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Saudi debating shape of Aramco ahead of IPO

Abu Dhabi's fund to start

operations in MayDow & Brent before going to press

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Saturday 18 February 2017

Woqod may hike government stake The Peninsula

Qatar Fuel (Woqod) has posted a net profit of QR975m for the full-year of 2016. The company’s net profit

during the previous year stood was QR1.15bn.

Announcing the results, Woqod Chairman Sheikh Saoud bin Abdulrahaman Al-Thani attributed the fall in net profit to a series of reasons including the cancellation of the various die-sel sales price categories, the new Sales and Purchase Agree-ment (SPA) signed with QP and the allocation of funds to meet the requirements of the Qatar Pension & Retirement Law for Qatari employees.

Earnings per share (EPS) amounted to QR9.7 as compared to QR11.5 for 2015. The EPS decline was due to the issue of 8 percent

bonus shares for the year 2015. Total assets reached QR11.3bn, while shareholders’ equity reached QR7.3bn for the period.

The Board of Directors rec-ommended to the General Assembly to distribute a cash dividends of QR638m, or 70 per-cent of the paid-up capital at a value of QR7 per share. The board also recommended the distribution of 9 percent bonus shares, or 9 shares for every 100 shares owned at the date and

proposed amendments to the Articles of Association of the company .

The Board of Directors will also table a proposal from QP, before the general assembly to amend the articles of association of the company to be submitted to the extraordinary general assembly meeting to increase the number of the Board members from seven to nine; three will be appointed by QP, including the Chairman and Vice Chairman; while the General Retirement and Pension Authority will appoint two members; and the General Assem-bly will elect four members through election.

Another proposal include to allow the State of Qatar, Qatar Investment Authority, Qatar Foun-dation for Education, Science and Community Development, and Qatar Holding Company to exceed the upper limit of shares owner-

ship in the company. Proposal to amend the deci-

sion-making process in the extraordinary general assembly meeting to be approved by a sim-ple majority, and to change the dates of the two alternative meetings of the extraordinary general assembly, whereby the second meeting will be held

within one month from the date of the first meeting, and the third meeting will be held a month after the date of the second meeting.

With regard to the current and future projects implemented by the company, Woqod CEO Ibrahim Jaham Al Kuwari said that the number of fuel stations

that have been completed and operated during the year 2016 (including mobile terminals) were 19, bringing the total number of stations owned by the company to 56.

In addition to the stations that were opened during the period, there are another nine stations that have been com-pleted or nearing completion and expected to start the operation during the first half of 2017. Also, there are other projects in the design and tender stage that are expected to run through 2017.

In addition, there are 36 new sites that have been allocated by the Department of Urban Planning to set up petrol stations in future. In regard to Technical Inspection (Fahes), there are three centers in the completion stage pending operation approval and another four in the tender and award phases.

Opec cuts opens door to Russia's Urals Singapore

Bloomberg

The biggest oil producers in the Middle East are help-ing crude from Western

Siberia boldly go where it’s rarely gone before.

Top South Korean refiner SK Innovation Co. is set to receive about 1 million barrels of Urals crude in its first purchase of the Russian blend oil in a decade. The shipment was made viable because of rising costs for rival supply from the Middle East, as nations such as Saudi Arabia curb output to comply with a deal between global producers.

The cargo is also another example that helps illustrate how the reductions by top Opecmem-bers are rerouting the flow of oil across the globe. In recent weeks, Asia has become a destination for grades that typically don’t show

up in the region -- from US Mars Blend and Southern Green Can-yon to West Canadian Select, Hibernia and White Rose. The premium of Oman crude, often pitted against Urals because they are of similar quality, jumped to its highest level this month against Middle East benchmark Dubai oil.

“The flow of Urals into Asia is rare as it’s usually not eco-nomically viable versus other supplies such as Oman or Upper Zakum crude,” said Nevyn Nah, a Singapore-based analyst at Energy Aspects Ltd.

“The grade is typically trans-ported on Suezmax or smaller vessels due to draft restrictions at the port and Suez Canal, and that makes it tough to compete with Mideast grades that are typ-ically transported on Very Large Crude Carriers.”

Urals, a medium-sour grade favored by processors in the

European and Mediterranean regions, has been less popular among Asian buyers as Middle East crudes were cheaper, required less sailing time due to geographical proximity and were delivered in larger vessels. A VLCC can transport about 2 million barrels, while a Suezmax would hold about 1 million.

SK bought about 1 million barrels of Urals for April arrival from Lukoil PJSC, three traders with knowledge of the deal said. Company spokeswoman Kim Wookyung confirmed the pur-chase. The North Asian nation last imported the Russian crude in 2007, according to 1998-2015 data provided by Statistics Korea. Figures for 2016 are cur-rently unavailable.

The premium of Brent, the benchmark for more than half the world’s oil including Urals, against Dubai crude was at $1.50 a barrel

on Thursday, after shrinking to the smallest since September 2015 last month. American marker WTI fell below Dubai in December for the first time since at least May. That’s as Middle East nations shouldered a majority of the cuts as part of the global deal aimed at easing a mar-ket glut.

Opec and 11 other nations’ agreement to trim output took effect on January 1, with an aim to reduce output by about 1.8 mil-lion barrels a day during the first six months of 2017. The group has achieved a record 90 percent ini-tial compliance with the accord, according to the Paris-based International Energy Agency.

