HNA plans China's first Islamic finance deal

Renminbi banknotes are placed on a bank staff's table in a bank. 

PHOTO: AFP

SEP 10, 201512:41 PM

[SYDNEY] HNA Group, owner of Hainan Airlines, is planning the first Islamic financing deal by a mainland Chinese company, highlighting a growing push by China's private firms to find funding overseas as domestic loans remain scarce and costly.

The shipping and airlines conglomerate plans to raise up to US$150 million in Islamic loans in October to buy ships, said Andrew Kinal, managing director of Geneva-based Shariah Advisory Group (SAG), which is advising on the deals.

HNA's financing arm will then issue "a very large offshore sukuk", or Islamic bonds, of benchmark size before year-end, said Kinal, which typically means of at least US$500 million. "A mix of global and Gulf-based banks are working on this transaction," he said.

Though it will be the first sharia-compliant financing used by a mainland Chinese company, Kinal does not expect it to be the last. "This first Chinese Islamic transaction is just the beginning for Islamic finance into China," he said.

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Islamic finance has boomed on the back of strong economic growth in its core markets of the Gulf and southeast Asia, but such pools of capital remain mostly untapped by Chinese firms.

As China's economy heads for its weakest growth in a quarter century, the central bank has cut lending rates and trimmed reserve requirements to spur economic growth, but this has not translated into cheap financing for private firms.

"State-owned enterprises enjoy privileged access to the loan market, so their cost of financing is lower, but for private companies this is different," said Hong Kong-based Ben Ping Chung Cheung, SAG's Asia-Pacific head. "The availability of credit is lower for them, so this is feeding interest into offshore funding sources."

Islamic finance is a growth area for global financial centres including Britain, Hong Kong and Luxembourg, which have all issued debut sukuk over the past year.

Hong Kong tapped the market for a second time in May, a US$1 billion deal, as part of efforts to attract mainland firms to issue sukuk of their own.

HNA Group, which posted revenue of 170 billion yuan (S$38.4 billion) in 2014, has been on a spending spree this year, agreeing to buy stakes in air cargo handler Swissport International Ltd and Irish-based aircraft leasing firm Avolon Holdings Ltd.

REUTERS

    
 

Gold holds near 4-week low as fund outflows, US data weigh

China's Shanghai Gold Exchange said it will allow physical gold to be used as collateral on futures contracts from Sept 29, according to a statement posted on its website on Thursday. 

ST PHOTO: KEVIN LIM

SEP 10, 201512:06 PM

[SINGAPORE] Gold languished near a four-week low on Thursday, retaining sharp overnight losses, as strong US economic data and outflows from bullion-backed exchange traded funds sapped investor interest.

Spot gold was little changed at US$1,106.65 an ounce by 0339 GMT, after losing 1.4 per cent in the previous session - its biggest daily drop since July 20. The metal slid to US$1,101.11 on Wednesday, its lowest since Aug 11.

US gold was up 0.4 per cent at US$1,106.10, but largely holding on to a 1.7 per cent drop overnight.

Gold could see further weakness leading up to the Federal Reserve policy meeting on Sept 16-17, traders said.

Prices could head back towards July lows as bullion broke through some key technical levels in Wednesday trade, said analysts at ScotiaMocatta. The July low of US$1,077 for spot gold was the weakest since February 2010.

"The US$1,100 level should prop up gold during Asian trade today as physical names look to snap up the metal at these levels," said MKS Group trader Sam Laughlin.

The US$1,115-$1,120 range should cap any moves higher, though the metal may again see further downward pressure in London and New York once Chinese demand is removed, he said.

Many traders were awaiting the US central bank's next policy statement on Sept 17 for clues on the timing of a US interest rate rise, before taking any big positions in gold.

Bullion has benefited in recent years from ultra-low rates, which cut the opportunity cost of holding bullion while holding the dollar in check. But expectations that rates will rise soon have pushed the metal down more than 6 per cent this year.

Economic data on Wednesday showed US job openings surged to a record high in July and employers appeared to have trouble filling openings, the latest signal of an increasingly tight labour market that could push the Federal Reserve closer to raising interest rates.

