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Latin America: Investors Newsletter 31 August 2012


Analysis: Spanish cloud may mean discount for Santander Mexico listing
Mexico Pension funds hungry for Santander unit offering
Colombia Considering Move From Brazil’s to Mexico’s IMF Group
Delta Repair Center With Aeromexico to Boost Aerospace Hub in Queretaro

Fitch says Brazil’s infrastructure plan as execution risk
SEC Charges Brokers for Defrauding Brazilian Public Pension Funds
Will increased stimulus for Brazilian transport infrastructure be sufficient?
Brazil’s BES Investment Bank Focuses on Infrastructure
Canadian pension funds cautious on Brazilian infrastructure plan

Latin America

Colombia Brags of Overtaking Argentina as Echeverry Eyes IMF Job
Colombia-led Group to Build $396 Million Peru Highway
Ferrovial sells BAA stake to fund Latin America push
Is Venezuela about to open up to foreign oil investment?
Investment insights from a Peruvian beach
YPF chief promises to protect foreign oil companies’ profits if they invest in Argentina

See also LIQ Latin America Infrastructure ALI Alternative Latin Investor  or MercoPress more information about Latin America

Filed under: Argentina, Brazil, Chile, Colombia, Latin America, Mexico, News, Peru, Venezuela, , , , , , , , , , , , , , ,

Latin America: Investors Newsletter 15 June 2012

Petrobras Is Worst Big Oil Investment on Deepwater Disappointments: Energy   Petroleo Brasileiro SA is the worst investment among the world’s biggest oil companies this year as Brazil’s state-controlled producer suffers delays and cost overruns developing the largest oil finds in more than a decade.

Iusacell, Telefonica to challenge Mexico’s Slim America Movil  – Iusacell and Spain’s Telefonica said on Wednesday they have reached a deal to share their infrastructure in Mexico as they seek to mount a

FX swings may stir debt investors in Mexico, Peru  Mexico, Peru debt mkts most vulnerable to outflows in Latam. * Peru acting to curb FX, Mexico avoiding intervention.

Mexico’s Slim family (Grupo Carso) takes stake in Argentina YPF nationalized enegy company Mexican tycoon Carlos Slim and his family have taken a stake in Argentina’s recently renationalized energy company YPF in lieu of a loan guarantee, ..

Filed under: Argentina, Brazil, Energy & Environment, Latin America, Mexico, News, Risk Management, Venezuela, , , , , , , , , , , , , , , , , , , , , , ,

Mexico: The bad news is finally out – December 2009 IXE Banif Market Analysis

Fitch has finally downgraded Mexican debt. However, as always, there is good news with the bad, for they say that the outlook is now stable. In addition, Congress has finally approved the tax increase, which should result in an improvement in government revenues, although the decision was not sufficient to avoid the downgrade. S&P has still to give its verdict on the country’s outlook. Expectations are that they will avoid downgrade and, as Fitch did, maintain a stable outlook, but with a higher notch.”

Mexico – Monthly Allocation – December 2009

The economic outlook seems to be improving. Although still negative, indicators are above expectations. GDP dropped 6.2% in 3Q09, which compares to the market’s estimated drop of 6.8%. For 2010, investors expect a turn around, estimating a 3.1% growth. Much still remains based on an improvement in the USA. Approximately 27% of the country’s economy depends on its neighbor.

Inflation watched closely

Inflation has not been a concern up to now, continuing below the 4% level. However, expectations are that the beginning of the year will show it moving above this level, increasing concerns that the Central Bank will start moving basic rates up. Expectations are that the beginning of an upward trend in rates will only start in September 2010. Investors will be on the lookout for the Mexican’s Central Bank estimate, scheduled for release during the first week of December.

Other data investors are going to be paying a lot of attention to during the next couple of weeks are on the US, especially Black Friday sales that will give an indication of how good (or bad) Christmas sales will probably be. An improvement should indicate an increase in remittances to Mexico, improving the Mexican economy.

No real concern with the change to Central Bank

The change in the President of the Central Bank is no real concern. Although doing a good job, the leaving President was eternally in dispute with President Calderon. Replacing him is Mr. Carstens, who is the Secretary of Finance, and who has good international exposure. The question that arises is who is going to replace him as Finance Secretary.

December is the month with the highest sales, due to Christmas. Thus, we are basing our portfolio on the stocks of companies that will benefit from this. We are not recommending any shorts this month.

