Renewed momentum in China to drive commodities

Updated 19 December 2012

Renewed momentum in China to drive commodities

LAUNCESTON, Australia: China’s economic slowdown was the dominant story for the region’s commodity demand this year and its re-acceleration is sure to set the tone for 2013.
However, it’s a good policy for any analyst to look back at what they wrote over the past year and ascertain where they were on the money and where they were wrong as this helps gain an understanding of what may occur in the future.
In a review and outlook piece similar to this one I wrote in December last year, I said there was “little evidence to support the bearish view that China is poised for a hard landing.”
I thought that China, the world’s largest commodity buyer and consumer, would experience a soft landing, with weaker outcomes in the first and second quarter.
Turns out that while the call for a soft landing was correct, my timing was out and the slowing of both growth and commodity demand came in the middle two quarters.
This delay in the expected soft patch influenced a whole range of other calls, including one I made that China’s crude imports were as high as they were likely to get after they reached 5.95 million barrels per day (bpd) in February.
At the time I thought the Chinese wouldn’t stockpile more crude given the high Brent price of above $ 120 a barrel, but I didn’t count on the worries about the loss of Iranian supplies because of Western sanctions against Tehran’s nuclear program.
Crude imports eventually topped out for the year at 6 million bpd in May, but I was right that second half imports would be more in line with underlying demand, a trend likely to continue into 2013.
The outlook for crude imports into China really depends on whether the nation’s refiners use their new capacity to increase exports of products, or whether they keep run rates just high enough to satisfy domestic demand.
On Feb. 24, I suggested that China would become a net diesel exporter in 2012, and by end October it has shipped out a net 10,300 bpd of the transport fuel, a turnaround from 2011’s net imports of 8,400 bpd.
However, this is still a relatively small amount of product making its way on the global market, although there is the potential for much more should the refiners believe it profitable and the authorities grant permission.
The midyear slowdown in China’s economy also impacted the iron ore market, which up till then had resisted much of the weakness in other commodities.
On July 9 I wrote that the iron ore market is resilient and predicted that China would import at least 740 million tons of the steel-making ingredient in 2012.
With one month to go in 2012, iron ore imports stood at 674.5 million tons, meaning the 740 million forecast is feasible, but was wrong was the resilience of the market.
Spot iron ore collapsed in the third quarter, plunging 23 percent to the lowest in three years as fears over the demand outlook given apparent steel over-production gripped the market.
However, on Aug. 14, I suggested that prices were near a bottom, using the flattening of the swaps curve as a potential trigger.
Iron ore dropped for another three weeks after that column before staging a rally that has seen it gain 53 percent so far.
For next year, iron ore looks a safer bet than steel, as the big miners have eased up on their expansion plans, India, the former number three exporter, is shipping less and China’s mills seem to prefer buying high-quality seaborne ore over the low quality domestic output.
Concern over iron ore’s outlook was also a big theme in Australia in 2012, where worries over the nation’s long-running resource boom erupted in tandem with China’s slowdown.
Controlling both labor and capital costs was key, I wrote on Feb. 13, while in May I said there was a “creeping realization” that the commodity boom was becoming harder work.
By July 18 I said it was time for BHP Billiton and Rio Tinto, Australia’s top big miners, to go contrarian on their business models as the share market wasn’t rewarding their ambitious expansion plans.
Scaling back spending so that the conversation turned to possible supply shortages in the next few years from the prevailing worries over over-capacity ending the boom, was the path I said the miners should follow.
BHP in August did just that, axing the expansion of its Olympic Dam mine in South Australia state and slashing spending at a range of other projects.
This I argued didn’t mean the end of the commodity boom, rather it could be longer-lasting as the miners realized that they didn’t need to build, build, build and that they could get plenty of profit by running their existing operations efficiently.
Gold appears set to end the year slightly stronger than it was at the start, disappointing bulls who had called for the yellow metal to rise to $ 2,000 an ounce.
The bulls looked mainly to the prospect of monetary collapse, or debasement in Europe and quantitative easing in the US, but largely ignored the physical market, where there was strong evidence of demand slumping in India and slackening in China, the two nations that account for 40 percent of the market.
On Feb. 17, I said the bullish case was losing luster, following that up on May 4 by saying India and China were no longer positive for gold.
For gold to resume its decade-long rally, demand from India and China will have to increase, as they underpin the physical market, while the fear of monetary easing leading to inflation in the Western world is an as yet unrealized fear trade.
Lastly, the left-field award in Asian commodities this year goes to the Thai government’s rice intervention scheme.
On Feb. 14 I wrote that the subsidies being paid to farmers would have the effect of building a massive stockpile of the grain while dramatically cutting shipments from the world’s number one exporter.
While this is indeed what happened, I perhaps underestimated the strong political support for the scheme by the government of Prime Minister Yingluck Shinawatra, which relies on the rural poor for support.
By Sept. 13 the rice subsidy was in farce, with the commerce minister claiming fictitious sales in government-to-government deals that nobody else could confirm, and the rice mountain reached 14 million tons by October, equivalent to 140 percent of Thailand’s normal annual exports.
By an Oct. 4 column, there was a glimmer of hope that the situation could be resolved, with some senior officials expressing disquiet at the costs, but so far there is no end to the scheme, which seems to be heading for a situation where the Thai government buys rice, is forced to store it in unsuitable locations and eventually disposes of it as waste.
— Clyde Russell is a Reuters market analyst. The views expressed are his own.