Brent futures were up 12 cents at $55.77 a barrel on the ICE Futures Europe exchange at 3:51 p.m. Singapore time, while WTI rose 6 cents to $53.42 a bar-rel on the New York Mercantile Exchange.

Unilever rejects $143bn Kraft Heinz takeover bidLondon

Bloomberg

Kraft Heinz Co. made a $143bn offer for Uni-lever in what would be

the largest-ever takeover in the food or beverage industry, opening a campaign to create a consumer-goods giant with household names from Dove soap to Heinz ketchup.

Unilever said yesterday it rejected the $50 a share pro-posal, comprising about two-thirds in cash and a third in new stock. The approach “fundamentally undervalues” the company, Unilever said, adding that it doesn’t see a basis for further discussions. Kraft Heinz said earlier it would seek to gain an agreement on the terms of a transaction.

Unilever shares surged as much as 15 percent to a record in London, valuing the maker of Hellmann’s mayonnaise at more than £113bn ($140bn). The Anglo-Dutch company’s stock gained as much as 12 per-cent in Amsterdam, while Kraft Heinz rallied more than 7 percent in New York.

The bid underscores con-s o l i d a t i o n a m o n g consumer-goods companies searching for profit-growth strategies as conditions become tougher across the globe. Kraft Heinz itself was forged in a $55bn combination orches-trated by Warren Buffett’s Berkshire Hathaway Inc. and Brazilian investment firm 3G Capital, which had teamed up

two years earlier on a buyout of H.J. Heinz.

There had been speculation that 3G would look to buy another food company and resume a cost-cutting cycle spearheaded by Chief Execu-tive Officer Bernardo Hees. Mondelez International Inc., General Mills Inc. and Kellogg Co. had been mentioned as potential targets.

Unilever said the proposal was at an 18 percent premium to Thursday’s closing share price. Berenberg analysts said such a valuation would imply multiples of 3 times sales and 21 times earnings, “which strikes us as very low.”

Putting together Kraft Heinz and Unilever would create a company with combined sales of $84.8bn last year. That would have ranked second among food and beverage companies. Among food and beverage transactions, a deal for Unilever would surpass Anheuser-Busch InBev SA’s purchase last year of SABMiller Plc for about $123bn including debt.

Tokyo

Reuters

S&P Global Inc (SPGI.N) said in a report yesterday it could cut its rating of

Toshiba Corp (6502.T) credit by several notches should the Japanese firm receive finan-cial support that includes debt restructuring, sending Toshiba stock down 9 percent.

S&P rates Toshiba credit as junk, at CCC+, following downgrades in December a n d January, after

the conglomerate flagged a multi-billion dollar writedown in its nuclear power business. The credit-rating firm expects banks to help Toshiba, includ-ing by extending deadlines for loan repayments.

Any further downgrade would prompt banks to charge Toshiba even higher rates for credit, at a time when the con-glomerate is dealing with the crippling writedown while still working to recover from a financial scandal in 2015.

S&P's Global analyst

Hiroki Shibata yesterday said the credit-rating firm was closely watching Toshiba's likely sale of its chip business.

Toshiba initially planned to sell less than 20 percent of its NAND flash memory unit, but is now considering selling most or all the business some time after March 31. The chip busi-ness is cyclical and capital intensive but currently gener-ates stable profit, so its sale could essentially be negative for Toshiba, Shibata said.

Toshiba shares fall 9% after S&P downgrade warning

Woqod shares

Earnings per share (EPS) amounted to QR9.7 while total assets reached QR11.3bn and shareholders’ equity reached QR7.3bn for the period.

Woqod Chairman Sheikh Saoud bin Abdulrahaman Al Thani (left) and CEO Ibrahim Jaham Al Kuwari .

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Biggest IPO

The listing of Aramco , expected to be the world’s biggest initial public offer and raise tens of billions of dollars, is a centrepiece of the government’s ambitious plan.

Saudi Arabia debating shape of Aramco ahead of IPORiyadh

Reuters

Saudi Arabia is consider-ing two options for the shape of Saudi Aramco when it sells shares in the national oil giant

next year: a global industrial con-glomerate, and a specialised international oil company, industry and banking sources said.

The listing of Aramco , expected to be the world’s big-gest initial public offer and raise tens of billions of dollars, is a centrepiece of the government’s ambitious plan - known as Vision 2030 - to diversify the economy beyond oil.

When the plan was publicly released in June last year, it pledged to “transform Aramco from an oil-producing company into a global industrial conglomerate”.

But now Saudi officials and their advisers are debating whether to make Aramco “a Korean chaebol”, as one source said, referring to sprawling South Korean conglomerates, or a spe-cialised company focused purely on oil and gas. A specialised

company might be easier to value because of its simplicity and, since the risks in its busi-ness would be clearer, achieve a higher price for its shares.

“There are two options being studied now. Either to make Ara-mco a pure oil and gas company, or a conglomerate and expand its role in petrochemicals and other sectors,” said a Saudi industry source, declining to be identified because the debate is being conducted in private.

An Aramco spokesperson said: “Saudi Aramco does not comment on rumour or speculation.”

Other than its core oil and gas production, exploration and refining businesses, Aramco - which employs more than

55,000 people - has plans to build solar and wind power facilities.