Outperforming the IPyC – Recommended BUY Portfolio (“LONG”)

Stock – Catalysts/Fundamentals

AMXL – excellent results from the launching of promotions for post paid subscribers

AXTEL – possible change in foreign shareholder legislation

CEMEX – should successfully place convertible bonds

FEMSAUBD – reducing due to uncertainties coming from rumors

GAP – December traffic should be positive

GEOB – trading at attractive valuations

GMEXICOB – defensive play on copper price increases

ICA – expectations that it will win the tenders for more public projects

Peñoles – precious metal price seasonal increase

Simec – better outlook on USA auto sales in 2010

Televisa – looking for a JV to participate in wireless spectrum auctions

URBI – should do well on Moody’s and S&P’s upgrade and on attractive valulations

WALMEXV – strongest month for retailers with 4Q representing 30% of sales.

Source: IXE Banif, 01.12.2009

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, , , , , , , , , , , , ,

Mexico: Up on rating maintenance – November 2009 IXE-Banif Market Analysis

The Mexican economy seems to be finally leaving behind the negative catalysts that were driving it. Growths shown during the last quarter are mostly spectacular, although it is important to say that this is partially a consequence of the easy comparisons generated by the weak performance of the past. Still, numbers show a recovery and expectations are that the current quarter will be even stronger. Mexico – Monthly Allocation – November 2009

One of the main downward drivers of the Mexican stock market was the expectation that rating agencies would downgrade the country on the back of the strong decrease in public revenues. The increase in taxes, still waiting approval, should solve this issue satisfactorily, although not being the most appropriate solution considering domestic economic activity. Increasing taxes is never a popular measure, but to maintain ratings unaltered this sacrifice is valid. Thus, as the Mexican market strongly lags the Brazilian, we expect that the approval of the tax reform and consequent maintenance of the country’s rating should result in an upward movement for the Mexican Stock Exchange BMV.

The main problem in the short-term seems to be inflation. Although it has remained at a low level, and in the range established as acceptable by the Central bank, with the freezing of gasoline prices and the reduction of other energy prices, the increase in taxes will likely signify an increase from the current low level of inflation. However, the Central Bank has show clear signs that it will not worry about this for the time being and that its main concern is the reactivation of economic activity.

US economy driver of the markets
The 3Q09 GDP of the USA came in as an extremely positive surprise at 3.5%, above the market consensus of a 3.2% growth and just after some respected economists had alerted investors to the possibility of it being even lower. The trend of the American economy becomes more and more important to watch in determining investment opportunities in Mexico. Not only does the country’s economy base itself on supplying mainly the US, but it also depends on remittances from Mexican workers in the USA to Mexico. In September, there was a 17.56% contraction in remittance, much worse than the estimated 13%. Thus, numbers of jobs eliminated in the Mexican society is a number to follow carefully. Unemployment rate reached nearly 10%, but if we look at the Hispanic community, this number increases to above 12%.

For November, we will continue betting pretty much on the same sectors as before. That is, companies related to the domestic economy. Our preferences continue to be the homebuilding and infrastructure segments, as well as the retail sector that will probably suffer less from the imminent tax increases awaiting approval by Congress.

Outperforming the IPyC – (“LONG”)
Stock – Catalysts/Fundamentals
AMXL – diversification and growth in penetration rate leading to higher ARPU
CEMEX – Underperforming peers and trading at attractive valuations
FEMSAUBD – solid growth in Sales and EBITDA
GAP – expectations of positive numbers during the last months of the year
GEOB – beginning of operations in the USA and Brazil
GMEXICOB – reducing exposure on the delay of the decision on Asarco
ICA – important projects in 4Q09, specifically in November
Peñoles – gold and silver consumption increase in India and China
Televisa – merging cable service and forming largest operator in Mexico
URBI – trading at attractive valuations
WALMEXV – improved sales during the Christmas season and not affected by tax increase

Short suggestion for October
Megacable – valuations are expensive
SARE – poor performance leads to bankruptcy

Filed under: BMV - Mexico, Exchanges, Latin America, Mexico, News, , , , , , , , , , ,

CSRC mops up mess in China’s fund rating industry

Compulsory registration and licensing will be required for fund advisory and rating providers. But a few innocent bystanders are likely to be affected.

