The Daily Visionary: Wednesday, December 19, 2018

Belgium’s PM Michel resigns after government collapses in dispute over UN migration pact


Belgian Prime Minister Charles Michel resigned on Tuesday night after his government collapsed following opposition from the government’s largest coalition partner, Flemish nationalist N-VA, to his signing of the United (U.N.) Migration Compact last week.


With a general election slated for May 2019, an early election is now anticipated to occur as early as next month after Mr. Michel offered the king his resignation amid demands for a motion of no confidence in his now minority government. Mr. Michel refused to submit to such a vote or the calls from some in the assembly for an early election, which he said would only lead to "stagnation for the whole of 2019". King Philippe of Belgium is now expected to hold consultations between the political parties before calling elections in January.


The U.N.'s Global Compact for Safe, Orderly and Regular Migration has become deeply divisive in Europe since the peak of the migrant crisis in 2015. Several European Union (E.U.) countries pulled out of the pact before it was signed, including Austria, which holds the EU presidency, the Czech Republic, Italy, Hungary, Poland, Latvia, and Slovakia. Opponents and European politicians say the Compact could increase immigration to the E.U., which tightened restrictions on refugees and migrants in recent months. Supporters of the deal have said claims that the pact will encourage uncontrolled flows and embed migration as a human right are entirely false and aimed at fearmongering.


On Sunday, approximately 5,500 people marched in the Brussels district that is home to E.U. institutions, eclipsing a smaller demonstration of about 1,000 people in support of the deal. Police deployed teargas and water cannon after scuffles broke out, where some people held banners bearing slogans including "Our people first" and "We have had enough, close the borders."


Canadian government announces CAD $1.6 billion in loans to the energy sector


Following the third large-scale protest in as many weeks, Canada’s Natural Resources Minister Amarjeet Sohi announced CAD $1.6 billion to help Alberta’s struggling energy industry. He said the money, largely in the form of commercial loans, is available immediately. “We understand that for the long-term success and growth of the oil sector, nothing is more important than building the pipeline capacity to expand our non-U.S. global markets,” Minister Sohi said in Edmonton as he and Minister of International Trade Diversification Jim Carr announced the funding package designed to boost the oil and gas sector as it struggles through a period of low commodity prices and lack of new export pipelines.


CAD $1 billion will be set aside through Export Development Canada for oil and gas companies to make capital investments and purchase new technology. CAD $500 million will be made available through the Business Development Bank of Canada (BDC) over the next three years to help smaller oil and gas companies navigate the downturn. A further CAD $150 million will be used for clean growth and infrastructure projects, with CAD $100 million for energy and economic diversification projects, and CAD $50 million for an unnamed oil and gas project. Alberta’s Premier Rachel Notley plans to buy as many as 80 locomotives and 7,000 rail tankers, which is expected to cost hundreds of millions of dollars. The package does not include money for the rail cars to help move a glut of oil behind the low price of Canadian oil.


Energy executives said the funding won’t solve the problem. Frustrated, said they appreciated the offer of support, but the loans would likely not be used until new pipelines were built. Whitecap Resources Inc. President and CEO Grant Fagerheim said, “Don’t frustrate all of Canada by putting this financial burden on them with a handout without addressing the root cause. It isn’t overly helpful to the Canadian oil and gas space.


Both Mr. Fagerheim and Advantage Oil and Gas Ltd. President and CEO Andy Mah think companies wouldn’t want to take out new loans, even if they’re offered at lower interest rates, until they know the loans can be repaid. “We’ve got a revenue problem. We need to have more revenue coming in the door. They’re not listening. There’s a disconnect. It just seems to be like, ‘here’s a Band Aid’,” Mah said of the loan announcements,” Mr. Mah said, adding that Canada needs “many” new pipelines built and a better, faster process for pipeline approvals. Mr. Fagerheim and Mr. Mah both said there will likely be some small and micro-cap oil and gas producers, distressed companies, and potentially some oilfield services providers that may apply for the loans and financial supports.


President of Explorers and Producers Association of Canada Tristan Goodman said, “I do think there’ll be some uptake, but I’m not sure it’ll be as broad or as helpful as the federal government is hoping.” GMP FirstEnergy analyst Bob Fitzmartyn called the package “the worst possible message they could send,” adding that the loans would be interpreted as a subsidy. “I don’t know who’s going to take advantage of borrowing money. Maybe people getting their (credit) lines cut?” Mr. Fitzmartyn said, and that companies are not currently replacing their equipment or investing in new equipment given the outlook for oil and gas prices.


While the world sells its oil at about USD $50 a barrel, Alberta’s oil at one point fetched only USD $11 a barrel. West Texas Intermediate oil prices slid 7 percent at one point on Tuesday to USD $46.19 per barrel, its lowest point this year.


Venezuela creditors demand payment on $1.5 billion defaulted bond


Venezuelan President Nicolas Maduro’s government and state-owned companies owe nearly $8 billion in unpaid interest and principal following this year’s default on bonds amid a hyperinflationary collapse of the country’s once-wealthy but now socialist economy. Aid groups estimate that 1.6 million to 2 million Venezuelans will leave the country by the end of this year to escape hyperinflation and the extreme scarcity of food and medicine.


A group of creditors comprised of five investment funds has demanded payment on $1.5 billion in defaulted Venezuelan bond, kicking off a long-awaited showdown between creditors and the crisis-wracked OPEC nation. This is the first step in a potential legal campaign by creditors to recover their investments. The decision could trigger similar efforts by investors holding $60 billion in outstanding bonds issued by Venezuela and state oil company PDVSA. That could pave the way for a creditor dispute similar to the one that roiled Argentina for a decade.


