Headlines

Five years ago this week, Mario Draghi’s landmark “whatever it takes” speech turned the tide of the euro crisis, the president effectively clarifying the European Central Bank’s role as a conditional lender of last resort to eurozone sovereign borrowers, the Financial Times reported in a commentary. Having bought time for countries and the wider region to address structural vulnerabilities, how much progress has been made? From our perspective as an investor, the conclusion is — not nearly enough.

In the central Indian village of Raikheda, the construction of a thermal coal power plant once promised jobs and economic progress. Years after its completion though, the debt-saddled project that promised power supply to hundreds of thousands of homes, sits mostly idle, the International New York Times reported on a Reuters story. It is unable to buy coal to power the plant or sell electricity to utilities. Dozens of nearby stores that were reliant on the project's success have shut down. Raikheda is not alone.

South Africa is evaluating assets it could sell to pay for this month’s 2.2 billion rand ($169.5 million) bailout of unprofitable carrier South African Airways, Finance Minister Malusi Gigaba said in letter to parliament, Bloomberg News reported. The government’s decision to settle a debt owed by the airline to Standard Chartered Plc mustn’t affect the balance of this year’s budget, Gigaba said in the note to Baleka Mbete, speaker of the National Assembly. Further details will be provided in October, he said.

It’s hard to be a confident investor in Italian bank debt. The recent rescues of Monte Paschi di Siena, Popolare Vicenza, and Veneto Banca are simply the latest reasons over the past few years. Markets have responded by cutting off bond funding to Italian lenders, the Financial Times reported in a commentary. The amount of Italian bank bonds outstanding has shrunk by about 30 per cent since the start of 2015. The decline in volumes has gone along with increasing yields on subordinated and senior unsecured notes.

A “raging bull” euro was weighing on European stocks on Friday, with Germany’s Dax among the worst-hit as indices across the eurozone extended their early losses, the Financial Times reported. The Europe-wide Stoxx 600 was down around 0.4 per cent at publication time, with industrial groups and producers of consumer discretionary goods – two sectors particularly reliant on exports – the biggest drivers of the decline.

The International Monetary Fund is keeping the pressure on in Greece, the Financial Times reported. Having approved “in principle” a largely symbolic cash injection for the country, the IMF is pressuring its eurozone partners to provide more realistic budget targets and ambitious debt relief as its price for involvement in the Greek bailout. Late on Thursday, the IMF’s executive board voted to give a precautionary green light to a “standby arrangement” for Greece.

TPI Triunfo Participações & Investimentos SA and a pool of about 20 banks have agreed on terms to restructure 2.113 billion real ($672.6 million) of debt, giving the Brazilian infrastructure firm a lifeline to finalise projects and downsize gradually, the International New York Times reported on a Reuters story.

China’s bond market may have had a tricky year, with rising borrowing costs and a downturn in new issuance. But there’s one apparent bright spot—fewer bonds are going bad. The number of defaults on Chinese corporate bonds dropped to just 23 in the first half of the year, on debt worth a combined 18.7 billion yuan ($2.8 billion)—a drop in the ocean in a $4.9 trillion market, The Wall Street Journal reported. That’s down from 38 bonds worth 23.7 billion yuan in the first half of 2016, according to data provider WIND Info.

In a related story, Bloomberg News reported that China’s deleveraging campaign is taking on its toughest target yet: the public sector itself. While up to now policy makers have focused on a build-up of liabilities at smaller banks and big private-sector companies, President Xi Jinping has made clear that local government authorities and China’s behemoth state-owned enterprises too must restrain borrowing. Xi’s comments at a top financial-regulatory gathering last weekend were the latest signal of determination to head off any future destructive debt-bubble deflation.

With the French presidential contest out of the way, market concerns around political risk in Europe have dissipated, the Financial Times reported. Enjoying the best macroeconomic environment since the crisis, Europe may be at the onset of a few golden years. But the global financial crisis left a legacy of high debts and bad loans clogging bank balance sheets in several countries, among which Italy is the largest. These problems risk spoiling the party when interest rates normalise. Restoring bank balance sheets to good health would enormously reduce downside risks.