The China Securities Regulatory Commission (CSRC) is proposing a new set of rules that will make registration and licensing compulsory for fund advisory, commentary and rating providers. The rules are written with the aim of cleaning up the chaotic process of fund rating in China, where currently a plethora of professional and amateur fund commentators operate.

While no-one has attempted a complete count, the sheer number of fund rating and advisory providers that are known to exist in the market is overwhelming. The most widely quoted three are Galaxy, Tianxian and Morningstar. But the universe also includes commentators from a diverse background ranging from academics, professional rating agencies, investment consultants, research houses, banks and IFAs to financial media, web portals and bloggers.

Some charge a fee for their ratings, and some such as Morningstar and Lipper clearly don’t. (Morningstar and Lipper derive the bulk of their revenue from selling their fund databases, research reports and analytic tools.) Yet a common problem is the ratings and commentaries tend to be short-term oriented. In China, fund managers are ranked daily, not quarterly or even yearly as in developed markets. The ratings and rankings are closely followed by investors and hugely influential to investors’ buy-sell decisions, which contributes to the high turnover and volatility in China’s fund industry.

Howhow Zhang, an analyst at Z-Ben Advisors, says the new rules from the CSRC have been brewing for years. The key is to align fund rating agencies’ business models with investors’ interests. It is common for fund managers to ‘buy’ favourable ratings, commentary and even awards from less professional providers to boost fund sales. The hotchpotch of ratings or awards is heavily featured in fund managers and distributors’ advertisements. Short of mutually agreed arrangements, fund commentators blackmailing fund managers with poor comments is not unheard of in the industry.

In the new licensing regime, the CSRC will enforce a compulsory accreditation programme that will be used to vet applications for fund rating agency status with the Securities Association of China. Under the programme fund rating and advisory providers are expected to submit a report explaining their business model, any conflicted interests, and their criteria, methodology and process used to arrive at ratings, rankings or comments. Fund rating and advisory providers are expected to fully disclose their methodology in public before they can publish their results to end users.

The rules will ban fund managers, distributors and media from quoting fund ratings or commentary from unlicensed fund rating or advisory providers. This can include communications both in public (through marketing materials or conferences or media) or through indirect or private means (in communications with distributors, intermediaries or recommendations to investors).

In the current draft, the CSRC does not differentiate between retail and institutional providers, onshore or offshore. Services provided by institutional investment consultants for offshore investments in China such as Mercer and Watson Wyatt, and even AsianInvestor‘s China awards, can be read to fall into the CSRC’s bracket as providers that recommend managers and succumb to compulsory registration. (Both Mercer and Watson Wyatt’s consultants say they are checking with their general counsels on their exact status as this story goes to press.)

Furthermore, the regulator intends to ban: comparisons between funds under categories; categories that are made up of less than 10 funds; ratings for funds that have been operating for less than 36 months; ratings for funds that are yet to be fully invested; ratings based on a performance period of less than 36 months; fund ratings that are updated more often than on a quarterly basis; performance rankings for an investment period of less than three months; and rankings that are updated more frequently than a monthly basis.

Huang Xiaoping, head of research at Morningstar China, applauds the CSRC’s move saying it will help correct the short-term mentality among investors that has long plagued the Chinese funds industry. But the benefits will depend on how the rules are executed.

Both Huang and Xav Feng, head of research for China and Taiwan at Lipper, believe the biggest difficulty in meeting the CSRC’s rules will be how to follow the requirements in fund categorisation and rating periods.

Because of the industry’s young age, when Morningstar and Lipper entered China they adjusted their ranking periods downward to one-year, two-year and five-year periods, instead of the usually longer time-frame they use in developed markets. (Huang received but turned down requests to produce daily or monthly rankings as requested by local users.)

Feng believes, given the young age of the Chinese fund industry, if the requirement of 36 months is strictly enforced, some 50% of funds in China could fall off rating agencies’ radars. In newer fund categories, such as QDII funds for example, fund rating agencies may stop rating such funds altogether. This could defeat the purpose of helping investors make informed decisions in choosing fund managers.

Huang and Feng expect after the rules come into force, they will first fall back to meet Morningstar and Lipper’s global methodologies, then perform tweaking and local adjustments to meet China’s regulatory and market needs. The move to harmonise the periods used in China with global standards would have been a step they would take when the industry further matures.