Investor interest in gold has been tepid. SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.61 per cent to 678.18 tonnes on Wednesday - the biggest drop since Aug 12.

A drop in Asian equities on Thursday failed to prop up gold, often seen as a safe haven.

Asian stocks fell on Thursday after lacklustre Chinese and Japanese economic data added to heightened worries about slackening global growth, denting investors' appetite for riskier assets.

REUTER

    
 

Opec, non-Opec countries study Venezuela's oil summit proposal: Qatar

Oil resumed its decline as Iran said Opec production may rise to a record after sanctions on the country are lifted and as US drilling activity increased. 

PHOTO: REUTERS

SEP 10, 20158:31 PM

[DOHA] Opec and non-Opec countries are studying a Venezuelan proposal for a heads-of-state summit to address low oil prices, the energy minister of Qatar said on Thursday.

"The different countries are studying this proposal and if there was a response from Opec and outside Opec then OK,"Qatar's Mohammed al-Sada said. "But we are in the study phase."

Cash-strapped Venezuela has for months been pushing for an emergency meeting of the Organization of the Petroleum Exporting Countries with Russia to stem a tumble in prices.

Oil is trading below US$48 a barrel, less than half its level of June 2014.

Venezuelan President Nicolas Maduro said on Saturday he had suggested holding an Opec summit to the emir of Qatar, an idea he said the leader of the Arab Gulf state "liked".

Maduro also suggested non-Opec countries, which include Russia, take part.

Oil deepened its decline after Opec's 2014 policy change to defend market share and discourage competing supply sources, rather than cut its own output in the face of lower prices. Saudi Arabia and its Gulf allies led the shift in strategy.

Non-Gulf members want Opec to take action. Algeria has written to Opec expressing concern about the market and Iran has supported the idea of an emergency meeting.

But the Gulf Opec members have opposed holding an early meeting and show no sign of changing strategy, especially given the refusal of Russia and other big non-Opec countries to cut their own output.

The Venezuelan proposal received a lukewarm response on Thursday from one Opec source, who said any such summit without a concrete outcome would not help.

"If we are meeting for the sake of meeting, it would backfire," the source said.

Opec last held a heads-of-state summit in Saudi Arabia in 2007, when oil prices were on their way to a record high of US$147 a barrel reached a year later.

REUTERS

    
 

Chinese hedge funds set sights on commodities as stock volumes dry up

      

SEP 10, 20158:37 PM

[SHANGHAI] Chinese hedge funds are moving into commodities after Beijing's steps to tame volatility in equity markets restricted trading activity in stock futures, fund managers said on Thursday.

China has unleashed a slew of measures to prop up its stock markets , that have plunged about 40 per cent since mid-June, and restricted trading in stock futures to crack down on "malicious" activities.

The latest interventions, effective from Sept 7, raised margin requirements and capped trading volumes, diminishing their appeal to active traders.

"We have cleared all positions in stock index futures lately and shifted all money to commodities since there are no other better options," said Liu Yancao, a senior executive with Beijing-based Quant Fund.

The fund, which manages about 300 million yuan (US$47.04 million), used to trade 60 per cent in stocks and 40 per cent in commodities, including petrochemical products, iron ore and other metals.

Iron ore volumes on the Dalian Commodity Exchange have surged to record highs in recent days just as stock futures volumes faded to all-time lows. Shanghai copper volumes have hit a two-month top.

While trading commodities is also difficult given weak prices and a slowing economy in China, the world's top consumer of most raw materials, it is attractive relative to equities and has prompted some funds to even change their trading plans.

"We were planning to trade stock index futures but we haven't even been able to start due to increased restrictions, so we are turning to commodity futures," said Zhang Xiaoxiao, a senior official with a unit of Leadbank Financial Service Group Co Ltd, which currently invests in treasuries and stocks.

The asset manager is looking to set up a commodity team by the end of 2015, highlighting the change in sentiment among Chinese funds that were previously cutting their exposure to commodities as prices, including that of oil, natural gas, coal, iron ore and metals, plunged to multi-year lows.