NMC Health’s $450 million bond to boost Saudi expansion

Updated 23 April 2018

NMC Health’s $450 million bond to boost Saudi expansion

  • The new capital structure — which will feature a mixture of unsecured bank and bond financing — will aid the company’s continued growth into Saudi Arabia.
  • The company first secured a foothold in the Kingdom in 2016 after acquiring a 70 percent stake in As Salama Hospital in Al-Khobar.

LONDON: The UAE-based private health care operator NMC Health has launched a $450 million senior unsecured guaranteed bond to help pay off an existing $1 billion bridge facility and support its expansion plans into Saudi Arabia.

The earlier bridging loan was part of the $2 billion capital structure refinancing put in place at the start of the year, the company said.

The bond is due in 2025 and is convertible into ordinary shares. JP Morgan is the sole bookrunner on the issuance. Bonds will have a fixed coupon rate of 1.875 percent, paid semi-annually.

The new capital structure — which will feature a mixture of unsecured bank and bond financing — will aid the company’s continued growth into Saudi Arabia, with NMC having been one of the first private health care providers to capitalize on the Saudi government’s health care privatization plans.

The company first secured a foothold in the Kingdom in 2016 after acquiring a 70 percent stake in As Salama Hospital in Al-Khobar.

Since then, NMC won regulatory approval last September for a new long-term care facility, the Chronic Care Specialty Medical Center, in Jeddah. It is though to be the first greenfield medical facility in the Kingdom to be set up by a non-Saudi company.

Earlier this year, NMC said it acquired an 80 percent stake in the Riyadh-based Al-Salam Medical Group.

NMC’s acquisition-led expansion strategy aims to ensure the company retains its recently-won place on London’s FTSE 100 index. It was one of the first Middle Eastern companies to join the index when it qualified last September. It first listed on the London Stock Exchange in 2012.

The company posted strong growth in the last year, reporting $209.3 million in net profit for 2017, an increase of 38.2 percent on the previous year. The company paid out a total of $641 million in acquisitions last year.

“2017 proved to be a year of tremendous achievements for NMC,” said the firm’s chief executive Prasanth Manghat, in a statement in March.

NMC also secured secured its first public ratings of BB+ with a stable outlook from S&P on April 20, while Moody’s gave the firm rating of Ba1 with a stable outlook on April 20, 2018. The bonds are not expected to be rated.

“The company continues to strive to meet self-imposed standards that are higher when compared to what is expected of it by various regulators. This approach supports in turn its resilient business model, loyal customer base, strong brand recognition and market leading position,” according to a statement from Moody’s Investors Service.

Investors are so far reacting favorably to NMC’s strategy, with the company closing at a record high on April 20, according to Bloomberg reports, with a market value of $10.8 billion.

The company is now one of 24 equities in the region to have achieved a market capitalization of more than $10 billion, the report said.

Healthcare is seen as a lucrative sector in the Gulf due to its relatively wealthy population becoming increasingly at risk of problems related to obesity and diseases such as type 2 diabetes.