Meanwhile, the agencies also say they have unique problems in putting funds in clear categories. The problem has come from Chinese fund managers’ unique flexibility in adjusting asset allocation and loose limitations on cash holdings compared to foreign counterparts. This result in a scene that an equity fund is rarely a truly equity fund and bond funds can come with large equity holdings.

In this market, fund classification and risk profile can be expected to change over time. At Lipper, for example, Feng says he had to reclassify some 100 funds in a fund universe that currently hosts 500+ funds in China.

As seen in the financial crisis, an equity fund manager can be seen holding up to a quarter cash as he takes profit or ‘park’ his money as investor sentiments shift. In bull market days, bond fund managers can rely on chasing IPOs from their convertible bonds to push up rankings. Now the CSRC is advising fund rating agencies to stick to what the fund brochure says they are upon launching when classifying the funds.

On the other hand, while the rules help instil order in the chaotic retail fund universe, the rules can be problematic when applied to institutional use of fund rating agencies’ databases. Institutional investors such as insurance companies, pension funds or bank proprietary desks will need to monitor their outsourced portfolios or fund holdings more often than a quarterly basis. Without fund rating agencies’ advisory services, either fund managers with lesser track records will get discriminated against or investors will have to rely solely on their own due diligence.

Overall, most agree the rules are written with good intention. But judging from how wide the bracket can go, they will need more tweaking. The CSRC is open to public consultation until August 28. 17.08.2009 by Liz Mark

Filed under: Asia, China, Exchanges, News, Risk Management, , , , , , , , ,

VAM: Vietnam Monthly Market Analysis July 2009

Market Update – This month the Prime Minister announced a downward revision in the full year credit growth target from 30% to 25%, which would infer a significant contraction from 1H09 when credit growth surpassed 17%, in a strong sign that the Government will be proactive in combating inflationary pressures.
A 4th straight month of monthly price increases combined with rising commodity prices and strong 1H credit growth brings the spectre of inflation back to Vietnam, however, on an average basis it is still improving down to 3.31% YoY. The trade deficit through the first 7 months is estimated at $3.38bn, much lower than 2008 levels but picking up especially when considering that through 1Q09 Vietnam was in surplus.
Combining the above mentioned potential early warning signs with a Fitch Ratings Dong downgrade from BB to BB- at the beginning of July has led to some renewed USD hoarding behaviour putting some mild pressure on the Dong this month. The black market rate is VND18,530/$1, a record high since March 28, 2009, while in the official market rates are largely unchanged at VND17,810/$1.  However, the State Bank of Vietnam assured (while not giving a specific number) that in the final week of July they released a flood of US dollar liquidity to banks with shortages in an effort to assuage concerns.

The VN-Index had a largely down and up month in July, finishing at 466.76 or up 4.1%.  Some of the above mentioned macro indicators combined with a Government crackdown of improper use of subsidized loans entering into equities were likely responsible for the market bottoming out the month at 412.88 on 20th July, but continued strong performance in global markets combined with ongoing strong earnings reports led to a strong rally in the last week and half of the month.

By end July, first half 2009 results had come out for most listed and large OTC companies. Overall, it is a good earnings season with most companies reporting very encouraging numbers, many even beat investors expectations by a long mile.  Sectors which have done particularly well are those that serve the domestic market and therefore benefited from Vietnams improving economic environment in 1H09. These include Staples Consumers, Utilities, Property, Construction Materials and Auto Components. Companies in these sectors have generally achieved 60% or more of their FY09 profit target in just the first 6 months, with some even fulfilling more than 100%.

Banks have also done very well, with average year-on-year income growth of about 10% despite a narrower interest spread compared to last year. Both deposit growth and credit growth are now at 20-30% year-to-date. Pharmaceuticals companies having benefited from lower material costs finally managed to expand their margin and achieving full year profit target appears very likely. Companies in Energy sector performed in line with their own profit target; however, we would probably see a margin squeeze in 2H09 for drilling service providers as the current rates are 30% lower than those in 1H09. Companies experiencing poor performance in 1H09 were mainly in Aqua-product Exporting, Marine Transportation and Rubber sectors. We would not expect remarkable earnings improvement for these sectors in 2H09.
Download full market analysis VAM Newsletter  July 09
Source: Vietnam Asset Management, 10.08.2009

Filed under: Asia, Exchanges, News, Services, Vietnam, , , , , , ,

Rapid loan growth puts Chinese banks at Risk

Aggressive loan growth could significantly stretch the banks’ newly developed risk management systems, and the quality of new loans is expected to be inferior to the quality of those written a year ago, S&P analysts say.