"Speculative capital has nowhere else to go but come back to commodities," said Wang Bing, a senior broker with Orient Futures in Shanghai. "I think iron ore could be the most popular contract for idled funds, as the physical market is huge."

According to a fund manager in Hong Kong: "Commodity is a difficult patch as well, but since there are many varieties of commodities, we can still find some trading opportunities."

REUTERS

     

Global shale output decline will stabilise oil market: Russia

SEP 10, 20158:58 PM

[MOSCOW] Russia's energy minister expects that cuts in global shale oil production, which has been hard hit by lower oil prices, will help stabilise the fragile oil market.

Alexander Novak also reaffirmed that Russia, one of the world's top oil producers, would not cut its own production as it would lead only to a short-term recovery with risks of subsequent slumps in prices.

The Organization of the Petroleum Exporting Countries, which accounts for around a third of global oil output, changed its policy in 2014 to defend market share and discourage competing supply sources, rather than cut its own output in the face of lower prices.

"Shale oil has been leaving the market bit by bit. This is a good and positive signal, which allows one to say that the market will stabilise in mid-term," Mr Novak told Rossiya-24 TV in an interview aired on Thursday.

After three years, in which US production grew on average by more than 1 million barrels per day (bpd) annually, US output is expected to expand by just 650,000 bpd on average in 2015 and then shrink by 400,000 bpd in 2016, according to the US Energy Information Administration.

The price of oil, Russia's chief export commodity, has more than halved since its peak in June 2014, mainly due to global oversupply and weaker economic growth in China, the world's top energy consumer.

Mr Novak said the cost of shale oil production - between US$45 and US$60 per barrel - is seen as a benchmark for oil prices. He expects prices to be between US$50 and US$60 per barrel on average this year - in line with Russia's budget forecasts.

Earlier this week he said that Russia, which has been producing oil at a post-Soviet high of around 10.7 million bpd, may increase output by around 1 per cent this year.

The minister dismissed the idea that deliberate cuts in oil production would help support the oil market.

"We have always said that an artificial decrease in oil production would lead only to a short-term price increase. In turn, a higher price would allow to increase supply on the market thanks to ineffective projects becoming profitable," Mr Novak said. "And again the next circle emerges: oversupply will lead to a substantial price drop, which, probably, could be even deeper if this is allowed to happen."

REUTERS

    
 

China to launch new crude oil benchmark

China plans to launch a yuan-denominated international benchmark for crude oil futures this year aimed at the Asian market, an industry source said Thursday. 

PHOTO: REUTERS

SEP 10, 20155:58 PM

[SINGAPORE] China plans to launch a yuan-denominated international benchmark for crude oil futures this year aimed at the Asian market, an industry source said Thursday.

The contract will be traded at the Shanghai International Energy Exchange (INE) and will be a price reference for medium sour crude, a variety favoured by Asian players and imported mainly from the Middle East, said the source, who asked not to be named.

It has a higher sulfur content than the existing benchmarks - West Texas Intermediate (WTI) traded in New York and Brent traded in London - both classified as light sweet crude.

Crude oil futures are a hedge against price volatility. Prices move based on supply and demand expectations as well as geopolitical concerns.

The Chinese contract will be traded in lots of 100 barrels, said the source, who attended a seminar conducted in Singapore on Thursday by the INE for traders and brokers to drum up interest.

The WTI and Brent benchmark contracts come in lots of 1,000 barrels.

"There was no launch date given but the timetable is this year," the source told AFP.

Daniel Ang, an investment analyst with Phillip Futures in Singapore, said the smaller size of the lots will allow retail investors to participate - on top of big institutional players - and boost volumes.

Mr Ang, who closely tracks the oil market, said the new benchmark is unlikely to hurt both WTI and Brent in terms of prices but it could affect their volumes.

"A lot of Asian refineries use sour-grade crude and China is a major importer," he said, adding that the Shanghai contract would be a better hedge for players in the the region.

Ang said he expects interest in the China benchmark from Asian markets like Japan, South Korea and Southeast Asia.

"If it is liquid enough, a lot of players will be looking at trading with the INE," he said.

Chinese demand exerts great influence on prices because it is the world's second biggest oil importer and its second largest economy.