As the kingdom’s biggest company and one of its most effi-cient, it is being pressed into service to jump-start industrial projects that are too big or daunting for the private sector. It is developing a $5 billion ship repair and building complex on the east coast, and working with General Electric on a $400 mil-lion forging and casting venture.

It has also often been tasked with executing government projects that have social goals, such as building industrial cities, stadiums and cultural centres. It was involved in creating the King Abdullah University of Science and Technology.

As the IPO approaches, offi-cials are asking themselves whether the domestic and inter-national investors who will be asked to buy Aramco shares really want exposure to such a complicated array of assets.

A banking source familiar with the IPO preparations said the government was studying a “clean-up exercise” to make Ara-mco’s structure neater. One

option under study is moving all businesses not related to oil to a separate entity before the IPO, although this would be a com-plex process, the sources said.

“It is going to be a legal nightmare for them. And the more they dig, the more they find out issues they need to sort out,” an industry source said.

The plan to sell up to 5 per-cent of Aramco, championed by

Deputy Crown Prince Moham-med bin Salman, who oversees the country’s energy and eco-nomic policies, is also running into other complexities that have not yet been resolved.

Last year, Prince Mohammed said he expected the IPO would value Aramco at a minimum of $2 trillion, and that the figure might end up being higher. But this will depend partly on the tax

regime which Aramco faces.The company currently pays

a 20 percent royalty and 85 per-cent tax to the government, Saudi officials have said. These could lower its value in an IPO, and sources said talks were under way to move the tax rate as low as 50 percent. But this could hurt state revenues at a time when Riyadh is running a big budget deficit due to low oil prices.

A file picture shows a flame from a Saudi Aramco oil installion known as “Pump 3” near the oil-rich area of Khouris, 160 kilometres east of the Saudi capital Riyadh.

Biggest IPO

The listing of Aramco is expected to be the world’s biggest initial public offer and raise tens of billions of dollars, is a centrepiece of the government’s ambitious plan.

Swedish annual inflation declines to 1.4 percent in JanuaryStockholm

Bloomberg

Swedish inflation slowed for the first time in four months after the central

bank this week kept its record stimulus intact and extended a mandate to intervene in the cur-rency market as it struggles to meet its price growth target.

Inflation slowed to an annual 1.4 percent in January from 1.7 percent the previous month, Statistics Sweden said. That fell short of both the cen-tral bank’s and analyst estimates of 1.5 percent. Prices fell 0.7 per-cent in the month. The krona slid 0.1 percent to 9.46 per euro as of 10:06am in Stockholm.

According to Ake Gustafs-son, an analyst at Swedbank AB in Stockholm, the weak figures confirm his view that the

Riksbank won’t start raising rates until April next year.

“I don’t think there’s anyone at the Riksbank who’s very joy-ful at the moment,” he said. “The problem is that underlying infla-tion is weak and there are no signs that it’s on its way up, but quite the contrary.”

The Riksbank on Wednes-day left rates unchanged at a record-low of minus 0.5 per-cent, but extended a mandate to intervene in the currency mar-ket to keep the krona from strengthening too fast.

It kept the door open for more rate cuts and bond pur-chases should inflation continue to disappoint, saying the risk for setbacks has increased given political uncertainty abroad. Underlying inflation slowed to 1.6 percent from 1.9 percent. It was estimated to be 1.7 percent.

According to Michael Grahn, an analyst at Danske Bank in Stockholm, price growth will continue to undershoot the Riksbank’s forecast.

That could force the bank to extend bond purchases beyond the first half even though two of six board members in Decem-ber voted against prolonging them into this year, he said.

Riksbank Deputy Governor Cecilia Skingsley -- who opposed the decision to extend government bond purchases -- on Thursday said she’s in no hurry to tighten policy since higher interest rates could boost the krona and drive down infla-tion. A fast and sustained strengthening of the krona may push back plans to increase rates since inflation has trailed the 2 percent target for more than five years.

Global stocks extend retreat

US House steps up probe against ExxonMobil

London

AFP

World stock markets fell further yester-day following a downbeat session in Asia, and after Wall Street's Trump-

fuelled surge finally came to an end.European equities staggered lower with

London sentiment also dented by news of a fresh drop in retail sales.

Asian indices mostly dipped as investors cashed out after a healthy run since last week, and after Wall Street's Donald Trump-fuelled surge came to an end.

"European markets have struggled to gain traction this morning following on from last night's weaker performance from US equities," noted CMC Markets analyst Michael Hewson. New York had finished mixed Thursday as a five-day streak of record highs finally began to show signs of fatigue. Stocks around the world are sharply higher since the US president pledged last week a "phenomenal" tax reform package soon, raising hopes he would press on with plans to fire up the US economy.

The remarks were the spark for all three

main Wall Street indices to hit record highs for five successive days, with help also coming from Federal Reserve boss Janet Yellen's upbeat assessment of the outlook for the US and hints at a March interest rate hike.

"With no major data out of the US ahead of the long bank holiday President's Day week-end and no big earnings reports, the week will be finishing with investors weighing up the like-lihood of another Trump Twitter rampage or press conference," added Hewson.

"Whilst these create great headlines for the media it does little to improve stability in the markets, and many will be wondering whether the honeymoon period is over already."

There remained a lot of uncertainty, par-ticularly with Trump's first weeks in office engulfed in controversies, most recently over his relationship with Russia, dealers said.

