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Global Project Finance volume reached $[400]bn in 2011, the highest annual total on record and up 13% on the $[350]bn recorded in 2010. 4Q 2011 volume of $[90]bn was the lowest quarterly total of 2011 but was still 14% up on 4Q 2010 A record [900] projects reached financial close in 2011, an 8% increase over the previous record recorded in 2010
A record [900] projects reached financial close in 2011, an 8% increase over the previous record recorded in 2010
Yields on kangaroo bonds blow out (November 22, 2011)
The European Union's crisis of confidence has reached the distant shores of the local dollar debt market as once-unimpeachable EU institutions suffer huge rises in borrowing costs. The last few days have seen a dramatic deterioration in the market for even the highest-rated EU sellers of kangaroo bonds, paper denominated in Australian dollars and sold in Australia by foreign firms. The starkest example was the European Investment Bank (EIB), a triple-A credit funded by all 27 members of the euro zone and one of a group of borrowers known as supranationals.
The last few days have seen a dramatic deterioration in the market for even the highest-rated EU sellers of kangaroo bonds, paper denominated in Australian dollars and sold in Australia by foreign firms.
The starkest example was the European Investment Bank (EIB), a triple-A credit funded by all 27 members of the euro zone and one of a group of borrowers known as supranationals.
BNP, which is one of the oldest banks in Australia (it established operations here 130 years ago), has withdrawn from the $3.7 billion syndicated loan for the Victorian desalination plant and ended its $230 million participation in the $2.1bn financing for Sevenwest Media, for which it had been one of the lead banks. Other syndicated loans from which European banks have withdrawn include the Royal Adelaide Hospital and the port business, DP World. Funding packages for several blue-chip companies have also been affected, including Wesfarmers and Healthscope.
Other syndicated loans from which European banks have withdrawn include the Royal Adelaide Hospital and the port business, DP World.
Funding packages for several blue-chip companies have also been affected, including Wesfarmers and Healthscope.
Bank of Tokyo-Mitsubishi UFJ is in advanced talks to buy RBS Australia's Sydney-based infrastructure advisory unit and its portfolio of public-private project finance assets. The talks reflect MUFG's determination to expand its international operations as its domestic lending market stagnates and follows its November 2010 deal to acquire £3.3bn ($5.3bn) worth of assets in Royal Bank of Scotland's project finance portfolio in Europe, the Middle East and Africa. The 30-strong Sydney unit, set up by Dutch lender ABN Amro more than a decade ago, is one of the largest groups specialising in private-public partnerships in Australia.
The talks reflect MUFG's determination to expand its international operations as its domestic lending market stagnates and follows its November 2010 deal to acquire £3.3bn ($5.3bn) worth of assets in Royal Bank of Scotland's project finance portfolio in Europe, the Middle East and Africa.
The 30-strong Sydney unit, set up by Dutch lender ABN Amro more than a decade ago, is one of the largest groups specialising in private-public partnerships in Australia.
This is partly because Europe is adopting credit-unfriendly financial regulation, in addition to the effects of the Euro crisis on foreign funding positions. There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
I see that you are now feeling the pains of reality. "Is it possible to reform a failed regulatory system sufficiently to restore a functioning market? " My answer to you is: not this time. There is nobody with the will and the strength to stand up to Power. ... The US is about to implode followed by the UK and then EU. There is a shift now and it is towards Asia between Perth WA and Vladivostok. Singapore has been preparing to become the main financial services sector in the World and it is also there. The West is dying of its own incompetence and arrogance expressed in its inept "leadership.
My answer to you is: not this time. There is nobody with the will and the strength to stand up to Power.
...
The US is about to implode followed by the UK and then EU. There is a shift now and it is towards Asia between Perth WA and Vladivostok. Singapore has been preparing to become the main financial services sector in the World and it is also there.
The West is dying of its own incompetence and arrogance expressed in its inept "leadership.
The crisis is the opportunity to kill euro-style project financing, replacing it with "anglo-saxon" banking? Does "follow the money" tell us anything here? It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
Japan, China and Singapore? There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
The opinion of some dude who hasn't done his own due diligence on the credit risk of a security is just his opinion. The opinion of a million dudes who haven't done their own due diligence on the credit risk of a security is also just their opinion. Putting their opinions together and calling it a "market" does not make it any more than the opinion of some dudes who haven't done their own due diligence.
