Archives for April 2015

Russian Central Bank first deputy chair Ksenia Yudaeva (RIA Novosti / Vladimir Astapkovich)

The ruble’s oil-spurred rally is over, the Russian Central Bank said on Wednesday. The ruble has gained 15 percent this year after losing about half its value in 2014.

“The fast appreciation of the ruble that we saw, linked to the sharp 30 percent upswing in oil, is over,” the Central Bank First Deputy Governor Ksenia Yudaeva said at a conference on Wednesday. “Now we are seeing stabilization.”

The Central Bank is actively trying to reverse the 15 percent gain the currency picked up this year. The latest trick to weaken the currency was to increase the rate for foreign currency repurchase agreements (repo), or how much banks need to spend to take out loans.

On Wednesday, the ruble increased to 52.87 to the dollar at 3:53pm in Moscow after losing nearly eight percent in the last four days. Oil prices have been one of the drivers for the ruble’s ascent.

READ MORE: Russian ruble seen as world’s best performing currency, hits 2015 high

The Central Bank expects by the summer the volatility of the ruble to return levels seen in the fall of 2014, before the regulator switched the currency to a free float regime in November. Over time, she said, this volatility will decline, although the dependence of the ruble on oil prices will continue.

“Basically, I think by the summer volatility [of the ruble, Ed.] should drop to values seen in early fall last year, provided there is a similar decline in oil volatility. If the volatility of oil remains high, then the process will take more time,” she told reporters.

On September 1, 2014 the ruble closed at 37.28 against the dollar, and by the end of November it had fallen in value to 49.46, before diving to new depths in mid-December when a dollar at one point bought 80 rubles.

The ruble nosedived was in tandem with oil prices in the second half of last year, both losing about 50 percent, but in January, the ruble began to gain value despite dropping oil prices.

The currency’s volatility presents no threat to Russia’s financial stability and by the summer it may grow to to levels seen last fall, she said.

“The level of risk to financial stability is now substantially lower than it was several months ago,” Yudaeva said.

Oil prices have been extremely volatile in 2015 especially on further conflict in the Middle East. First prices jumped when Saudi Arabia began airstrikes on Yemen on March 25, and have again dropped on the Kingdom’s announcement Wednesday they would terminate the operation.

Yudaeva also warned the antitrust case the EU filed against Gazprom could affect the ruble rate.

Article source: http://rt.com/business/251929-ruble-rise-oil-central-bank/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

Reuters / Dado Ruvic

Russia’s biggest gas utility, Gazprom, was hit with an antitrust case by European Union regulators for “abusing” its dominant position and overcharging customers for gas supplies. The investigation against the Gazprom has been ongoing for 2 years.

“We find that it (Gazprom) may have built artificial barriers preventing gas from flowing from certain Central Eastern European countries to others, hindering cross-border competition,” European Competition Commissioner Margrethe Vestager said in a statement. Vestager said there is no political element to the case.

And an illustration of the Statement of Objections… pic.twitter.com/I3z6fzhUOj

— Margrethe Vestager (@vestager) April 22, 2015

Gazprom, with annual sales of some $100 billion, supplies about 30 percent of the natural gas used by the 28 countries of the EU.

Gazprom is under investigation for market dominance in Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, and Bulgaria.

The Russian gas major has individual contracts with these countries that allow company to charge each a different price for gas supplies.

“Keeping national gas markets separate also allowed Gazprom to charge prices that we at this stage consider to be unfair,” Vestager said.

Gazprom’s unfair prices partly result from the firm’s formula that link gas prices to oil product prices and “have unduly favored Gazprom over its customers,” the EU said.

With several clients, Gazprom has a ‘take-or-pay’ clause, which forces customers to pay for deliveries they may not necessarily need or use.

Gazprom responded to the accusations, and said that it considers the claim against the company “unreasonable.”

The gas supplier has 12 weeks to respond to the claim and call a hearing.