"The current political landscape is unlikely to change soon, nor will the debates surround-ing tax, fiscal and Fed policies," said Oanda analyst Stephen Innes. "As such we should expect the markets to come under renewed pressure and to be severely tested in the weeks to come."

New York

Bloomberg

House Republicans are renewing a legal fight with New York and

Massachusetts over the states’ probes into whether ExxonMo-bil Corp misled investors about the potential impact of climate change.

Massachusetts Attorney General Maura Healey and her New York counterpart, Eric Sch-neiderman, were subpoenaed Thursday by the US House Com-mittee on Science, Space, and Technology. Both attorneys general said they’d ignore the demands, which seek detailed information about the probes. "Our office does not intend to comply or yield to further har-assment," Chloe Gotsis, Healey’s spokeswoman, said in a state-ment. She urged the committee’s chairman, Texas Republican Lamar Smith, to "find something more productive to do."

The two attorneys general refused last year to comply with an earlier set of subpoenas, which expired with the last Con-gress. Since then, the dynamics of the dispute have shifted dra-matically, with Donald Trump succeeding Barack Obama as

president, and former Exxon Chief Executive Officer Rex Till-erson becoming the country’s top diplomat. "With Exxon’s former CEO -- a key figure in Attorney General Schneider-man’s fraud investigation -- now serving as President Trump’s Secretary of State, we’re not surprised that Exxon’s lobbyists were able to buy another flimsy House sub-poena," Amy Spitalnick, press secretary to Schneiderman, said in a statement.

Healey and Schneiderman are investigating whether Irv-ing, Texas-based Exxon discovered decades ago that human behavior is causing a rise in global temperatures, and then lied for years to investors and the public about the poten-tial impact on the company’s finances. They also seek to determine if Exxon’s untapped reserves of oil and natural gas were valued properly in finan-cial filings in light of recent drops in prices.

Smith and other Republi-cans argue the probes were started in "bad faith" because the attorneys general had reached their conclusions before the investigations started.

India's growth to rebound after cash-ban: RBIMumbai

Bloomberg

India’s growth will bounce back after a sharp slowdown triggered by Prime Minister

Narendra Modi’s clampdown on cash, said central bank Gover-nor Urjit Patel (pictured).

"Almost everyone agrees that the impact is going to be a sharp ‘V,’ that we would have a downgrade of growth for a short period of time," Patel told CNBC-TV18 in an interview telecast yesterday. "However the remon-etization has happened at a fast pace and that was part of the plan."

The benefits of the unprec-edented November 8 decision to cancel 86 percent of currency in circulation will take time to fully play out and need more work to ensure they’re lasting, he said.

His statement follows record outflows from Indian stocks last quarter as investors fretted about the impact of the demon-etization as well as a US interest-rate increase that econ-omists say has ended India’s easing cycle.

Patel kept the benchmark repurchase rate unchanged at 6.25 percent for a second straight meeting this month and changed the policy stance to "neutral"

from "accommodative," the first change since 2015. While con-sumer-price gains slowed, core inflation -- which strips out vol-atile food and fuel costs -- has been sticky and imperils the 4 percent mid-point of India’s inflation target range, Patel said.

"So, given how the inflation outlook changes, if at all, over the next few readings in terms of the data that comes about and our projections based on that for the next fiscal year," a neutral stance gives the Reserve Bank of India (RBI) more flexi-bility to cut, raise or hold rates as compared with an accom-modative stance, he said. "The comments do suggest that the rate easing cycle is over," said Shilan Shah, Singapore-based India Economist at Capital

Economics. "Demand is picking up as is spending which means we will see a strong recovery in growth."

Patel also expressed concern about a potential shift to trade protectionism under US Presi-dent Donald Trump but said financial markets have priced in most of the expected interest-rate increases from the Federal Reserve.

India’s sound macroeco-nomic fundamentals -- smaller budget deficit, flexible inflation targeting, high foreign-currency reserves and a modest current-account deficit -- put the country in a good place to weather vol-atility, he said.

"We are at an important juncture and the possibility of negative consequences for

countries around the world is a possibility," Patel said. "Asia may come in for special treatment because almost two-thirds of the US trade deficit in goods is with respect to Asia. We just have to see how things evolve in terms of tangible policy changes which the US government so far seems to be fairly determined to carry through."

India must stick with its open trade regime, he said. Patel also said that the rupee is "broadly where it should be." The currency has gained 1.2 per-cent in 2017 to 67.11 a dollar as of 9:28 am in Mumbai, after fall-ing to a record last year.

Concerns for India stem from a hardening of global com-modity prices and "lack of a consistent policy enunciation from major economies is the main source of volatility," Patel said.

The RBI predicts gross value added -- a key input of gross domestic product -- to grow 7.4 percent in the fiscal year start-ing April 1 from 6.9 percent the previous year.

"The best way that a central bank can support growth on a durable basis is to ensure that the inflation is low, stable, there is financial stability and that is the role that the central bank plays," Patel said.

Benchmark rate

6.25%Patel kept the benchmark repurchase rate unchanged at 6.25 percent for a second straight meeting this month and changed the policy stance to "neutral" from "accommodative," the first change since 2015.