- Jake Friends come and go. Enemies accumulate.
Because, unlike market (price) risk, which is anonymous, credit risk is associated to a particular counterparty. There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
In some jurisdictions you can take it off balance sheet, but that doesn't make it go away.
Or you can sell it, but then the buyer is exposed to the full credit risk as if they had originated the loan. There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
But you can actually outsource the credit risk to someone else. Thah's just what the big Wall Street banks did when they sliced and diced all those toxic mortages, repackaged and sold them on to Düsseldorf and all the others.
shit happens
The preferred term, used by all the Serious People©, is "Black Swan Event." She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
If that renders the effective interest incompatible with the customer's business plan, then you can not make the loan. If the loan represents a large fraction of your equity, then you can not make the loan.
This is why you need to do it before making the loan.
But this is tangential to CDOs, where you can sell the same worthless non-coverage to multiple buyers over and over, with the certainty that if any of them try to claim on their 'coverage' you can shrug and say it's not your problem.
Oh - and the government will probably bail them out anyway.
The salient point here is that you only get to do that with idiosyncratic risk, because systemic risk is, by its nature, not independent. This is why properly run industrial societies use government back-stops to ensure that not everyone is unemployed and broke at the same time. Because the government, as the only entity which is definitionally solvent, is the only entity which can serve as a backstop against systemic risk.
Precisely! The problem with credit is that the risks are all "in the wrong direction". You get a small income stream at a rpofit in exchange for the risk of a large loss. And risk-aversion magnifies the perception of losses.
Also, diversification doesn't quite work. If you have 20 bonds with a default probability of 5% you're virtually guaranteed a loss of 5% no matter what so it's all pain, no gain. You're maybe better off gambling on just one bond where at least you have a sizeable probability of making a profit.
Naked CDS are much "better" - you pay a small fee in exchange for the chance of a big payout. There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
Where this breaks down is when everybody goes broke at the same time, because some right-wing idiot (but I repeat myself) was allowed to play with levers of government that he has neither the understanding nor the inclination to handle safely.
It means you're virtually guaranteed no upside and all downside. Logarithmic utility can be really nasty on the downside. There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
You need to look at the discounted value of the expected cash flow rather than the nominal principal, for the same reason you need to look at MWh produced rather than nameplate capacity when evaluating the required price of volatile energy sources.
Um.
If you hand the keys to the sovereign over to right-wingers, then of course they break it. But that is not dependent on the particulars of finance theory - right-wingers break your economy because breaking countries for fun and profit is what right-wingers do.
Due diligence cannot protect you from shit happens.
Part of doing your due diligence is to make sure that the contract you are entering into will not cause your firm to cease to exist if shit happens. Unless said shit is so bad that your firm has a meaningful risk of ceasing to exist anyway. Part of doing your due diligence is to ask "what could possibly go wrong?" come up with a reasonably comprehensive answer, and then make contingency plans for all of those situations. Even if the contingency plan is just "in case of nuclear war, roll over and die."
...it's not a loan. It's a liquidity operation. There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
Banks know that and they keep on doing it, even as it goes out of fashion. Wind power
If I pawn a clock or a house, the lender does not have a credit risk, but a risk that their evaluation of the value of the collateral will not be correct when if a time comes when the collateral needs to be sold. Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
Then again, some people say "all risk is liquidity risk". There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman
Liquidity risk is a political problem of whether you get to defer payment. Credit risk is a fundamental problem of whether you are able to make payment.
You need one to make a hotel or plane reservation, or to rent a car, even if you plan to pay cash. Many stores require a credit card to accept your check. Responsible use of a credit card builds a good credit rating, too, marking the owner as mortgage-worthy. But people who have never had credit or need to repair a poor credit history may not qualify for a regular credit card.
But people who have never had credit or need to repair a poor credit history may not qualify for a regular credit card.
Sweden instead uses implicit credit worthyness unless the central government register says that we failed to pay a bill so many times that it ended up with Kronofogden. Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
The advantage of this system is that you can (could, until a few years ago) write a cheque for just about anything. The banks are trying hard to stamp out the massive use of cheques (because they cost them money) and force us to use credit (or debit) cards.