The move, known as “acceleration,” means the bond in question must be paid immediately, but in practice it is unlikely that Venezuela would do so and could require years of litigation before investors recoup their money. The investors have not yet taken their claim to courts in New York, which govern the terms of the dispute related the bond in question, according to the group’s lawyer Mark Stancil of the Washington-based law firm Robbins Russell. Mr. Stancil said the group filed the acceleration request to Bank of New York Mellon Corp, the fiscal agent for the bond, on December 6, and also notified David Syed of the law firm Dentons, which is representing Venezuela.


Creditors do not believe Maduro is willing or capable of carrying out a restructuring process even though he has said he wants to do so. The acceleration move coincides with a recent flurry of activity among other Venezuelan creditors, including one group which last week said it had hired law firm Cleary Gottlieb Steen & Hamilton LLP to advise on strategic alternatives.


Venezuela and PDVSA bonds provided juicy yields due to high oil prices for years, making them a mainstay of emerging market bond funds that wanted to outperform the market. After most of them defaulted, the bonds now trade at a discount of more than 70 percent, while almost all of PDVSA’s bonds are marked down by more than 80 percent. President Maduro has said American financial sanctions have prevented Venezuela and PDVSA from making timely payments. Investors have noted that PDVSA has made interest payments on several bonds, including the 2020 issue that is backed by shares in its U.S. refining subsidiary Citgo.


Russia to move troops into new barracks on disputed islands near Japan


Russia announced it has built new barracks for troops on a disputed chain of islands near Japan and will build more facilities for armored vehicles, a move likely to anger Tokyo after it previously urged Moscow to reduce its military activity there, a plea Moscow dismissed as unhelpful megaphone diplomacy at the time. The announcement, from the Russian Ministry of Defence, said Moscow plans to shift troops into four housing complexes on two of the four disputed islands, known as the Southern Kurils in Russia and the Northern Territories in Japan, next week.


This comes after the Kremlin said Japanese Prime Minister Shinzo Abe might visit Russia on January 21 as the two countries increase their efforts to defuse the territorial dispute and sign a World War Two peace treaty, something the disagreement over the Pacific islands has long prevented. Soviet forces seized the four islands at the end of World War Two and Russia and Japan both claim sovereignty over them. Diplomats on both sides have spoken of the possibility of reviving a Soviet-era draft agreement that envisaged returning two of the four islands as part of a peace deal.


Russian President Vladimir Putin and Japanese President Abe have held numerous face-to-face meetings in attempts to make progress, but tensions have remained high. Tokyo says it is concerned by what it regards as an unhelpful Russian military build-up on the islands, which has included warplane, missile defense, and other deployments. Moscow, meanwhile, says it is perturbed by Japan’s roll-out of the Aegis Ashore United States (U.S.) missile system.


Russian politicians say they fear Japan might agree to deploy U.S. missile facilities on the islands if it ever got any of them back and that Moscow could only countenance a deal if it received a cast-iron guarantee that ruled out such a scenario. In the meantime, Moscow is fortifying the islands.


Malaysia charges Goldman Sachs and ex-bankers in USD $2.7 billion probe


Malaysia will seek jail terms and billions of dollars in fines from Goldman Sachs and four other individuals who allegedly diverted about USD $2.7 billion from 1Malaysia Development Bhd (1MDB), the country’s Attorney General Tommy Thomas said in a statement. The 1MDB scandal was a major reason for former Premier Najib Razak’s election defeat in May 2018, who has been charged with corruption over the scandal and pleaded not guilty.


Mr. Thomas said criminal charges under securities laws were filed on Monday against Goldman Sachs, its former bankers Tim Leissner and Roger Ng, former 1MDB employee Jasmine Loo, and financier Jho Low in connection with the bond offerings. “The charges arise from the commission and abetment of false or misleading statements by all the accused in order to dishonestly misappropriate $2.7 billion from the proceeds of three bonds issued by the subsidiaries of 1MDB, which were arranged and underwritten by Goldman Sachs,” Mr. Thomas said in a statement. He said the offering circulars filed with the regulators contained statements that were false, misleading, or with material omissions, and “Having held themselves out as the pre-eminent global adviser/arranger for bonds, the highest standards are expected of Goldman Sachs. They have fallen short of any standard.


Prosecutors would seek fines against the accused “well in excess” of the allegedly misappropriated $2.7 billion bond proceeds plus $600 million in fees received by Goldman Sachs. Malaysia will seek jail terms of up to 10 years for each of the individuals accused, Mr. Thomas said, and that the four individuals are charged of conspiring to “bribe Malaysian public officials in order to procure the selection, involvement and participation of Goldman Sachs in the bond issuances.


This is the first time Goldman Sachs, which has consistently denied wrongdoing, has faced criminal charges in the 1MDB scandal. Goldman Sachs has been under scrutiny for its role in helping raise $6.5 billion through three bond offerings for 1MDB, which is the subject of investigations in at least six countries. The United States (U.S.) Department of Justice has said about $4.5 billion was misappropriated from 1MDB, including some money that Goldman Sachs helped raise, by high-level officials of the fund and their associates from 2009 through 2014.


A Goldman Sachs spokesman said the charges were “misdirected” and the bank would vigorously defend them and continue to cooperate with all authorities in their investigations. U.S. prosecutors filed criminal charges against the former Goldman Sachs bankers, Mr. Leissner and Mr. Ng, last month. Mr. Leissner pleaded guilty to conspiracy to launder money and conspiracy to violate the Foreign Corrupt Practices Act. Mr. Ng is detained in Malaysia and facing extradition to the U.S. 


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