EU antitrust fines cannot exceed 10 percent of global yearly revenue, which for Gazprom in 2013 was $164.62 billion, so the EU could hit the company with a more than $16 billion fine. To compare, Google’s maximum fine is €6 billion.

“Gazprom considers the European Commission’s submitted claims baseless. At the same time, accepting the European Commission’s ‘Statement of Objections’ is just one phase of the anti-monopoly investigation, and does not mean that Gazprom is guilty of any violation of EU antitrust legislation,” the company said in a statement.

The EU has been discussing the creation of an ‘energy union’ which would force companies like Gazprom to sell gas supplies at a fixed rate to the entire 28-nation bloc.

The European Union first launched an investigation into Gazprom in 2012, blaming Russia’s biggest gas producer for anti-competitive practices in Central and Eastern Europe. It said Gazprom was hindering the free flow of gas to member nations, preventing the diversification of gas supplies, and imposing unfair prices on customers by linking the price of gas to oil prices.

READ MORE:EU formally charges Google over search ‘abuse’

The antitrust case against Gazprom comes just days after the commission launched a similar case against American search supremo Google for abusing its dominance in the European market.

Gazprom shares on the Moscow Exchange reacted negatively to the news, dropping 2.54 percent at 1:07pm Moscow time, just 30 minutes after the antitrust probe was announced.

Article source: http://rt.com/business/251897-gazprom-eu-antitrust-case/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

Reuters/Brendan McDermid

Goldman Sachs has reached an out of court settlement to pay £1million ($1.5 million) to a former female executive. Some of the banks top management were accused of sexually discriminating against her for being pregnant and then having a child.

Sonia Pereiro-Mendez, who was the bank’s analyst on the distressed credit desk, claims she was cheated out of millions of pounds in bonuses and subjected to sexist comments over her pregnancy. She added she was “publicly mocked” and subjected to “gratuitous and implicitly derogatory references to her childcare arrangements,” FT reports.

READ MORE: Morgan Stanley in talks to pay $500 mn fine to settle mortgage-bond probe – media

Her claim, which she submitted to court, said she “took exceptional measures” to perform the tasks requested of her by Goldman Sachs during her maternity leave, such as “arranging for her in-laws to look after her baby in a car park during a relevant meeting so that she could swiftly breastfeed her baby during breaks from the meeting.”

The mother of two children saw her annual income cut from £250,000 ($373,00) to £192,000 ($286,000), after she informed her employer about her first pregnancy in 2011.

Four years ago, the plaintiff received a bonus of £200,000 ($298,000), but she believes the amount due should have been £910,000 ($1.35 million), which is five percent of the profits she brought to Goldman Sachs.

Pereiro-Mendez claimed her salary and bonuses were cut, as her superiors believed she would not be able to make a career and bring benefits to the bank having given birth to children. Pereiro-Mendez said she secretly recorded these conversations on tape and planned to play them during the court hearings.

READ MORE: Former Russian banker in London wins £3.2mn claim against Sberbank for bullying

However, the case never went to trial. Pereiro-Mendez withdrew her claims just before her case was about to be heard at the Central London Employment Tribunal on Tuesday.

The terms of the deal between the bank and Pereiro-Mendez were not disclosed. However, the Daily Telegraph reveals the payout could exceed £1 million ($1.5 million).

Goldman Sachs denied all the accusations from its former employee. “We are pleased that this issue has been resolved,” the bank said in a statement.

Article source: http://rt.com/business/251805-goldman-sachs-maternity-scandal/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

Reuters / Jason Lee

Baoding Tianwei Group, owned by the China South Industries Group, has become the country’s first state-owned company to announce a default on its bonds traded in mainland China, after failing to pay $13.8 million in interest.

The company said it won’t be able to pay interest on the bonds by Tuesday, April 21. However, it will continue to raise funds for debt repayment in various ways, including the sale of assets, says a statement on the China Foreign Exchange Trade System website.