Credit card balances are paid off automatically every month from your bank account, so you can't have outstanding balance on your card (what you have instead is an overdraft). It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
European banks are disappearing fast as global players in project finance
Not really. They have been reducing their exposure by selling well-identified portfolios or local activities which don't limit their ability to continue the rest of the business (for instance, BNPP sold a large portfolio of "reserve-based assets" in the US, i.e. loans to medium sized oil&gas operators in the US backed by rights to the underlying resource (i.e. the oil reserves). With good geologists (which most banks doing this business have in-house), this is a low risk business, but it's fairly capital-intensive. Selling this is something you can do as a decent price (other banks know these are sound assets, so there is enough competition to ensure the discount is not large), and which frees up quite a lot of capital; at the same time it's specialized enough that getting rid of it does not cut into your other activities.
The league tables for 2011 show the usual suspects at the top, i.e. the Indian banks (big local market), the French, the Japanese, the Spanish and the Dutch banks.
Japanese banks are indeed moving up, but the there ones are not disappearing. Wind power
seems like a Good Thing. 'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
The public debt mole Information regarding the high-speed railway project has been totally lacking, probably because the interests that lie behind these major works had no interest whatsoever in informing the public. On the other hand we have this extraordinary mobilization and support that the No TAV movement is seeing today, particularly in the Val di Susa ... For the past 20 years now this valley's numerous technical experts have been informing the citizens and the mobilisation that we are seeing now is the fruit of twenty years of effort and of awareness of the technical merits that Valley reflected in the numbers that show the total uselessness of this major public works. In this regard, the fact that the major media have chosen to ignore this issue for the past 20 years and now tend to focus on reporting only on those issues relating to public order and appear to be incapable of evaluating the merits of this issue is proof that interests, probably even in the cultural collapse of this Country, lie only in slogans, in ideologies and the flags that certain works of this nature may represent for the ruling class and that these kinds of works are merely an extension of their total inability to conceive any sort of vision for the future. But I am becoming ever more convinced that this ruling class is structurally bound to worry only about the present because the minute there is any sort of appraisal of the effects that their actions have on the future, they stand to immediately lose all of their privileges. The only interests are the annual budget and short-term results and for the bankers, it is getting their hands on some serious stock options, while for the politicians who live in the here and now, it's all about next month or next year's political outcomes and for the entrepreneurs in charge of the virtual companies, it's all about managing the debt. There will probably be no winners and we are all going to lose out in the end! They are gambling the future of our economy on these major public works, particularly here in Italy, because the financial architecture that is built on these major works are mechanisms designed to dig out hidden public debt from the accounts of privately held companies, this so-called project financing that has many politicians talking since public resources have become more scarce. However, this is precisely the mechanism that brought about the 2009 crash. In that case the debt was built on private funding while in this case the debt is being dumped into the public debt. That's what project financing is all about, a mole that causes future public debt that has to and will inevitably surface at some point in the future. This mole has been digging away for many years already, since way back in the 90's, since the post-Tangentopoli era and it is going to surface sooner or later because it is a hidden debt. The project financing debts or the debts of privately owned public companies may not be reflected in the 120% of GDP, but they are nevertheless public debt that is concealed in the accounts of private companies and will have to surface sooner or later. It is difficult to say when this will happen, however, it is not going to be in the long-term and when it does happen, any of these major works that have already begun will go to the wall and this debt will explode and reverberate on us all and on the economy as a whole!
kindly deconstruct. 'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
this is precisely the mechanism that brought about the 2009 crash.
That's false. What is true is that governments have used PPP (public private partnerships) as a way to avoid public debt (they pay "rent" on infrastructure which is privately-owned for a number of years after it's built) and this tends to be more expensive in the long term than the State building it itself and paying for it. Depending on how well the tender is defined, it can be an effective tool, and a real way to pass on some risks to the private sector.
So PPP is a different way to build infrastructure, with more private sector involvement, and it can result in some unnecessary transfers of money from public to private hands over time, but it's not crazy and it does not create systemic risk.
Even if not done in the most effective way, it is lending to real infrastructure projects. Whether these are necessary or not is not really linked to how they are financed (private contractors would lobby for them anyway if government were to pay for them), and that financing certainly did not create the financial crisis. Wind power
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