Loan growth among Chinese banks hit more than Rmb7.76 trillion ($1.13 trillion) in the first half of 2009, a record high. As a result, asset quality is likely to slip further in 2009, but should remain highly manageable. It could deteriorate sharply in the next two to three years, however, if the economic slowdown is protracted in China.

Chinese banks seem to be lending so aggressively despite the economic slowdown for three key reasons.

First, the strong growth suggests that the banks’ corporate governance is still relatively weak and that the government continues to exert strong influence over banking practices as a dominant shareholder.

Second, the banks appear willing to extend additional funding to borrowers facing cash-flow difficulties on the premise that such difficulties are short-term in nature and should correct themselves when China’s growth recovers.

And third, they may be looking to compensate for the negative effects on earnings from the squeeze in net interest margins.

We expect the quality of new loans to be on average inferior to the banks’ loan book a year ago. That’s because the banks are either expanding into an enlarged but inferior client base or making incremental loans to existing clients with deteriorated financial metrics. Some new borrowers had no or limited access to bank credit in the past because they didn’t meet previous underwriting standards. But banks are likely to have eased their underwriting standards for projects related to the government’s stimulus package, as the government relaxed the capital leverage requirement for many types of projects. Loan quality should, however, be adequate for infrastructure projects that the central government or affluent provincial governments have backed; but these loans perhaps represent only a fraction of total new lending.

While further slippage in bad loans in 2009 and 2010 is likely in our view, it should be at a manageable pace. This is due to the very supportive liquidity environment for corporations as a result of strong loan growth, the limited exposure of major banks to severely hit small businesses in the export sector, and signs of economic recovery, particularly at home. A jump in the non-performing loan ratio is still very likely, as the dilutive effect gradually wanes and banks eventually stop renewing loans.

Barring a protracted slowdown in the Chinese economy, we anticipate the system will on average be able absorb incremental credit costs, given still healthy official interest spreads and banks’ improving capacity to generate fee-based income. For banks that are aggressively increasing their exposure in concentrated segments or regions, we expect potential credit losses to significantly weigh down their already below-average earnings profile. This is likely to lead to further divergence in credit profiles across the sector.

The aggressive loan growth in the first six months of this year could significantly stretch Chinese banks’ newly developed risk management systems and undermine their underdeveloped risk culture. Inflationary pressure may be the single-largest macroeconomic risk that the banks face. Historically in China, inflation often followed when loan growth ran above 20% (it was about 30% year-over-year at the end of June 2009). We’ll have to wait to see if this time will be an exception as the global economic slowdown continues to weigh on overall pricing levels. If the inflation pressure becomes so acute that the government resorts to a policy u-turn and increases lending restrictions, the heightened policy risks could exacerbate the difficulties for borrowers and banks.

The government’s role and commitment to reforms

The government remains highly influential with regard to lending policy at the banks, in our view. It has encouraged banks to make loans to prevent the economy from making a hard landing. But some government agencies, particularly the China Banking Regulatory Commission, have continually warned against excessive lending. Recently, the government seems to be fine-tuning its policy to favour a greater check on bank loan growth. The central government appears to have a delicate balancing act. It’s trying to use bank credit as a lever to maintain economic growth while preserving the banking system’s fundamental strengths. This reflects an inherent conflict between the government’s different roles as the country’s policymaker, banking regulator and major shareholder.

There are still strong incentives for the government to press ahead with banking reforms. The aggressive response to the government’s call for greater lending indicates that the banks do not yet have a sound risk culture and effective corporate governance in place. Given the experience in some markets, Chinese policymakers are likely to take a cautious approach to deregulating relatively risky activities and products. They’re also likely to slow down some reforms, such as those regarding compensation schemes. Some recent initiatives, such as those related to the development of the debt market and renminbi convertibility, indicate the government’s intention to proceed with market-oriented banking reforms.

