similar ruble debt. Moscow Exchange forecast last week that Russian companies and banks will list yuan-denominated bonds on its bourse.
Russian companies have been able to win loans from Chinese banks even as U.S. and European sanctions shut many out of global markets since conflict broke out in Ukraine in 2014. China is encouraging international issuers to sell Dim Sum notes, denominated in offshore yuan, as it seeks to make the yuan a rival for the U.S. dollar as a reserve currency. The renminbi has the second-lowest volatility in major currencies and is the world’s second most-used currency for trade finance.
“Russian corporates have a hard time issuing U.S. dollar bonds as several companies are excluded from the primary market because of the U.S. and European sanctions,” said Victor Verberk, Rotterdam-based global co-head of credit at Robeco Groep NV. “It makes sense that Russian corporates are looking for alternate sources of funding for their business. Using the Dim Sum market may be one of them.”
VTB Bank was the first Russian Dim Sum issuer, raising 1 billion yuan ($161 million) in a three-year debt sale in 2010 at 2.95 percent. Since 2012, lenders from the nation including Gazprombank and Russian Standard Bank have raised 7.5 billion yuan in the market, data compiled by Bloomberg show.
Yuan bonds sold by Russian companies tumbled in December when the ruble plunged to an all-time low and oil prices slumped. They haven’t sold any new debt in the market since January 2014.
Gazprombank plans to organize a yuan bond sale of about $500 million in Hong Kong for Russian state-owned gas producer OAO Gazprom, a bank official said on June 19. It is also discussing financing plans for a client, Petroleos de Venezuela SA, including a possible 10 billion yuan sale this year, he said. Gazprom spokesman Sergei Kupriyanov declined to comment when asked for updates on the sales.
“The sanctions are having an impact in the West and there is thinking that it will be easier to break through in China, which has funds available for investments,” said Egor Fedorov, a Moscow-based analyst at ING Groep NV. “State banks have suffered from a weaker ruble and sanctions and would be interested in a channel to access hard currency.”
Russian banks will remain loss-making in 2015, despite a significant reduction in interest rates this year because of increased provisioning, according to a Moody’s report this month. Total bad loans will “likely” rise to 13-14 percent of overall lending over the next 12 months, compared with 9.5 percent at the end of 2014, Moody’s said. OAO Sberbank said in May its first-quarter profit slid 58 percent.
Any issuers may face higher borrowing costs. The yields on outstanding yuan bonds sold by Russian companies ranged from 7.6 percent to 8.8 percent, compared with an average 4.3 percent on Dim Sum bonds, according to data compiled by Bloomberg and a Deutsche Bank AG index.
Higher costs have also dragged on overall offshore yuan bond sales. Issuance has dropped 33 percent in the first seven months from a year earlier, data compiled by Bloomberg show.
“Russian issuers have been cost-sensitive and the market is not favorable” as a whole, said Steve Wang, Hong Kong-based head of fixed-income research at BOCI Securities Ltd., a subsidiary of China’s third-largest bank.
Closer ties between Russia and China help. The Asian country was Russia’s biggest trading partner in the first five months, accounting for 11.2 percent of total turnover compared with 8.7 percent each for Germany and the Netherlands. Russia’s trade slid 32.8 percent from the year-earlier period.
Chinese investors bought as much $1 billion of ruble debt this year, Finance Minister Anton Siluanov told state channel Rossiya 24 at a BRICS summit on July 9 that brought together leaders from Brazil, Russia, India, China and South Africa. This month, VTB became the first Russian bank to win a license to trade in China’s interbank bond market. Iron-ore miner Metalloinvest Holding Co. borrowed $750 million from a syndicate including Chinese banks this month.
The yuan has been held at around 6.2 a dollar in the past four months as China hopes a stable exchange rate can bolster its reserve-currency bid and ease capital outflows. Its one-month implied volatility was 1.25 percent, the second-lowest in major currencies except the greenback-pegged Hong Kong dollar. That compares with 19 percent for the ruble. The yuan was little changed at 6.2091 in Shanghai Wednesday.
“It is important for many corporates that potential currency risks can be hedged,” said Robeco’s Verberk. “The fact that the yuan is still managed toward the U.S. dollar makes it a more reliable market with manageable foreign-exchange risks.”
A Chevron deepwater platform is assembled in Texas. Chevron, ConocoPhillips, and Exxon are slated to report second-quarter earnings later this week.
Chevron Corp., ConocoPhillips, and Exxon Mobil Corp. are set to report second-quarter earnings this week amid renewed concerns lower oil prices will unleash another round of capital spending cuts.
ConocoPhillips COP, +3.14% is expected to report on Thursday before the bell, while Exxon XOM, +4.06% and Chevron CVX, +3.66% are slated to report on Friday, also before the market opens.
