What's so important about the Federal Reserve's interest rate?

On Wednesday, the Federal Reserve, the US central bank, is expected to raise its federal funds interest rate for the first time in nearly 10 years.

PHOTO: AFP

DEC 15, 201510:22 AM

[WASHINGTON] On Wednesday, the Federal Reserve, the US central bank, is expected to raise its federal funds interest rate for the first time in nearly 10 years. Here are the things to know:

1. Why is the fed funds rate important?

The rate, which applies to overnight loans between banks, sets the basis for short-term lending in the financial sector.

Combined with expectations for future rate moves, it also guides longer-term interest rates which affect how much people pay on loans to buy homes and cars, how much businesses pay on their borrowings, and how much banks pay for deposits. It also has a big impact on what foreign companies and governments pay to borrow.

2. Why is this week's decision so important?

The Fed has kept the rate locked next to zero - officially 0-0.25 per cent - since December 2008, having slashed it to counter the impact of the financial crisis and the economy's plunge into recession. It has remained so low because the economy has taken a long time to recover.

By raising the rate, likely just a tick to 0.25-0.50 per cent, the Fed will be signaling that the economy can now grow firmly under a more "normal" or tighter monetary policy.

3. What impact will a rate increase have?

Since the Fed has been flagging an imminent rate rise for much of this year, the increase itself should not have much impact. Interest rates have already tightened, and the US dollar has strengthened, in expectation. Stock investors have had time to prepare.

What is important is what the Fed indicates about future rate increases. If the Fed's economic forecasts on Wednesday point to relatively rapid increases, the dollar could rise further and loan and deposit rates could also move higher. Meanwhile other currencies, particularly in emerging markets, could fall, hurting those with significant dollar debt and dollar-based costs.

4. Is a rate increase certain?

Nothing is certain, but a Wall Street Journal survey of economists showed 97 per cent expect it. If the Fed holds off, it would come as a shock and raise worries about the state of the US economy.

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Temasek to buy 72% stake in India's Care Hospitals for 18b rupees: report

By

Joyce Hooijoyceh@sph.com.sg@JoyceHooiBT

Temasek Holdings will buy a 72 per cent stake in Hyderabad-based Care Hospitals from US-based private equity firm Advent International for 18 billion rupees (S$378.9 million), The Economic Times reported on Tuesday. 

PHOTO: REUTERS

DEC 15, 201512:06 PM

TEMASEK Holdings will buy a 72 per cent stake in Hyderabad-based Care Hospitals from US-based private equity firm Advent International for 18 billion rupees (S$378.9 million), The Economic Times reported on Tuesday.

According to the report, Temasek had earlier teamed up with TPG Growth to form a consortium but the latter opted out a few weeks ago because it was uncomfortable with the pricing, among other things.

Care Hospitals runs a network of 17 hospitals with 2,400 beds across nine locations, The Economic Times said.

A formal announcement of the deal is expected in the next seven to 10 days, the Indian daily business newspaper reported.

    
 

Macau probes two officials for graft as casino hub extends corruption crackdown

DEC 15, 20151:01 PM

[HONG KONG] Two officials in the southern Chinese territory of Macau are under investigation for taking bribes and abusing their power as authorities move to stamp out corruption in the world's largest gambling hub.

Macau's Commission Against Corruption said in a online statement posted on Dec 14 that it had "uncovered bribe-taking by a customs inspector and another case of passive corruption and abuse of power by a Marine and Water Bureau chief." Seven people including government officials were investigated for graft earlier this year.

The developments are in stark contrast to last year, when no high-profile officials were questioned about bribery, according to the website of Macau's Commission Against Corruption. The commission did not immediately respond to a request for comment.

Commissioner Against Corruption Cheong Weng Chon was sworn in December 2014 during a visit by Chinese President Xi Jinping, and pledged to support the mainland in its mission to stamp out corruption.

