G20 coordinator seeks to calm currency tension

Updated 18 January 2013

G20 coordinator seeks to calm currency tension

MOSCOW: Russia sought yesterday to calm a “currency war” that has flared between the developed and emerging worlds and threatens to dominate Moscow’s annual presidency of the Group of 20 forum.
Urging a “positive rebalancing” of the global economy, Russia’s G20 coordinator told Reuters that weaker exchange rates in advanced economies trying to escape a debt trap may be justified as part of broader efforts to kick-start growth.
“It’s a tradeoff,” Ksenia Yudayeva said in an interview before G20 finance ministers and central bankers gather in Moscow on Feb. 15-16.
Leaders of the G20, which accounts for 90 percent of the world economy and two-thirds of its people, found themselves thrust into crisis-management mode when they first met in the aftermath of the 2008 financial crash.
A summit in London the following year created a massive financial backstop to keep indebted countries afloat.
Now, as Russia takes the G20 helm, the worst appears to have passed. Yet frictions persist.
The new Japanese government’s drive to reflate its ailing economy has sparked fears of a renewed currency race to the bottom that would hurt exporters like China or Russia and debase their vast foreign exchange reserves.
A senior Russian central banker, Alexei Ulyukayev, accused Tokyo on Wednesday of monetary protectionism, joining criticism led by Brazil of competitive devaluations and monetary stimulus orchestrated by developed nations.
Yudayeva, a US-educated former chief economist at Russia’s top bank, Sberbank, struck a more conciliatory tone. She said that countries generating external surpluses should diversify away from traditional reserve currencies.
“Growth in the US and Europe is very important for the world,” said the Kremlin adviser, appointed by President Vladimir Putin as Russia’s G20 “sherpa” last August.
“We may have a stagnating US with debt at its current value, or a growing US with slightly depreciated debt. That’s a tradeoff that we need to think about and address.”
The Bank of Russia has a stash of gold and foreign exchange of more than half a trillion dollars, the world’s fourth-largest.
Most is held in dollars and euros but, she said, Russian reserve managers should consider shifting funds out of sovereign debt into riskier assets, while budget funds were already being invested in infrastructure projects inside the country.
Russia has laid out a supply-side agenda for its G20 presidency focusing on investment, job creation, innovation and infrastructure that some say fails to address a chronic lack of demand in the global economy.

Yudayeva, 42, pushed back against those suggestions, noting that in addition to efforts to ease the debt burden of struggling states in the periphery of the euro zone, like Greece, crucial labor market reforms had also been implemented.
“We will not jump-start growth without investment,” she said.
“When people speak about imbalances we can discuss them. But they can only be balanced in the long-run through investment.
“We’d like to reach positive rebalancing, which should be through growth and structural changes in the global economy.”
Putin hosts the annual G20 summit in St Petersburg in September, and Yudayeva said she hoped that leaders would commit to “binding but realistic” goals to reduce debts over time.
A pledge at the 2010 summit in Toronto to halve budget deficits will expire this year, with most G20 nations falling short of the goal.
She said that friction between Moscow and Washington over trade, human rights and the civil war in Syria should not spill over into the G20, whose focus is on economic issues and not international politics.
Russia — a member of the informal BRICS grouping that includes Brazil, India, China and South Africa — will not lobby for the interests of emerging markets to the detriment of the broader G20 process. But Moscow is ready:
“Russia, when it was the Soviet Union, was a part of the “G2” in a sense,” Yudayeva said. “So it’s used to thinking kind of big.”

Gulf companies challenged by debt and rising interest rates

Updated 22 April 2018

Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.


Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”



The number of interest rate rises in the UAE since March 2017.