The slowdown in the Chinese economy and the sell off in the stock market have been blamed for putting downward pressure on WTI and Brent prices.

Mr Ang said he does not expect the Chinese slowdown to affect the launch of the new contract.

"Be it good times or bad there will still be people who would like to hedge their positions," he said.

He added it was inevitable that a big oil consumer like China would launch its own benchmark as the United States did with the WTI.

AFP

   
 

Middle East crude: Dubai, Oman stay in wide discounts

The Middle East crude benchmarks Dubai and DME Oman remained mired in deep discounts of about US$2 a barrel to Dubai swaps on Thursday.

PHOTO: REUTERS

SEP 10, 20156:53 PM

[SINGAPORE] The Middle East crude benchmarks Dubai and DME Oman remained mired in deep discounts of about US$2 a barrel to Dubai swaps on Thursday.

Das stayed in discount as BP repeated its offer for 300,000 barrels of Das crude for November loading at 20 cents a barrel below its official selling price (OSP) on RIM. The oil major first offered the crude on Tuesday.

Tasweeq will sell four al-Shaheen crude cargoes for November loading in a tender to close on Monday, a trader said, which will kick off trade this month.

Singapore markets are closed on Friday.

US Energy Information Administration said in a note that Saudi Arabia has increased production and maintained its market share in this year.

"In the first half of 2015, Saudi Arabia exported on average 4.4 million barrels per day of crude oil to seven major trading partners in Asia, making up more than half of Saudi Arabia's total crude oil exports over that period," the agency said.

"However, long-term trends within Saudi Arabia's energy sector may reduce its global crude oil market share."

OSPs Iran has reduced the quarterly price for its flagship crude to the lowest in three years in a bid to lure Asian buyers to lock in more term supplies next year.

The price reduction is just one of the steps taken by the OPEC producer to ramp up output and regain market share lost since US and European sanctions aimed at its nuclear programme cut its crude oil exports by more than half.

Iran set its official selling price (OSP) for Iranian Light crude for October at a 25 cents a barrel premium to Oman/Dubai, down 35 cents from the month before, two sources with knowledge of the matter said on Thursday.

This puts Iranian Light OSP at a 15-cent premium to Saudi's Arab Light in the fourth quarter, the lowest quarterly price since the last three months of 2012, according to Reuters data.

Iraq has dropped the October official selling price (OSP) for Basra Light crude to Asia by US$0.50 to minus US$1.95 a barrel against the average of Oman/Dubai quotes from the previous month, the State Oil Marketing Organization (SOMO) said.

Basra Heavy to Asia in the same month was priced at minus $6.65 a barrel to Oman/Dubai quotes, SOMO said in an e-mailed statement.

DME OMAN DME Oman for November settled at $45.61, down $1.99, at 0830 GMT. This puts DME Oman at $1.84 a barrel below Dubai swaps, down from a discount of $1.80 in the previous session.

REUTERS

    
 

World food commodity prices plunge to lowest in seven years: FAO

SEP 10, 20155:04 PM

[PARIS] The price of international food commodities slumped in August to their lowest level in almost seven years, the Food and Agriculture Organization said on Thursday.

The UN body said the prices of almost all commodities measured in its Food Price Index dropped last month, including milk, vegetable oils, sugar and cereals.

"Ample supplies, a slump in energy prices and concerns over China's economic slowdown all contributed to the sharpest fall of the FAO Food Price Index in almost seven years," it said in a statement.

In contrast, meat prices in August remained virtually unchanged from the previous month, although overall they are still down 18 per cent from the peak of August 2014.

AFP

Shanghai gold exchange to allow physical gold as collateral 

China's Shanghai Gold Exchange said it will allow physical gold to be used as collateral on futures contracts from Sept 29, according to a statement posted on its website on Thursday. 

ST PHOTO: KEVIN LIM

SEP 10, 20154:44 PM

[BEIJING] China's Shanghai Gold Exchange said it will allow physical gold to be used as collateral on futures contracts from Sept 29, according to a statement posted on its website on Thursday.

Physical gold will be permitted to be used for up to 80 per cent of margin value, according to the statement.