“Our company suffered huge losses in 2014 and the debt to asset ratio surged quickly,” Baoding Tianwei said in Tuesday’s statement. “Our company has lost financing ability and suffered from a capital shortage. We can’t raise enough money to repay interest, despite all the efforts we have made.”

Kaisa Group Holdings Ltd. became the first Chinese developer to default on its US currency debt Monday, failing to make a scheduled interest payment of $16.1 million.

The news comes as China is struggling to revive its economy that has seen its slowest growth in more than 5 years.

Tianwei’s default shows the attitude toward financial risk is shifting, underscored by the pledge of Prime Minister Li Keqiang to revive a cooling economy with the help of market forces and strip power from the government.

Baoding Tianwei’s notes have dropped 7.1 percent since March 31 to 85.3 percent of par as of Monday, which is the sharpest monthly decline the company has seen since 2011. The bond rating is now B versus AA+ at issuance.

The Baoding Tianwei group was established in 1995 and mainly focuses on producing power transformers and exports to over 30 countries including the US, Pakistan, Iran and Malaysia.

Two private companies have also announced defaults in China’s bond market. Cloud Live Technology Group defaulted earlier this month unable to pay $38.7 million and Shanghai Chaori Solar Energy Science Technology last year became the first Chinese company to default on onshore bonds.

READ MORE: China’s GDP growth at slowest pace in 6 years

China’s corporate debt is the biggest in the world, said central bank adviser Yu Yongding quoted by the official China Daily last week. Companies had $14.2 trillion in debt at the end of 2013; the figure exceeds every other country including the US with $13.1 trillion in company obligations, Standard Poor’s said in a June report.

State-owned companies make up the majority of issuers of domestic bonds in China with 91 percent coming from government-backed enterprises and just 6 percent being sold by privately owned firms, according to data compiled by Haitong Securities Co.

“If China’s credit environment doesn’t improve, more defaults will come,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shanghai, quoted by Bloomberg. “If local government bonds or their financing vehicles’ bonds default, that may cause a widespread increase in risk aversion.”

China’s economy last quarter expanded at the weakest pace since 2009. The country’s output, investment and retail performance pointed to a deepening slowdown, said data released by the statistics bureau in Beijing on April 15.

On Sunday, China’s central bank cut the reserve-requirement ratio for banks by 1 percent, expanding its stimulus policies.

Article source: http://rt.com/business/251665-china-state-company-default/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

Russian Prime Minister Dmitry Medvedev (RIA Novosti / Ramil Sitdikov)

Russia has never faced so many challenges at once like now, including the crash of oil prices and severe Western economic sanctions. However, it adapted to a new economic reality and even managed to stabilize, Russian Prime Minister Dmitry Medvedev said.

“For the first time in Russian history since the breakup of the USSR, we have come under the influence of two external shocks immediately: the sharp decline in oil prices and serious unjustified sanctions. Our country has never run into such a collection of challenges at the same time,” Medvedev said on Tuesday in an annual report to the State Duma, the lower house of the Russian parliament.

The reality in 2014 appeared to become more complicated than the worst expectations, according to the Prime Minister. He compared the oil prices fall to $9 per barrel in 1998 to the present time, “considering the dollar’s changing purchasing power and a number of other economic factors and indicators”. The latest sanctions are also the worst in the history of the country, he said.

READ MORE: ‘Worst is over’ – Putin on Russian economy

The losses the Russian economy has sustained from sanctions are significant; according to the Prime Minister some experts have put it at €25 billion. Negative trends in Russian economy will continue throughout 2015, he added.

“In January-March the GDP dropped by 2 percent, the volume of industrial production by 0.4 percent. The greatest decline felt has been noted in investment activity,” Medvedev said.

If the external pressure increases and oil prices remain at extremely low levels for a long time, we will have to develop in a different economic reality, which will challenge our strength, the Prime Minister said, adding that he was confident that Russia could live even in such a reality.