23SATURDAY 18 FEBRUARY 2017 BUSINESS

SX195 at the Miami International Boat Show in Miami, Florida. More than 1,300 new boats are on display from sport fishing boats and high performance boats, to personal watercraft and wake sport boats, family cruisers and luxury yachts, for every lifestyle and budget

SX195 on displayAbu Dhabi's $125bn fund to start operations in MayDubai

Bloomberg

Abu Dhabi’s $125 bn sovereign fund Mubadala Invest-ment Co. will start operations in May

through four divisions focusing on the Middle East emirate’s interests in energy, infrastruc-ture, technology and aerospace.

The company’s board, formed from two other govern-ment-owned investment funds that announced a merger last year, approved an organiza-tional structure and appointed senior managers, it said in an e-mailed statement. Chief Executive Officer Khaldoon Khalifa Al Mubarak, Chief Financial Officer Carlos Obeid and the heads of the four divi-sions all hold senior positions at Mubadala Development Co., one of the two companies that merged.

Abu Dhabi, the capital of the United Arab Emirates, holds about 6 percent of the world’s oil reserves. The energy-rich sheikhdom is merging Mubadala Development with International Petroleum Invest-ment Co. to cut costs and combine complimentary busi-nesses. Oil producers globally are slashing spending as they struggle with lower crude prices. Benchmark Brent crude is trading at about $56 a barrel compared with a 2014 peak of more than $115.

The new company’s two big-gest units will be Petroleum & Petrochemicals and Alternative Investments & Infrastructure, according to the statement. Each will comprise about 31 percent of Mubadala Investment’s total assets.

The petroleum division will operate Spanish refiner Cepsa SA, chemical makers Nova Chemicals Corp and Borealis AG, and oil and natural gas pro-ducer Mubadala Petroleum, according to the statement. Musabbeh Al Kaabi, currently

head of Mubadala Petroleum, will be CEO of the Petroleum & Petrochemicals segment.

Waleed Al Muhairi, deputy CEO of Mubadala Development, will hold the same post in the new company. He’ll lead the Alternative Investments & Infrastructure unit, which will focus on health care and real estate.

The Technology, Manufac-turing & Mining division will hold about 22 percent of the new company’s assets, includ-ing semiconductor makers Globalfoundries Inc. and Advanced Micro Devices Inc., metals producers Emirates Glo-bal Aluminium and Minas de Aguas Tenidas SA. Ahmed Yahia Al Idrissi, currently Mubadala Development’s’s CEO of Tech-nology & Industry, will head the unit.

The Aerospace, ICT & Renewables division will hold about 11 percent of Mubadala Investment’s assets, including renewable energy company Masdar and satellite commu-nications provider Al Yahsat. Khaled Al Qubaisi, currently Mubadala’s Chief Human Cap-ital Officer, will head the division.

New Company

The Technology, Manufacturing & Mining division will hold about 22 percent of the new company’s assets.

The two biggest units will be Petroleum & Petrochemicals and Alternative Investments & Infrastructure. Greece seeks a Monday debt deal

Athens

AFP

Greece said on Thursday it intends to reach "a polit-ical agreement in

principle" with its creditors on Monday, in order to unblock loans required by the cash-strapped country to repay its debts.

For months, Athens and its European and International Monetary Fund (IMF) lenders have failed to concur over the terms of the latest review of Greece's €86bn bailout.

Eurozone finance ministers meet on Monday in Brussels to discuss the deadlock with hopes that the different sides can at least achieve an outline of a deal.

This is the aim of "all the stakeholders" in Greece's recovery programme, govern-ment spokesman Dimtris Tzanakopoulos told a press conference.

"The political conditions are there for such an agree-ment," he said.

A senior eurozone official in Brussels said that a broad sketch of a deal was the "best case scenario" for the minis-

terial talks on Monday.This would allow the cred-

itors to send teams to Athens in order to "crunch the num-bers" and hammer out the final deal, the official said.

The row is centred on whether Greece can deliver on budget targets that the IMF says are based on overly-opti-mistic economic forecasts.

The eurozone has demanded that Greece deliver a primary balance, or budget surplus before debt repay-ments, of 3.5 percent of GDP, but the IMF has said only 1.5 percent is feasible.

The Washington-based fund insists more tax hikes and pension cuts are needed for G r e e c e t o m e e t

its targets -- something the leftist government in Athens flatly refuses.

A compromise is required to sign off on a second review of the bailout programme and unblock a tranche of loans Greece needs for debt repay-ments of €7bn this summer.

According to Tzanakopou-los, the challenge for Monday's meeting is to "bridge the differ-ences" in the post-2018 forecasts between Greece and Europe on the one hand and the IMF on the other.

European Commission vice-president Valdis Dombrovskis warned that "time lost in reach-ing an agreement will have a cost for everyone".

"The agreement is within reach, provided that all sides show political will," he told Greek economic portal Euro2day.

Top EU economics official Pierre Moscovici (pictured), con-sidered an ally of Greece, visited Athens on Wednesday in a bid to end the standoff.

"We have a few key days, let's concentrate now to finish all these talks. The parameters are on the table, everybody knows them," he told reporters.

British consumers hit by Brexit inflationLondon

Reuters

British shoppers unexpect-edly cut back on their spending in January as

last year's Brexit vote pushed up inflation, official data showed yesterday, the strong-est sign to date that the country's economy is heading for a slowdown.

