EBRD discussing co-investments with Gulf sovereign funds

Updated 14 February 2017
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EBRD discussing co-investments with Gulf sovereign funds

DUBAI: The European Bank for Reconstruction and Development (EBRD) is in talks with Gulf sovereign wealth funds to invest jointly, and hopes to complete a round of fund-raising for such investments by the end of this year, the bank’s president said on Monday.
The multilateral bank, owned by 65 countries, aids economies by lending to companies and projects and taking equity stakes in them. In recent years it has expanded its activities beyond Eastern Europe and after the Arab uprisings of 2011, began operating in Egypt, Jordan, Morocco and Tunisia.
Suma Chakrabarti said he was arguing to the Gulf sovereign funds that EBRD projects offered good commercial returns, and also that such investments made sense because of the Gulf’s growing commercial and political ties with EBRD member states as far afield as eastern Europe and Georgia.
“We are talking to a range of sovereign funds in the Gulf region,” Chakrabarti said. “We are having extremely positive discussions.”
He declined to name the funds, but said they were at the stage of doing due diligence on the EBRD’s business model.
Several Gulf sovereign funds are among the world’s largest, with assets in the hundreds of billions of dollars. As low oil prices strain Gulf governments’ finances, reducing flows of new petrodollars into the funds, they are looking at ways to boost returns.
Some are already co-investing indirectly in projects with other multilateral institutions. Last month, Bahrain’s Asma Capital agreed to buy a stake in the water business of United Arab Emirates (UAE) utility company Utico in a deal worth $147 million; Asma’s owners include Saudi Arabia’s Public Investment Fund and the Islamic Development Bank (IDB).
Chakrabarti said the EBRD was asking Gulf sovereign funds to invest in its Equity Participation Fund, which gives long-term institutional investors exposure to EBRD equity investments above €10 million ($10.6 million).
The fund was launched last year with an initial size of €350 million and China’s State Administration of Foreign Exchange (SAFE) and the State Oil Fund of Azerbaijan as cornerstone investors.
The EBRD hopes to complete a second closing of the fund later this year, Chakrabarti said, adding that sovereign funds might also choose to invest directly in projects alongside the EBRD.
The bank has now invested €5 billion in Egypt, Jordan, Morocco and Tunisia. Chakrabarti said it had plenty of spare capital and felt it was still only scratching the surface of commercial opportunities in those countries, so he expected growth to continue at a similar speed.
“I would be very surprised if it does not double in the next five years,” he said.
Business conditions in Egypt are improving in the wake of Cairo’s $12 billion loan deal with the International Monetary Fund (IMF) in November — “businesses are complaining less to us about the foreign exchange shortage” — although the economy is still hampered by cumbersome, top-down decision-making in the government, Chakrabarti said.
The EBRD intends to expand its activities to Lebanon once the Lebanese Parliament has given final approval to that country’s membership. Chakrabarti said he expected this to happen soon and that projects in Lebanon had been identified for investment.


Another surprise fall in UK inflation muddies Bank of England rates message

Updated 5 min 27 sec ago
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Another surprise fall in UK inflation muddies Bank of England rates message

LONDON: British inflation fell unexpectedly in April, according to figures on Wednesday that added to doubts about when the Bank of England will raise interest rates again and pushed sterling to its lowest level against the dollar this year.
Consumer price inflation cooled to 2.4 percent last month, its weakest increase since March 2017, and down from 2.5 percent this March.
The figure was below economists’ average expectation in a Reuters poll for it to hold steady at 2.5 percent and represented the second surprise fall in a row after a drop in March’s figures. “It’s a conundrum for the Bank of England which has struggled to read the direction of price changes recently,” Ed Monk, associate director for personal investing at fund manager Fidelity International, said.
“With inflation trending lower, it only makes it harder for the Bank of England to raise rates.” Investors were now pricing in a one-in-three chance of a BoE rate hike in August — the next time it updates its forecasts on the economy — down from 50/50 before Tuesday’s data.
High inflation, caused by the pound’s drop after the 2016 Brexit vote, squeezed British consumers through last year, and although it has receded from its December peak of 3.1 percent, the BoE is keeping a close eye on price pressures.
PIPELINE PRESSURE
Wednesday’s data pointed to some signs of inflation pressure still in the pipeline. Prices of goods leaving British factories increased at a faster rate than expected last month. And while consumer price inflation cooled again, the timing of the Easter holidays and their impact on air fare prices was a big contributor.
On Tuesday Bank of England Governor Mark Carney cited a new sugar tax on soft drinks, as well as higher utility bills and petrol prices, as reasons why inflation “probably tips up a bit” in the coming months before resuming a decline. The ONS said soft drink prices increased sharply over the last couple of months but the overall impact on inflation was minimal.
The latest data on prices in British factories, which eventually feed through onto the high street, were stronger than anticipated. Manufacturers increased the prices they charged by 2.7 percent year-on-year, matching March’s increase. Economists had expected a fall to 2.3 percent. Among manufacturers, the cost of raw materials — many of them imported such as oil — was 5.3 percent higher than in April 2017, up sharply from an increase of 4.4 percent in March and suggesting a long run of weakening price growth has ended.
A surprise drop in consumer price inflation in March, along weak economic growth figures for early 2018, had called into question whether the BoE would raise interest rates more than once before the end of the year.
Earlier this month it refrained from an interest rate hike that had at one point been widely expected. The BoE’s latest forecasts show inflation dropping to 2.1 percent in a year’s time, and returning to its 2.0 percent target a year later — but only if interest rates rise by 25 basis points about three times over three years.
The latest Reuters poll of economists suggests the BoE is most likely to raise interest rates at its August meeting.