‘Far from worst-case scenario’

However, the Russian PM says the current crisis is not the worst possible, especially since the situation managed to stabilize. “Everything that is happening is far from a worst-case scenario and could be much worse and much more difficult,” Medvedev said pointing to unemployment, the situation with prices, the state of the banking system and the production sector.

READ MORE: Worst over for Russian economy, time to talk success – economists

He claimed that last year the Russian government started to take steps, given the past experience of the 2008 crisis. The foreign exchange market calmed down and the economy is gradually adapting to the floating exchange rate of the ruble.

“We still maintain a relatively low level of public debt. The federal budget deficit, although slightly increased, according to the results of this year will remain at an economically safe level. Unemployment remains within reasonable parameters, it is low against corresponding conditions in other countries,” Medvedev said.

Article source: http://rt.com/business/251613-russia-challenges-economy-stabilized/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

Reuters / Bobby Yip

The People’s Bank of China may have tripled its gold stockpile since April 2009, when it last gave an official number, which Bloomberg Intelligence estimates to be 3,510 metric tons, second to United States 8,133.5 tons of gold.

The figure, almost triple the 1,054 tons of gold reported in 2009, was calculated based on trade data, domestic output, and China Gold Association figures by Bloomberg Intelligence.

China, which only reports its gold stockpiles every few years, made a similar move between 2008 and 2009, when it just about doubled the bullion stock. Including gold, China is estimated to have $3.8 trillion in currency reserves, which are also kept secret.

The massive increase may be a move to make the yuan more competitive against the US dollar.
The People’s Bank of China Governor Zhou Xiaochuan has made it an unspoken mission to turn the yuan into a global currency, and an IMF reserve currency. China has undertaken many economic reforms to allow its currency to free float within a few years.

READ MORE: Yuan can become dominant world reserve currency – survey

The US dollar is currently the most popular reserve currency – accounting for 63 percent of world central bank holdings, according to the IMF. The euro is in second place with 22 percent.

In February, the yuan was the seventh most used currency worldwide in SWIFT payments, down from number 5 in December.

Bloomberg suggests China is upping the ante to make a better case for the International Monetary Fund to add the yuan as a reserve currency. The Special Drawing Rights (SDRs) are an artificial currency created by the IMF in 1969 that the institution uses to give out extra funds. So far SDRs include the dollar, euro, yen, and British pound. The IMF will decide on the issue either at their meeting in May or in October, Nomura Holdings Inc. said in an April 8 report

In 2010, the same year China became the world’s second largest economy, the IMF said the yuan couldn’t be added to the SDR basket because it was too tightly controlled by the state, and not ‘freely usable’.

The world’s second largest economy may be giving the US, the world’s largest bullion holder, a run for its money. This isn’t just a title to be won, as it could have a great effect on the stability of the US dollar which could be threatened if China accumulates enough gold.

Article source: http://rt.com/business/251657-china-secret-gold-triples/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

LUKoil president Vagit Alekperov (RIA Novosti / Vitaliy Belousov)

Russia’s second largest oil and gas producer Lukoil plans to return to Iran as soon as sanctions over the country’s nuclear program are lifted, according to the company’s President Vagit Alekperov.

The company wants to return to the Anaran oil project which the company abandoned due to Iranian sanctions in 2010, Vagit Alekperov told reporters at the IHS CERA Week 2015 Energy Conference on Tuesday.

“We hope that the current political dialogues will open up investment opportunities in Iran in the medium-term,” Alekperov said, adding that his company was looking at the possibility of returning to the Iranian market as it wanted to be ready for “the moment when the sanctions were removed.”

READ MORE: Tehran and world powers reach solutions on Iran nuclear program

Iran has between 20-30 million barrels of crude in storage that could potentially come to market in July 2015, adding to the global supply glut.The country plans to boost crude exports by as much as 1 million barrels per day once the sanctions over Tehran’s nuclear program are lifted.

