Focus: US corporate debt

Focus: US corporate debt
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Updated 05 May 2020

Focus: US corporate debt

Focus: US corporate debt

What happened:
An EU-led, G20-supported multilateral fund-raising drive to fund research and manufacturing of COVID-19 vaccines and medicines was able to raise €7.5 billion ($8 billion) — including €4 billion going toward vaccines and €2 billion toward medicines.

Apple and others continued the dash for refinancing their debt and shoring up their balance sheets. They are taking advantage of low interest rates and the fact that the Fed widened its bond-purchasing program to the corporate bond sector.

The number of people furloughed in Europe surpassed 40 million.

First quarter revenues for Adecco, the world’s leading provider of temporary and permanent staffing, were down by 9 percent. They were down by 19 percent in March and by about 40 percent for April, reflecting the dire employment situation in OECD countries.

BNP Paribas reported net income of €1.3 billion, down 33 percent for the same quarter last year. Like most of its peers it shored up loan-loss provisions, which now stand at €502 million.

Vestas posted a €54 million loss while sales for the first quarter had risen by 29 percent to €2.2 billion. The wind turbine manufacturer had abandoned guidance for the rest of the year.

The last two of the big integrated oil companies reported on Monday: Total’s first quarter net profit was down by 35 percent and came in at $1.8 billion. Unlike Shell, the company will maintain dividend. CAPEX for 2020 was cut by 20 percent.

Repsol reported a net loss of €487 million for the first quarter and CAPEX was cut by 26 percent.

After more than 50 percent of companies have reported, we can see three trends weaving through the earnings season. More than 50 percent of companies abandoned guidance, most banks shored up their loan-loss provisions significantly in anticipation of what the lockdown would do to their loan portfolios. All major oil companies slashed Capex by at least 20 percent. Some of them maintained dividend, namely Aramco, BP and Total, whereas others cut them — most remarkably Shell, which did so for the first time since World War II. The dividend cut came in at 66 percent.

Background:
Ten investment-grade companies tapped into the US corporate bond market on Monday alone. The most prominent was Apple, which issued $8.5 billion worth of bonds. The company had missed its forecast for the first-time last week and already sits on a $200 billion cash pile. Other companies, including Avis, raised $400 million and Oneok Inc, a mid-stream oil company, raised $1.5 billion, rated by Standard and Poor’s just above junk.

Several of the “fallen angels” companies that were downgraded because of faltering financials due to the corona crisis had tapped the markets as well. They included, among others, Starbucks and Kraft Heinz.

A dash to the fixed-income markets started in mid-March when the Fed announced it would start buying corporate bonds. Companies are taking advantage of low interest rates as well as the Fed generating additional demand for their bonds.

On one hand, it makes sense for many of these companies to shore up their balance sheets and liquidity at reasonable cost to weather the uncertain times. On the other hand, it increases corporate indebtedness if the amounts they raise are larger than the debt they are refinancing on more advantageous terms. This will add to the debt overhang, which already exists in the system and will become a lot worse when we are exiting lockdown.

In Europe the market was more muted due to the sluggish economy and worries of the White House rhetoric reigniting US-China trade wars.

Going forward:
US Secretary of Treasury Steven Mnuchin announced that he would raise another $3 trillion, which will allow the US-debt-to-GDP-ratio to skyrocket to hitherto-unseen proportions.

Germany’s constitutional court declared aspects of the ECB’s Public Sector Purchase Programme, which was the quantitative easing program during the financial crisis, as not violating the constitution per se but not conforming with aspects of the European treaties. The court has given the ECB three months to address issues pertaining to the Pandemic Emergency Purchase Programme (PEPP).  In the next issue we shall look into how this ruling could affect PEPP going forward.

— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.
Twitter: @MeyerResources


Egypt receives 2.2 mln AstraZeneca and Sinopharm vaccine doses

Egypt receives 2.2 mln AstraZeneca and Sinopharm vaccine doses
Updated 1 min 9 sec ago

Egypt receives 2.2 mln AstraZeneca and Sinopharm vaccine doses

Egypt receives 2.2 mln AstraZeneca and Sinopharm vaccine doses
CAIRO: Egypt has received a batch of over 1.7 million AstraZeneca vaccine doses through the COVAX initiative and a separate shipment of 500,000 Sinopharm vaccine doses from China, the health ministry said on Thursday.
The country received its first COVAX delivery of 854,000 AstraZeneca doses at the start of April. It has also received several shipments of the Sinopharm vaccine, bringing the total number of vaccine doses delivered to 5 million, the health ministry said.
Egypt has an agreement for the supply of 20 million Sinopharm doses, and has been allocated 4.5 million doses of the AstraZeneca vaccine through COVAX.
It is preparing to produce the Sinovac and Sputnik vaccines locally.
Egypt, with a population of just over 100 million, is trying to contain a third wave of COVID-19 infections and the government has put in place some restrictive measures until May 21, shortening opening hours and banning large gatherings.
Some 2.7 million people have registered online with the health ministry to receive a vaccine. Authorities opened a mass vaccination center in Cairo this month capable of vaccinating 10,000 people per day.
Egypt had officially confirmed 240,927 coronavirus cases including 14,091 deaths as of Wednesday.
Officials and experts say the real number of infections is far higher, but is not reflected in government figures because of low testing rates and the exclusion of private test results.