Consumers were barely fazed last year by June's deci-sion to leave the European Union. But they are turning more cautious with prices ris-ing quickly in response to the post-referendum slump in the value of the pound and higher oil prices.

Official data yesterday showed retail sales volumes fell by 0.3 percent month-on-month in January, much weaker than economists' fore-casts in a Reuters poll for a 0.9 percent increase. No forecaster had expected a fall. "The theme for most forecasters this year is that consumer spending is going to suffer as higher prices erode real incomes.

But I don't think anyone would have expected the pace of spending to have suffered so much so soon," Alan Clarke (pictured), an economist with Scotiabank, said.

The pound fell sharply and was down half a percent against the US dollar after the data. British government bond prices, which like the currency are sensitive to expectations about future Bank of England inter-est rate decisions, rose.

Yesterday's data under-scores why the Bank has signalled it is in no rush to raise record-low rates as it expects rising inflation will hurt the s p e n d i n g p o w e r o f households.

The Office of National Sta-tistics said retail prices rose 1.9 percent in January compared with a year ago, the most since July 2013 and up sharply from December's 0.9 percent. The rise in motor fuel prices, up 16.1 percent, was the biggest since September 2011. As well as weaker sterling, fuel prices have been pushed up by an increase in global oil prices.

Singapore's economy expands at fastest paceSingapore

Bloomberg

Singapore’s economy grew at its fastest pace in more than five years in the fourth

quarter, driven by a surge in manufacturing as export demand recovered.

Gross domestic product rose an annualized 12.3 percent in the three months to Decem-ber from the previous quarter, rebounding from a contraction of 0.4 percent, the trade min-istry said in a statement yesterday.

That was higher than the government’s January estimate of a 9.1 percent gain and com-pares with a median forecast of 12.6 percent in a Bloomberg sur-vey of eight economists GDP rose 2.9 percent in the fourth quarter from a year earlier. The economy expanded 2 percent in 2016, higher than a previous estimate of 1.8 percent.

Singapore, one of Asia’s most trade-dependent nations, is ben-efiting from a recovery in Chinese demand, with exports and indus-trial output climbing in the fourth quarter. The outlook is uncertain though because global demand remains weak and the US has threatened to impose trade bar-riers on countries like China. Singapore’s government is fore-casting expansion of 1 percent to 3 percent in 2017 and is embark-ing on strategies to sustain

average growth rates of 2 per-cent to 3 percent in coming years. That outlook will guide the budget, which Finance Minister Heng Swee Keat will unveil on Monday, and the central bank’s policy review in April.

“The improved momentum seen in the manufacturing sec-tor towards the end of 2016 is expected to be sustained into 2017, supported by a continued recovery in the global demand for semiconductors and semicon-ductor equipment,” the Ministry of Trade and Industry said. While world growth is projected to pick up slightly in 2017, “uncertain-ties and downside risks in the

global economy remain,” it said.“If we take a look at the glo-

bal economic space, global demand space, possibly the U.S. may do a bit better but I don’t think it’s going to be significantly better in that sense and there’s a lot of uncertainty coming out from that country itself,” said Edward Lee, head of Asean eco-nomic research at Standard Chartered Plc in Singapore. “Looking closer to Asia, where China is extremely important, compared to last year, it does look like China is going to slow down a bit.” For the full year, Lee said his forecasts are in line with the government’s projection of

“modest growth” of 1 percent to 3 percent.

The services industry, which accounts for about two-thirds of the economy, rose an annualized 8.4 percent in the fourth quarter from the pre-vious three months, led by a 36.5 percent jump in output in the financial services sector

Manufacturing surged an annualized 39.8 percent Non-oil domestic exports grew for a third consecutive month in January, expanding 8.6 per-cent from a year earlier, International Enterprise Sin-gapore said in a separate statement.

A distant view of an iconic tower in booming Singapore.

Workers 'open' to Opel takeoverFrankfurt

AFP

Unions and employee representatives of Ger-man carmaker Opel

said Friday they are ready to play a "constructive" role in negotiations over a possible takeover by French carmaker PSA Peugeot Citroen.

Worker representatives "are ready to hold construc-tive talks in case of a sale of Opel/Vauxhall," the works council and powerful IG Metall metalworking union said in a joint statement.

But "our objective must be to seize the existing opportunities to safeguard employment and sites," said works council chairman Wolfgang Schaefer-Klug.

PSA, the parent com-pany of France's Peugeot, Citroen and DS, has con-firmed it is interested in taking over Opel, the Ger-man arm of US giant General Motors.

However, the plans have sparked fears in Germany that the potential new owner could cut German jobs that doubled up exist-ing posts in France.

In their joint statement, the union and works called for "unequivocal recogni-tion and implementation of existing agreements for all Opel/Vauxhall sites, in par-ticular commitments on e m p l o y m e n t a n d investments".

Vauxhall is the brand used by Opel on its vehicles sold in Britain. Workers' calls to protect positions in Germany were matched by the government in Berlin yesterday.

Germany's federal and state governments "want to work closely together with the worker representatives and unions to maintain the sites, the jobs, the research centres and collective bar-gaining agreements," economy ministry senior official Matthias Machnig told business daily Handelsblatt.

24 SATURDAY 18 FEBRUARY 2017 BUSINESS VIEWS

Allianz SE reported a 23 percent increase in fourth-quarter net income and announced its first-ever share buyback as Europe’s big-gest insurer makes good on a promise to return excess cash to shareholders.