While their second-quarter results are bound to be an improvement over first-quarter results — oil prices jumped 24% between April and June after falling 11% from January through the end of March — a renewed slide by oil futures has investors wondering whether energy companies will again feel pressured to slash their budgets.
Most companies started slashing their spending six months ago, when oil prices began a precipitous fall of about 45% amid slack demand and plentiful supplies. Some companies took their newfound austerity a step further as prices continued to fall in early 2015. As a result, more oil and gas rigs have been mothballed, more projects delayed, and nearly 50,000 oil workers have lost their jobs in just the past three months, according to Graves & Co., a Houston energy consultancy.
The impact of lower oil prices on cash flows and production volumes is also a key issue for all three companies, said Brian Youngberg, an analyst with Edward Jones.
Here’s what to expect:
Earnings: Chevron is expected to report second-quarter earnings of $1.15 a share, less than half the $2.59 a share it posted a year ago, according to analysts polled by FactSet.
ConocoPhillips is seen reporting earnings of just 4 cents a share in the second quarter, compared with $1.61 a share a year ago, analysts surveyed by FactSet said.
Exxon Mobil is expected to report earnings of $1.11 a share, down from $1.66 a share a year ago, also according to analysts polled by FactSet
Revenue: For Chevron, the same analysts have forecast revenue of $35.65 billion, down from $58 billion a year ago.
ConocoPhillips is seen reporting revenue of $8.68 billion, down from $14.7 billion a year ago.
Exxon Mobil is expected to report revenue of $63 billion, down from $112 billion a year ago.
Share price: The shares of all three companies have suffered double-digit losses so far this year, compared with gains of 1.4% for the S&P 500 SPX, +1.24% index in the same period. The shares have lost ground more sharply than the index in the last three months. The impact has been felt on the Dow Jones Industrial Average DJIA, +1.09% which includes Chevron and Exxon among its 30 components.
The decline for Chevron through July has topped 18%, while the company has lost 17% in the last three months. ConocoPhillips shares have lost 24% year-to-date, and 23% in the past three months. Exxon Mobil has fared somewhat better, with losses of 11% so far this year and 6.5% over the last three months.
Analysts polled by Factset have an average share-price target of $110 on Chevron, which is 23% higher than Monday’s close. The average price target for ConocoPhillips is $71.94, or 42% upside from Monday’s close. The average target for Exxon is $92.67, or 17% upside from Monday.
Other issues: For Chevron, all eyes will be on its Gorgon liquefied natural gas project in western Australia. Any updates about the $52 billion project, of which Chevron owns half, will be very important, said Pavel Molchanov, an analyst with Raymond James. The Gorgon field development has already run into numerous delays and cost overruns.
Chevron also has faced production hiccups in its $5 billion Gulf of Mexico Big Foot deepwater oil project, which ran into equipment trouble in June, so investors will be keen on getting an update on Big Foot as well, Edward Jones’ Youngberg said.
ConocoPhillips’ tight cash flow situation is the data point to watch, Youngberg said. ConocoPhillips could not only announce further cuts to its capital spending plan but also reduce its growth outlook, he said.
Investors will be watching whether Exxon Mobil gives any indication its share buyback program will continue, Youngberg said. In the first quarter, Exxon cut its buybacks to $1 billion from $3 billion in the fourth quarter.
Chevron has halted its stock buyback program for the year after repurchasing $5 billion in shares in 2014.
Greece’s stock market will probably stay closed for the rest of this week due to technical glitches at local banks, prolonging a five-week shutdown caused by capital controls, an exchange spokeswoman said on Wednesday.
The Athens Stock Exchange (ASE) has been shut since June 29, when the government closed banks and imposed strict limits on withdrawals and foreign transfers to prevent a run on deposits by savers and companies.
“The stock market will not open tomorrow (Thursday) and it is unlikely to open on Friday. The Greek banks need to resolve some IT issues regarding the restrictions,” the spokeswoman said.
The European Central Bank (ECB) gave Greece the go-ahead on Tuesday to reopen the stock market without restrictions for foreign investors, but with limitations for local investors to avert the risk of further capital outflows.
Under the ECB-approved plan, local investors would be allowed to buy shares with existing cash holdings, but not to withdraw money from their Greek bank accounts to buy shares.
Some market participants had warned that unlimited trading for domestic investors would have posed a serious risk for lenders.
Before the exchange can resume trading, the Finance Ministry will issue a decree outlining the limits on day-to-day operations.
The securities regulator’s chairman told Reuters on Tuesday that the market could reopen on Wednesday or Thursday following the ECB’s approval.
Source: Reuters (Reporting by Lefteris Papadimas; Writing by Angeliki Koutantou; Editing by Kevin Liffey)