Macau's graft body said the customs inspector had accepted bribes to allow a gambler enter Macau with more cash than legally allowed, while the Marine and Water officer received advantages from a person in charge of a ferry services company.

"According to the investigation results, the chief had also used his powers to help cover up the irregular practices of the ferry services company on many occasions, so the latter could be free from penalties even though its operations did not comply with the instructions and regulations set out by the Marine and Water Bureau."

Macau has two main ferry operators, Turbo Jet owned by Shun Tak Holdings, and Cotai Water Jet owned by US billionaire Sheldon Adelson's Sands China. Neither company were immediately available for comment.

The investigations come at a time when gaming revenues in the former Portuguese colony of Macau have dropped to five-year lows.

Revenues are expected to tumble some 35 per cent for 2015.

Beijing has repeated calls for the special administrative region to accelerate diversification away from the casino industry. But Macau, which earns more than 80 per cent of its revenues from gaming, is still acutely reliant on how much players are dropping on the baccarat tables.

REUTERS

    
 

Vallianz's Saudi unit plans refinancing exercise for bank loans

By

Lynette Khoolynkhoo@sph.com.sg@LynetteKhooBT

DEC 15, 20158:12 AM

VALLIANZ Holdings Limited said its subsidiary, Rawabi Vallianz Offshore Services Limited (RVOS), intends to enter into a refinancing exercise for the bulk of its bank loans amounting up to 1.1 billion Saudi riyal (US$293.3 million).

These loans are currently secured on RVOS' fleet of 20 vessels comprising mainly anchor handling tugs and platform support vessels with an aggregate net book value of about 1.52 billion Saudi riyal.

RVOS is a company incorporated in the Kingdom of Saudi Arabia to provide offshore marine support services. It is 50 per cent owned by Vallianz and 50 per cent by Rawabi Company Holding Limited (RHL), which owns 20.1 per cent stake in Vallianz.

The refinancing will involve the transfer of the vessels by RVOS to Rawabi Vallianz International Company Limited (SPV), a joint venture newly formed between Vallianz and RHL, for a total of US$410 million.

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With the transfer, ownership of the vessels and the bank loans will be transferred from RVOS to SPV. RVOS will lease back the vessels from SPV for a term of five years and in return, RVOS will pay to SPV quarterly charter rates sufficient to cover the financing obligations of SPV arising from a sukuk financing.

The group has appointed authorised banks in Saudi Arabia to jointly lead and manage a Saudi riyal-denominated sukuk of up to SAR1.1 billion to refinance the bank loans.

Vallianz said this exercise will result in lower cost to the group, improve the group's cash flow as well as open new avenues of funding through the sukuk financing for its operations in the Middle East.

    
 

UK needs to start fracking before touting benefits: report

Britain should begin exploratory drilling or fracking of shale gas sites to allow the industry and government to fully assess its economic benefits for the country, a shale gas industry-funded task force said on Tuesday.

PHOTO: BLOOMBERG

DEC 15, 20158:07 AM

[LONDON] Britain should begin exploratory drilling or fracking of shale gas sites to allow the industry and government to fully assess its economic benefits for the country, a shale gas industry-funded task force said on Tuesday.

Britain is estimated to have substantial amounts of shale gas trapped in underground rocks and Prime Minister David Cameron has promised to go "all out for shale", hoping it will help reduce dependence on energy imports, generate additional tax revenue and create thousands of jobs.

But exactly what kind of benefit it can bring cannot be established until developers are allowed to start exploratory drilling, the report by the task force on shale gas said. "We know roughly where there are shale rocks and where there is likely to be shale gas but exactly how much is genuinely recoverable no one knows at the moment," Chris Smith, chairman of the task force, said.

Analysis published in 2013 by the Institute of Directors estimated shale gas production could generate 74,000 jobs and attract investment of 3.7 billion pounds (S$7.9 billion) a year at its peak.

Hydraulic fracturing, known as fracking, which injects water, sand and chemicals into rocks to release hydrocarbons, is used to release the shale gas from rock formations.