Net income rose to €1.74bn ($1.86bn) in the fourth quarter from €1.42bn a year ago, the insurer said late Thursday in a statement from Munich. Analysts had expected earnings of €1.62bn, according to the aver-age of seven estimates compiled by Bloomberg. The company plans to spend as much as €3bn to repur-chase shares over the next 12 months.

“What’s fantastic is the solvency ratio driven by dis-posals, capital generation and management measures,” said Michael Haid, an analyst at Commerzbank AG with a buy rating on the stock. “The good capital ratios mean that future buybacks are becoming more likely.”

Allianz, led since May 2015 by Chief Executive Officer Oliver Baete, had promised investors to pay out the company’s unused acquisition budget if it couldn’t find suitable deals. The 51-year-old CEO has been scout-ing for acquisitions over the past months, exploring a purchase of Australian insurer QBE Insurance Group

Ltd. as well as parts of Assicurazioni Gen-erali SpA, Italy’s biggest insurer, people familiar with the matter have said.

Following the buyback announce-ment, Allianz said going forward that half of net income will be used to finance growth if appro-priate or returned to shareholders on a flexible basis. The company is targeting an oper-ating profit from € 1 0 . 3 b n t o €11.3bn euros this year, it said.

Allianz’s Sol-vency II ratio, a measure of an insurer’s ability to absorb losses under industry regulation introduced last year in the European Union, rose to 218 percent at the end of the year from 200 percent a year earlier.

Allianz shares rose 3.2 percent at 9:05 am in Frank-furt yesterday. The stock has gained 25 percent in the past six months, compared with a 20 percent gain in the Bloomberg Europe 500 Insurance Index.

Buying back shares will help Baete meet a goal for earnings-per-share growth of 5 percent a year on aver-age and an adjusted return on equity of 13 percent by 2018, as ultra-low interest rates, low prices for some insurance products and increased regulation weigh on insurers’ earnings in Europe.

Allianz’s biggest unit in terms of premium income is life and health, a business where low interest rates have eroded investment returns in recent years. Prop-erty and casualty insurance has been its most profitable division, but prices there are under pressure.

Baete hired Jacqueline Hunt last year to oversee the insurer’s US life insurance unit and its $2 trillion asset management unit, which comprises Pacific Invest-ment Management and Allianz Global Investors.

Rock-bottom interest rates hurt more big European banks in 2016 than in the previous year, but the worst could soon be over with the prospect of rising bor-

rowing costs rippling from the United States to Europe. Low rates, money printing and a penalty charge for hoarding cash have been at the heart of attempts to reinvigor-ate the 19-country euro zone economy in the wake of the 2008-09 debt crisis.

But the policy has been politically divi-sive, prompting fierce criticism from famously thrifty Germans as the returns on savings in Europe's biggest economy dwin-dled to nothing.

It also imposed a heavy cost on still frag-ile banks, turning deposits into a hot potato that many would rather avoid so as not to pay charges to their central bank for stor-ing them.

Last year marked a low ebb, according to a survey by Reuters of 20 large European banks conducted in mid-February.

While seven in that group saw net inter-est income fall during 2015, that number increased to 12 in 2016, with the average dip more than 7 percent. That was steeper than the roughly 5 percent slip on average in 2015.

Such income is the difference between interest charged on, say, a loan, and the cost of holding a deposit. It is a bellwether of earning power, closely watched by inves-tors, and its decline bodes ill for the sector.

Many executives are now pinning their hopes on a change in direction for central banks given that rate hikes appear to be on the cards in the United States this year - and ultimately a paring back of easy-money policies in Europe.

"It's usually the US that leads the pack," said Charles Goodhart of the London School of Economics, a former member of the Bank of England's Monetary Policy Committee.

"If (US President Donald) Trump does manage to get an expansionary fiscal pol-icy, there will be increases in interest rates," he said, adding that the effect would also be felt in Europe.

Trump has pledged to stimulate growth in the world's largest and most influential economy through a combination of heavy infrastructure investment and deep corpo-rate tax cuts.

In December, the US Federal Reserve raised interest rates and signaled a faster pace of increases in 2017. Lars Machenil, chief financial officer of France's BNP Pari-bas (BNPP.PA), one of Europe's biggest lenders, said the difference could be hun-dreds of millions of euros of extra income.

"The lowering of interest rates has had a negative effect on the top line. If that would be reversed, we would see some-thing similar back ... but it will take time," he said. Low rates cost BNP €1bn of lost revenue between 2013 and 2016.

In 2016, Switzerland's Credit Suisse (CSGN.S) saw interest income dip by about 19 percent, while at Germany's Commerz-bank (CBKG.DE) and Deutsche Bank (DBKGn.DE), it fell by about 13 and 8 per-cent respectively, the Reuters survey found. While successful in helping a brittle euro

zone economy gradually revive from the debt crunch in the short term, zero or neg-ative rates have, in the eyes

of critics, struck at a central tenet of bank-ing - lending on the back of deposits - and turned the principle of saving for retire-ment on its head. There are signs that the struggle of frustrated lenders is being noticed in Frankfurt, seat of the European Central Bank.

Yves Mersch, a member of the ECB's executive board, the nucleus of euro zone policy-setting, recently said it needed to take interest rate cuts off the table, which would mark a retreat from its policy of cheap money.