Lukoil is also considering buying assets in Iran as well as in Mexico after 2016, putting into operation a number of huge projects during 2015-2016, according to the company head. Alekperov also said Lukoil has already reopened an office in Tehran.

Lukoil was forced to withdraw from Iran in 2010, after the United States imposed economic sanctions against Tehran. Prior to that, it jointly worked with Norway’s Statoil exploring the Anaran block that extends across the Iraqi border and is estimated to have an oil reserve of 2 billion barrels. The Russian company took a $63 million loss when it abandoned the project; however, in 2013 Iran reimbursed Lukoil $60 million.

Tough relations

This comes as Iran and the P5+1 group of countries- the US, Russia, China, Britain, France and Germany – are working on a final agreement over the Iranian nuclear program which has a deadline of June 30. A key point of the agreement will be the removal of a series of economic sanctions on Iran – specifically some of those that ban foreign investment in the country’s oil and gas sector.

Earlier in April, Iran and the international powers reached “solutions on key parameters” after eight days of talks in Switzerland. Under the deal Tehran is obliged to refrain from creating nuclear weapons. It agreed that the Natantz facility would remain as the only uranium enrichment site in the country while the Fordow facility is to be converted into a nuclear physics center with no fissile material.

READ MORE: Putin lifts ban on delivery of S-300 missile systems to Iran

In 2006, the UN Security Council imposed sanctions on Iran after the country refused to suspend its uranium enrichment program. US sanctions initially targeted investment in oil, gas and petrochemicals, exports of refined petroleum products, and business dealings with the Iranian Revolutionary Guard Corps. Banking and insurance transactions, including those with the Central Bank of Iran, as well as shipping, web-hosting services for commercial endeavors, and domain name registration services have been also restricted.

Tehran was accused of pursuing a clandestine nuclear weapons program by some countries, but insists that it only wants to use nuclear energy for civilian use. Currently, the sanctions include an embargo on dealings with Iran by the United States, and a ban on selling aircraft and spare parts to Iranian aviation companies.

Article source: http://rt.com/business/251521-lukoil-iran-comeback-sanctions/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

Mikhail Fridman, Chairman of the Board of Trustees of the Alfa Group Consortium (RIA Novosti / Alexander Astafyev)

The UK is forcing Russian billionaire Mikhail Fridman, owner of the $10 billion L1 energy fund, to sell dozens of newly-acquired North Sea oil and gas assets in the next 3-6 months on fears more Russia sanctions could shut down the gas fields.

The UK’s Department of Energy and Climate energy is for the first time using ministerial powers allowing Energy Secretary Ed Davey to revoke North Sea operating licenses.

“The Secretary of State Ed Davey […] proposes to revoke DEA UK’s North Sea petroleum licenses unless LetterOne arranges for a further change of control of the DEA UK gas fields in the North Sea,” the department statement said Monday.

Davey said Fridman has 3 months to sell, which may be extended to six months.

Fridman’s LetterOne Group acquired the assets in March for €5.1 billion when it acquired DEA the oil and gas arm of cash-strapped German utility RWE. The UK tried to block the purchase concerned the Russian tycoon and his company could be put on a sanctions list and jeopardized field development in the North Sea, which provides the UK with half of its energy needs.

READ MORE: Russian tycoon Fridman to invest $16bn in US European telecoms – media

The decision comes less than 3 weeks before the UK general elections, giving Fridman and his investment arm a chance to negotiate with a possible new administration.

Both are very short time periods to find a buyer for assets that are aging, expensive, and in production decline.

Production has fallen 6 percent per year between 1999 and 2010, the Economist reported. Low oil prices, which have lost more than 50 percent of their value since summer 2014, also make North Sea drilling expensive and borderline unprofitable.

As there is little potential for growth in the North Sea, L1 Energy is looking elsewhere.