Leading British Imam urges caution during Eid celebrations

Leading British Imam urges caution during Eid celebrations
Updated 19 min 40 sec ago

Leading British Imam urges caution during Eid celebrations

Leading British Imam urges caution during Eid celebrations
  • Qari Asim urged Muslims to “not drop the ball before restrictions are eased”
  • British Muslims have now celebrated two Ramadans while adhering to social distancing measures

LONDON: One of Britain’s leading imams has urged British Muslims to exert caution and continue to observe coronavirus disease (COVID-19) restrictions on personal contact and indoor gatherings during Eid celebrations.

Qari Asim, chairman of the Mosques and Imams National Advisory Board, said it would be “excruciatingly painful” to celebrate Eid without gathering in numbers and embracing loved ones — but that everyone should “take that extra step” to keep people safe before restrictions are lifted.

Thursday marks the end of the second Ramadan Muslims in Britain have spent adhering to restrictions on personal contact and large gatherings — both of which are hallmarks of traditional Ramadan and Eid celebrations.

Asim said: “This Eid will be very different in the sense that we will not be able to greet each other in the traditional way of embracing each other, hugging and handshaking with each other.

“But I’m really hopeful that next Eid we will be able to be with each other and embrace each other and share a meal with our extended family and friends.”

He added: “It’s excruciatingly painful because the easing of restrictions is taking place next week when we will be able to hug each other and we will be able to embrace each other.

“We just have to take that one extra step to get us through this pandemic and make sure that we do not drop the ball before the restrictions are completely eased.”

On May 17, Britain will see a raft of pandemic-related restrictions to social life relaxed — including a cap on the number of worshippers allowed into mosques and other places of worship.

Asim said: “It’s been extremely challenging to follow the restrictions that have been in place but people have made incredible sacrifices and the Muslim community has strictly followed the guidelines given by the government.”

Instead of the traditional shared iftar meal, mosques in the UK have chosen to share food with vulnerable members of their local communities.

His own mosque, Asim said, has handed out more than 7,000 food parcels in the local area throughout Ramadan.


Macron holds talks with Mahmoud Abbas, will discuss Gaza situation with Netanyahu

French President Emmanuel Macron at the Elysee Palace in Paris. (Reuters)
French President Emmanuel Macron at the Elysee Palace in Paris. (Reuters)
Updated 6 min 18 sec ago

Macron holds talks with Mahmoud Abbas, will discuss Gaza situation with Netanyahu

French President Emmanuel Macron at the Elysee Palace in Paris. (Reuters)

PARIS: French President Emmanuel Macron is concerned by the escalation of violence between Israelis and Palestinians and calls for a "definite reset" of negotiations between the two sides, the French presidency said on Thursday.

Palestinian militants fired more rockets into Israel's commercial heartland on Thursday as Israel kept up a punishing bombing campaign in Gaza and massed tanks and troops on the enclave's border. 

More to follow...


Tech giants face hefty fines under UK online safety bill to protect children

Tech giants face hefty fines under UK online safety bill to protect children
Updated 58 min 46 sec ago

Tech giants face hefty fines under UK online safety bill to protect children

Tech giants face hefty fines under UK online safety bill to protect children
  • A new online safety bill will regulate social media with terms and conditions on minimum age thresholds
  • Ofcom, the government-approved regulator for broadcasting and telecommunications, will be responsible for enforcing the new bill

LONDON: The UK government announced plans on Wednesday to introduce age verification for users accessing social media platforms as part of efforts to protect children online. 

A new online safety bill will regulate social media with terms and conditions on minimum age thresholds, while tech giants such as Facebook, Google and Twitter will face hefty fines if they allow underage children to access their services. 

Ofcom, the government-approved regulator for broadcasting and telecommunications, will be responsible for enforcing the new bill.

Currently, children under 13 are not allowed to sign up to Facebook, Twitter, Instagram and YouTube, while those under 12 are prohibited from creating a Google account. Meanwhile, the Facebook-owned chat service WhatsApp has a minimum age of 16.

Most social media companies rely on users self-declaring their age when they sign up. However, under the new regulations, Ofcom will have the power to carry out age checks and recommend certain social media platforms introduce age verifications. 

This could mean that social media firms will require users to upload a form of ID to verify their age. However, platforms warned that this move would exclude millions of users, both young and old, because many lack the documentation required.

The Online Harms Foundation criticized the UK government’s plans, saying that the proposals “overwhelmingly ignored” smaller platforms in favor of tech giants.

In a statement, the foundation claimed that the government focused on larger platforms, which already carry out much of what the bill demands.


UAE allows Pfizer COVID-19 dose for emergency use in 12-15 year olds

UAE allows Pfizer COVID-19 dose for emergency use in 12-15 year olds
Updated 55 min 39 sec ago

UAE allows Pfizer COVID-19 dose for emergency use in 12-15 year olds

UAE allows Pfizer COVID-19 dose for emergency use in 12-15 year olds

The UAE has approved the Pfizer and BioNTech COVID-19 vaccine for emergency use in children aged 12-15, the government said on Thursday, having already permitted its use for 16 years and above.
The UAE's health ministry approved its use, the government's Twitter account said. The US Food and Drug Administration on Tuesday approved the use of the vaccine in children as young as 12.