Ratings impact on Chinese banks

We believe the major rated banks have sufficient financial strength to weather the economic slowdown. Although we see growing pressure from credit risks, policy risks and other risks for the banking sector, these are still within our expectation. We have long factored the significant volatility in Chinese banks’ financial metrics into the ratings on banks. If we are convinced that any bank has been performing better than we originally expected due to its own structural strengths, we would acknowledge these strengths against the context of a less-supportive operating environment.

Ratings On Chinese Banks
Banks Issuer Credit Rating
Industrial and Commercial Bank of China Ltd. A-/Positive/A-2
China Construction Bank Corp. A-/Stable/A-2
Bank of China Ltd. A-/Stable/A-2
Bank of Communications Co. Ltd. BBB+/Stable/
China Merchants Bank Co. Ltd. BBB-/Stable/A-3
CITIC Group BBB-/Watch Pos/A-3
Agricultural Development Bank of China A+/Stable/A-1+
China Development Bank A+/Stable/A-1+
Export-Import Bank of China A+/Stable/A-1+
Note: Ratings as of July 20, 2009.

The authors of this article, Qiang Liao and Ryan Tsang, are senior analysts in the financial institutions ratings team at Standard & Poor’s Ratings Services., 23.07.2009

Filed under: Asia, Banking, China, News, Risk Management, Services, , , , , , , , , , , ,

Asia calls for own Rating Agency

Asia needs to establish an Asian-owned and managed rating agency as years of Western domination of finance has created an inherent systemic bias impeding the progress of Asian banks.

CIMB group chief executive Datuk Seri Nazir Razak said this was necessary, especially since Asia was the main supplier of investment funds.

“It seems that even when Asians look at one another, we tend to use Western spectacles. The clearest evidence is our reliance on global credit rating agencies,” he said in his keynote address at the Third Euromoney Thailand Investment Forum in Bangkok, Thailand, yesterday.

Nazir said he could not understand the basis of China, the world’s biggest lender, being accredited “A1” by Moody’s compared with “AAA” for the UK and “AA2” for Italy.

“Fitch is no different: China at ‘A+’, UK at ‘AAA’ and Italy ‘AA-‘. The story is not too different for bank ratings: Asia’s lowly leveraged banks versus US and European banks with ‘intoxicated’ balance sheets.”.

Nazir said ratings affected how banks allocated capital and influenced the level of transactions conducted between banks, adding that sovereign ratings also defined the ceiling for national bank and corporate ratings, amplifying ramifications of the problem.

“As if that isn’t enough, the introduction of Basel II would compound the problem as loans would also be subjected to ratings, trapping the entire credit system in this biased web.”

He also said that the current crisis, which started in the US, provided a unique window of opportunity for Asian banks to decisively alter the share of global banking in their favour.

“Once Asians have a greater share of global finance, I think that we will also see a more balanced and equitable world where Western perspectives give way to global perspectives, where a new financial architecture is designed without prejudices and where intra-Asian trade and investment flows grow exponentially.”

Source:, Busines Times Malaysia 11.06.2009

Filed under: Asia, China, Data Vendor, India, Malaysia, News, Risk Management, Thailand, , , , , , , ,

The Carbon Rating Agency Publishes the First Risk Assessment of a Programme of Activities

Programmatic CDM is one of the most important developments in the CDM world and is attracting the interests of the most farsighted players in this space.  It is being recognised as the natural bridge between the first and the second commitment period, and it has great potential to enable the move from measuring tons to constructively affecting the emission trends of developing countries. However, there has been a very slow uptake due to regulatory and design issues.

Better understanding of the challenges inherent in programmatic CDM (pCDM) development is crucial to promote the uptake of the small scale projects under this very promising category.

The Carbon Rating Agency (CRA) has developed a unique risk assessment methodology to evaluate pCDM, which combines a bottom-up analysis of project activities with the specific considerations applicable for specific pCDM risks. The CRA’s pCDM evaluation process provides a comprehensive risk assessment enabling the project participants to understand both the registration risk of the PoA as well as the performance risks of the first and subsequent CPAs.

CRA is leading the way in setting the analytical framework for government and private sector participants to manage a successful pCDM capability, by developing rigorous risk assessment tools that can assist developing economies to be at the forefront of the imminent market needs.

CRA relies on its experienced team of senior advisors including Christiana Figueres (Vice Chair of the Carbon Rating Agency). She has been instrumental in developing the thinking on pCDM for several years, and remains involved in its implementation. Having joined the company in early 2008, Christiana has provided crucial insights for the development of the pCDM evaluation methodology.