REUTERS

US wholesale inventories fall for first time since 2013

SEP 10, 201510:35 PM

[WASHINGTON] US wholesale inventories fell in July for the first time in nearly two years, a tentative sign that businesses were starting to whittle down a huge stockpile of merchandise that could weigh on production in the second half of the year.

The Commerce Department said on Thursday that wholesale inventories slipped 0.1 per cent, the weakest reading since May 2013, as a drop in oil prices held down the value of petroleum stocks.

Wholesale stocks were revised to show a 0.7 per cent rise in June instead of the previously reported 0.9 per cent increase. Economists polled by Reuters had forecast wholesale inventories rising 0.3 per cent in July.

Inventories are a key component of gross domestic product changes. The component of wholesale inventories that goes into the calculation of GDP - wholesale stocks excluding autos - fell 0.3 per cent in July.

Petroleum inventories fell 4.8 per cent, the largest drop since last December, after rising 3.1 per cent in June.

Inventory investment contributed 0.22 per centage point to the second quarter's annualized 3.7 per cent GDP growth pace.

Business inventories have increased by more than US$100 billion in each of the last two quarters, a record back-to-back rise that economists say is unsustainable given the current sales pace.

Sales at wholesalers fell 0.3 per cent in July. At July's sales pace it would take 1.30 months to clear shelves, unchanged from June. An inventory-to-sales ratio that high usually means an unwanted inventory build-up, which would require businesses to liquidate stocks.

That in turn would weigh on manufacturing and economic growth.

REUTERS

   
 

Bank of England keeps rates steady, sees greater overseas risks

Bank of England policymakers voted 8-1 to keep rates at a record-low 0.5 per cent this month and judged it was too soon to decide if turmoil in markets sparked by China will affect Britain much. 

PHOTO: BLOOMBERG

SEP 10, 20157:06 PM

[LONDON] Bank of England policymakers voted 8-1 to keep rates at a record-low 0.5 per cent this month and judged it was too soon to decide if turmoil in markets sparked by China will affect Britain much.

Ian McCafferty, one of the nine members of the Monetary Policy Committee, voted to increase rates to 0.75 per cent but the majority of policymakers appeared in no rush to raise rates, according to minutes released on Thursday.

The central bank said it expected Britain's economy to maintain healthy growth. Some rate-setters saw a risk of inflation rising more quickly than forecast although better productivity was offsetting the effect of higher wages. "Although the downside risks emanating from overseas had risen, it would be premature to draw strong inferences from this month's events for the likely path of activity in the United Kingdom," the MPC said in minutes of its monthly policy meeting.

The BoE's decision comes after a month of sharp falls on global stock markets, driven by financial turmoil in China, and some more recent signs of weakness in Britain's hitherto robust economic recovery.

There is also a high degree of uncertainty about whether the US Federal Reserve will decide next week to tighten policy for the first time since the 2007-09 financial crisis, which is likely to have knock-on effects across global financial markets.

Figures on Wednesday showed an unexpected, sharp fall in British industrial output - partly due to faltering overseas demand - and broader industrial surveys have pointed to a slowdown in growth in the third quarter to around 0.5 per cent.

The central bank's staff trimmed their forecast for third-quarter growth to 0.6 per cent from 0.7 per cent.

This is still roughly in line with Britain's historic average rate of growth, and the MPC's members had a "range of views" on inflation. Some thought it could overshoot its 2 per cent target in the medium term, suggesting that they would not take much more persuading before voting for a rate hike.

Inflation is currently only just above zero - and far below its 2 per cent target - and the BoE said it was likely to stay close to zero for the next few months, with volatile oil prices adding uncertainty to the outlook.

Economists polled by Reuters on Wednesday forecast that the central bank would start to raise interest rates in the first quarter of 2016.

BoE Governor Mark Carney said last month that the decision on when to raise rates was likely to come into "sharper relief"around the turn of the year, and that China's problems did not appear poised to have a big impact on Britain.

This week's policy meeting was the first for new MPC member Gertjan Vlieghe, a former economist at hedge fund Brevan Howard who replaced the generally dovish finance professor David Miles, and on this occasion voted with the majority.

REUTERS