"How much longer can we continue to talk about 'even lower rates' as being a monetary policy option?" Mersch said. Penalising banks for storing money makes holding deposits, traditionally the bedrock of any lender, more expensive, and this prompts some to steer savers toward fund products for which a fee can be charged.

UBS (UBSG.S) CEO Sergio Ermotti has warned that the world's biggest wealth manager could pass on the cost to depos-itors if sub-zero rates persist. So far, only one Swiss bank, Alternative Bank Switzer-land, has imposed such charges.

Another way around the problem is keeping deposits low and bolstering lending.

Sweden has generally done better in this respect than most. That is something that Barclays analyst Mike Harrison attributes to a lower average level of depos-its, which cost a bank money if it cannot lend and must pay a penalty for storing them at the country's central bank.

The ECB imposes a so-called negative rate equivalent to 4 euros annually on each 1,000 euros that lenders deposit with the central bank. Banks in Sweden and Swit-zerland, outside the neighboring euro zone, pay a similar charge.

"Swedish banks have managed best to avoid the impact of zero rates due to the fact that they held fewer deposits," said Harrison. "That made it easier to earn a healthy margin on their loans."

Debjit Chakraborty, Rajesh Kumar Singh & Saket Sundria Bloomberg

A province governed by India’s Prime Minister Narendra Modi for 13 years is impeding his plans to promote clean

energy.Modi’s effort to make liquefied

natural gas more affordable, by halving its import tax in the government’s annual budget Feb. 1, is being scuttled by the withdrawal of tax benefits by the western Indian state of Gujarat, through which 90 percent of the

LNG used in India passes.Loss of the state concession

has resulted in higher prices for domestic and industrial consumers across the country. It has also sparked criticism from environmental groups, who fear it will hurt the competitiveness of gas and discourage use of the cleaner fuel. India is struggling to follow the U.S. and Europe in giving natural gas a greater role in its energy basket as it battles air pollution.

Levies across the country add about 40 percent to the delivered price of LNG by the time it reaches the end user, according to Prabhat Singh, chief executive officer of Petronet LNG Ltd., the nation’s biggest importer of the super-chilled fuel.

“If gas needs a push, we need to soften the taxes,” said B.C. Tri-pathi, chairman of India’s biggest gas utility GAIL India Ltd. Cur-rently, import taxes are levied on LNG but not crude, he said. That

along with other levies makes nat-ural gas uncompetitive, and unless there is a level playing field, the required investment in infrastruc-ture won’t be made, according to Tripathi.

The levies encourage some users to opt for cheaper alterna-tives such as furnace oil that pollute India’s air, said Bhure Lal, chairman of Environment Pollu-tion (Prevention & Control) Authority, a panel of experts advising the federal government on ways to curb pollution.

“We are seeing several cases where industries are opting for cheaper alternatives such as pet coke and furnace oil, because state levies have made natural gas unaf-fordable,” he said. “Businesses tend to put profits before human health. But we need to take a holistic view of the situation.”

India’s top court this month asked the government to imple-ment a ban on use of pet coke and furnace oil in the national capital

and its surroundings, reacting to recommendations from the EPCA.

India and China topped the global list of countries with max-imum early deaths due to air pollution in 2015, according to a report released this month by Bos-ton-based Health Effects Institute.

Gujarat, which houses the nation’s biggest LNG import ter-minals -- Petronet LNG’s 15 million ton a year facility in Dahej as well as Shell Gas BV and Total Gaz Electricite Holdings’s 5 mil-lion ton plant -- withdrew the tax waiver on imported fuel con-sumed outside the province in November.

That prompted Indraprastha Gas Ltd. to raise prices of com-pressed natural gas and piped natural gas. While Haryana City Gas Distribution Ltd. limited its increases to CNG, used in vehicles, it is awaiting an opportunity to do the same for industrial users. Both supply gas in and around the

nation’s capital. “At the moment, we’re deterred by competition from furnace oil, which is cheaper,” Haryana City Gas’s CEO Rahul Chopra said in an interview. “Once there is a ban on its use, we’ll be in a position to increase the prices for industrial consum-ers of natural gas.”

India is seeking to increase the share of natural gas in its energy mix to 15 percent by 2020 from 6.5 percent at present.

That goal may count for noth-ing if the tax burden on consumers is not reduced, said Debasish Mishra, a partner at Deloitte Tou-che Tohmatsu LLP in Mumbai.

“Indian policy makers have always stated their intention to increase the share of gas in the pri-mary energy basket, to diversify the supply mix and to tackle air pollution” Mishra said. “Massive taxes -- both at central and state level -– levied before gas reaches the end consumer, are contrary to this vision.

Allianz plans $3.2bn share buyback Oliver Suess Bloomberg

Allianz, led since May 2015 by Chief Executive Officer Oliver Baete, had promised investors to pay out the company’s unused acquisition budget if it couldn’t find suitable deals.

Struggling European banks see light at end of low-rates tunnel

Offices in the financial district of Canary Wharf in London, UK

John O'Donnell & Maya Nikolaeva Reuters

There are signs that the struggle of frustrated lenders is being noticed in Frankfurt, seat of the European Central Bank.

India and China topped the global list of countries with maximum early deaths due to air pollution in 2015, report released this month by Boston-based Health Effects Institute said.

LNG fights a losing battle in India as taxes weigh