The $10 billion L1 Energy fund, chaired by former BP chief executive Lord Browne, only accounts for 3-5 percent of UK gas output. More than 80 percent of the company’s major activity is outside the UK in countries including Germany, Poland, Norway, Egypt, Libya, Turkmenistan and Algeria.

Article source: http://rt.com/business/251541-north-sea-oil-fridman/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

Reuters/Petar Kujundzic

China will reportedly allocate $62 billion of its foreign exchange reserves to three state-owned “policy banks” in order to support its New Silk Road project, aimed at creating infrastructure links with foreign markets.

The project called ‘One belt, One road’, also known as the New Silk Road, includes plans to build roads, ports, railway systems and other infrastructure from China into the Middle East, Central, South and Southeast Asia to create demand for China’s industrial exports, as it already sees oversupply at home.

The People’s Bank of China will direct $32 billion to China Development Bank (CDB) and $30 billion to Export-Import Bank of China (EXIM), the Caixin magazine said in a report on its website. The third bank to receive cash from China’s central bank is Agricultural Development Bank of China (ADBC); another state-owned bank that supports the farming sector.

READ MORE: China to invest $46bn in economic corridor with Pakistan – media

The capital injection will be carried out through converting entrusted loans into stakes, the journal said, adding that the People’s Bank of China will become the second largest shareholder in the China Development Bank and the biggest shareholder of the EXIM bank.

Chinese government said last week it had approved the reform plans for CDB, Exim Bank and Agricultural Development Bank proposed by the Central Bank in attempts to advance finance projects amid the current economic slowdown.

The government has been saying for years it intended to transform these three policy banks into commercial institutions, but little progress has been seen.

Policy banks in China do not accept deposits and fund themselves mainly by selling bonds carrying an explicit government guarantee. The banks sell bonds in Yuan within China and USD bonds in the offshore market.

The foreign exchange reserves of China, considered the worlds largest, fell by $110 billion to $3.7 trillion in the first quarter of 2015.

China had previously used part of its foreign currency reserves to recapitalize major state-run banks, help them restructure and list their shares.

Article source: http://rt.com/business/251329-china-new-silk-road/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

Reuters/Petar Kujundzic

China will allocate $62 billion of its foreign exchange reserves to three state-owned “policy banks” in order to support its New Silk Road project aimed at creating infrastructure links with foreign markets.

The project called “One belt, One road”, also known as the New Silk Road, includes plans to build roads, ports, railway systems and other infrastructure from China into the Middle East, Central, South and Southeast Asia to create demand for China’s industrial exports, as it already sees oversupply at home.

The People’s Bank of China will direct $32 billion to China Development Bank (CDB) and $30 billion to Export-Import Bank of China (EXIM), the Caixin magazine said in a report on its website. The third bank to receive cash from China’s central bank is Agricultural Development Bank of China (ADBC); another state-owned bank that supports the farming sector.

READ MORE: China to invest $46bn in economic corridor with Pakistan – media

The capital injection will be carried out through converting entrusted loans into stakes, the journal said, adding that the People’s Bank of China will become the second largest shareholder in the China Development Bank and the biggest shareholder of the EXIM bank.

Chinese government said last week it had approved the reform plans for CDB, Exim Bank and Agricultural Development Bank proposed by the Central Bank in attempts to advance finance projects amid the current economic slowdown.

The government has been saying for years it intended to transform these three policy banks into commercial institutions, but little progress has been seen.

Policy banks in China do not accept deposits and fund themselves mainly by selling bonds carrying an explicit government guarantee. The banks sell bonds in Yuan within China and USD bonds in the offshore market.

The foreign exchange reserves of China, considered the worlds largest, fell by $110 billion to $3.7 trillion in the first quarter of 2015.

China had previously used part of its foreign currency reserves to recapitalize major state-run banks, help them restructure and list their shares.

Article source: http://rt.com/business/251329-china-new-silk-road/?utm_source=rss&utm_medium=rss&utm_campaign=RSS