Fracking applications have struggled to get approval from local communities, concerned about noise and environmental impacts and the effect on house prices. To address this the government has changed planning rules to make its own decisions on shale gas appeals.

The report, the fourth in a series published by the group, said if best practice methods are used fracking would provide no greater risk to the public's health than other comparable industries such as traditional gas extraction.

It said there could be a negative impact on house prices in regions where a fracking well has been given permission, but added the impact would be negligible a year or more after the well had been drilled.

However, green groups said the government should re-assess its strategy in light of a global climate deal forged in Paris by almost 200 countries. "If the UK government is really committed to keeping its end of the Paris deal, it must rethink its support for fracking and back safe, cheap, clean energy instead," said Greenpeace UK energy campaigner Hannah Martin.

The task force was set up last year to examine the risks and benefits of shale gas extraction and says it is independent of its funders Cuadrilla, Centrica, Total, Weir Group, Dow Chemical and GDF Suez E&P UK.

REUTERS

    
 

Qantas Airways expects 1st-half profit surge

Australia's Qantas Airways expects first-half underlying profit before tax to jump to between A$875 million (S$893.1 million) and A$925 million in the first half of the current financial year ending June 2016, it said on Monday. 

PHOTO: BLOOMBERG

DEC 15, 20157:30 AM

[SYDNEY] Australia's Qantas Airways expects first-half underlying profit before tax to jump to between A$875 million (S$893.1 million) and A$925 million in the first half of the current financial year ending June 2016, it said on Monday.

That is more than double the underlying profit before tax of A$367 million it posted in the year-ago period. In August, the Flying Kangaroo posted one of the fastest turnarounds in Australian corporate history with a return to full-year, pre-tax profit of A$975 million.

The profit boost comes on the back of an aggressive cost-cutting programme, a tailwind from cheaper fuel costs and stronger revenue growth, the airline said in a statement.

Qantas will announce first-half earnings on Feb 23.

REUTERS

Greece sells 14 airports in privatisation drive

Greece said on Monday it agreed to sell 14 regional airports to a German operator, the first major privatisation move for the country's left-wing government. 

PHOTO: REUTERS

DEC 15, 20157:11 AM

[ATHENS] Greece said on Monday it agreed to sell 14 regional airports to a German operator, the first major privatisation move for the country's left-wing government.

The Greek privatisation agency said it was selling the airports to German airport operator Fraport for 1.2 billion euros (S$1.85 billion).

The deal includes the airports of Thessaloniki, Greece's second-biggest city, and those of island tourist hotspots Mykonos, Santorini and Corfu, the agency said in a statement.

The deal showed that Greece is "regaining the markets' confidence step by step and re-embarking on the path of growth," agency chief Stergios Pitsiorlas said.

Greece in July accepted a three-year, 86-billion-euro EU bailout that saved it from crashing out of the eurozone, but the deal came with strict conditions.

They include an ambitious privatisation programme, featuring the planned sale of ports, airports and other state assets.

Parliament is to vote on Tuesday on the modalities of a partial privatisation of the Admie electricity utility, 49 per cent of which is to go into private hands.

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US regulator looks to formalise bank recovery planning

DEC 15, 20157:28 AM

[NEW YORK] The Office of the Comptroller of the Currency will soon seek comment on new proposed rules for US banks aimed at ensuring they can recover quickly from severe stress.

Under new proposals, banks with US$50b or more in total assets would be subject to a formal framework for evaluating their plans to remain operational during a crisis, said the OCC in an emailed statement on Monday.

The proposals could be published to the Federal register as early as this week, said a spokesman for the OCC. "Recovery planning must be an integral part of institutions'corporate governance structures and processes," said OCC chief Thomas Curry.

The rules would likely focus on banks' capital and liquidity, said Jaret Seiberg, an analyst at Guggenheim Partners. "This could become another check on the ability of banks to return capital to shareholders," Mr Seiberg told IFR.

REUTERS