CUIDEMOS Mexico CFL programme of activities

The first PoA assessed under the CRA Programmatic evaluation tool was the CFL distribution Programme CUIDEMOS Mexico. The rating provides an overview of the PoA structure and presents its main challenges.

The evaluation considers the risks related to the distribution plan, the incentives presented to the distribution partners and the target population, the coordination of the educational campaigns to promote the exchange of light bulbs and the verification process for CFL installation.

The financial feasibility of the PoA is evaluated in light of current CER prices and the variations in the exchange rate (US$/€) resultant from the financial crisis. Modelling of the possible price scenarios provide a revised approach of the expected PoA returns.

The Mexican CFL rating report has already been recognised as a useful instrument by developers engaged in pCDM:

“The pCDM Rating is a useful instrument to enhance investor’s confidence in pCDM. It contributes to better understanding of how PoAs are structured and what kind of support is needed for the expansion of such activities.”

Phil Cohn Cool Nrg International

It also received the support from other market participants: “The CRA analysis is crucial to understand how the program is intended to work and helps the reader to build an opinion on the risks associated with the program. I can only encourage the CRA to keep on with their analytical effort in this domain.”

Dr.Klaus Oppermann  KfW Bankengruppe

The Carbon Rating Agency is already engaged in evaluating PoAs in Asia and Africa. As the pCDM market develops, CRA envisages an increased need for an independent overview of all the risks perceived in such emerging mechanisms. CRA initiative of developing a specific tool for pCDM evaluation will assist companies getting involved in next generation emission reductions and enhance credibility in this market.

For a sample of the Mexican CFL report, please contact the Carbon Rating Agency:

Source: MondoVisione, 27.05.2009

Filed under: Asia, Energy & Environment, Latin America, Mexico, News, Risk Management, , , , , , , , , , ,

Fitch expresses concern about China’s loan cascade

The ratings agency points to early warning signs that indicate asset quality is deteriorating.

This year, China’s banks have opened the floodgates of credit: between January and the end of April, $757 billion worth of new loans were dished out, equivalent to 17% of the GDP in 2008. As such, China’s banks are enjoying a rate of growth that their Western peers would kill for. The increase in lending is the government’s doing, since it has given banks the task of financing the infrastructure spending that forms a large part of China’s stimulus package. Read original article.

Looking to the medium- to long-term, however, analysts are beginning to air concerns about what effect such a rapid increase in lending could have on the quality of the banks’ loan portfolios.

A report released yesterday by Fitch Ratings highlights issues with the banking sector’s $4.2 trillion corporate loan portfolio. The worry arises from the fact that China’s banks are increasing their corporate exposure at a time when corporate profits are declining.

“Ordinarily, falling corporate earnings are met with tightened lending, but in China precisely the reverse is happening,” said the report. This illustrates that “despite years of reform Chinese banks still retain an important policy function in upholding local enterprises”.

Infrastructure spending is not the only thing underlying the loan growth, according to the report. All the banks set a profit growth target. Since interest rates are down, the only way that banks can possibly meet their targets is by focusing purely on volumes. In the process of increasing the number of loans, it is more likely that money will be lent to commercially unviable projects. However, the banks don’t see this as a problem, since there is an implicit assumption that any coming losses will be paid for by the government.

Although bank earnings have held up well so far, Fitch points to what it calls “early warning signals” that indicate asset quality could be deteriorating.

One sign is that the banks are increasing the assessment rate for how much money should be kept aside for losses against unimpaired loans, which suggests that they expect greater losses to come from the loans that are currently considered performing. The banks are also reclassifying more special mention loans, a category of weak loans just one step from being a non-performing loan (NPL), into NPLs. Finally, the foreign banks, which have better risk management systems than the local banks, saw a rise in their NPLs in the first quarter.

But the full extent of the problem of future credit losses may not come to light for some time, for several reasons, said the report. The structure of corporate debt is such that the inability of the borrower to pay will not become apparent until the principal is due, which will often be years after the loan was made. Furthermore, it is a common practice in China to roll over loans by extending the maturity, which in effect postpones the bad news and allows the loan to remain classified as adequate.

Source:, 23.05.2009 by  Daniel Inman

Filed under: Asia, Banking, China, News, Risk Management, Services, , , , , , , , , , , , , ,