Day: November 4, 2017

Wireless carriers Sprint and T-Mobile called off a potential merger, saying the companies couldn’t come to an agreement that would benefit customers and shareholders.

The two companies have been dancing around a possible merger for years, and were again in the news in recent weeks with talks of the two companies coming together after all. But in a joint statement Saturday, Sprint and T-Mobile said they are calling off merger negotiations for the foreseeable future.

“The prospect of combining with Sprint has been compelling for a variety of reasons, including the potential to create significant benefits for consumers and value for shareholders. However, we have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile’s shareholders compared to our outstanding stand-alone performance and track record,” said John Legere, president and CEO of T-Mobile US, in a prepared statement.

T-Mobile and Sprint are the U.S.’ third- and fourth-largest wireless carriers, respectively, but they are significantly smaller than AT&T and Verizon, who effectively have a duopoly over U.S. wireless service. The two companies have said they hoped to find a way of merging to make the wireless market more competitive.

Sprint and its owner, the Japanese conglomerate SoftBank, have long been looking for a deal as the company has struggled to compete on its own. But Washington regulators have frowned on a possible merger. D.C. spiked AT&T’s offer to buy T-Mobile in 2011 and signaled in 2014 they would have been against Sprint doing the same thing. But with the new Trump administration, it was thought regulators might be more relaxed about a merger.

Sprint has a lot of debt and has posted a string of annual losses. The company has cut costs and made itself more attractive to customers, BTIG Research analyst Walter Piecyk says, but it hasn’t invested enough in its network and doesn’t have enough airwave rights for quality service in rural areas.

T-Mobile, meanwhile, has been on a yearslong streak adding customers. After the government nixed AT&T’s attempt to buy it in 2011, T-Mobile led the way in many consumer-friendly changes, such as ditching two-year contracts and bringing back unlimited data plans. Consumers are paying less for cellphone service, thanks to T-Mobile’s influence on the industry and the resultant price wars.

“T-Mobile does not need a merger with Sprint to succeed, but Sprint might need one to survive,” Piecyk wrote in an October research note.
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U.S. President Donald Trump urged Saudi Arabia Saturday to list its state-owned oil company on the New York Stock Exchange when the company goes public in what is expected to be the largest-ever initial public offering in which shares of a company are sold to investors.

“Would very much appreciate Saudi Arabia doing their IPO of Aramco with the New York Stock Exchange. Important to the United States!,” Trump tweeted from Hawaii, his first stop ahead of a 13-day trip to Asia.

Saudi officials have reportedly said the government intends to list 5 percent of  the company’s shares on local and global stock exchanges in 2018 but have yet to select an overseas venue. Saudi officials have estimated the IPO will be worth about $100 billion.

The NYSE has had discussions with the Saudis about the upcoming IPO as has the London Stock Exchange. Exchanges in Hong Kong, Singapore, Tokyo, Toronto and the U.S. are also soliciting portions of the public offering.

New York-based NASDAQ, which provides technology to Saudi Arabia’s exchange, has been leveraging that relationship in an attempt to win the listing.

Trump has developed a close relationship with Saudi Arabia. During his visit there last summer, he signed a $110 billion defense agreement with Saudi King Salman.

At a $2 trillion valuation Saudi officials have projected for Aramco, selling five-percent of the company’s shares would reap $100 billion.

The public offering of shares of Aramco, the world’s largest oil producer, is part of Saudi government plans to sell state assets as a recession slows Riyadh’s effort to eliminate a budget deficit caused by low oil prices.

 
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The recent flurry of social and economic reform coming out of Saudi Arabia has left some Saudis ecstatic, others more circumspect, and a few conservatives bewildered or even angry.

Saudi Crown Prince Mohammed Bin Salman told a crowd of investors at a conference in late October that he was merely attempting to “return Saudi Arabia to the moderate Islam that once prevailed” before the Iranian Revolution in 1979. He stressed that 70 percent of Saudis are younger than 30 and vowed “not to spend another 30 years of our lives living under extremist ideas.”

The young crown prince also proposed an ambitious plan for a new economic zone on the Red Sea near Jordan and Egypt. In April, he put forward an economic road map for the kingdom, called Vision 2030. Part of the plan calls for privatizing 5 percent of the country’s flagship petroleum company Aramco, in addition to attracting foreign investment capital.

​Too much change too fast

Clarence Rodriguez, who spent 12 years as a French foreign correspondent in Riyadh and recently wrote a book called Saudi Arabia 3.0 on the aspirations of Saudi women and young people, tells VOA that she believes Saudi Arabia “is in crisis, due to the drop in the price of petroleum,” and that it has found itself under pressure to “diversify its economy, which necessitates societal reform involving women and young people, as well.”

Rodriguez points out that the late King Abdallah, who died in 2015, started the reform movement by allowing Saudi women to run for the country’s consultative “Shoura” council and to enter the work force, becoming lawyers, bankers and salespeople.

She worries, however, that some recent moves to change the status of women have angered parts of the kingdom’s mostly conservative population. Traditionalists, she says, are “not used to such quick change” and many “are afraid, because things are moving too fast for them.”

On a recent talk show on an Arabic-language news channel, a conservative Saudi caller told the show’s host that he thinks Saudi King Salman and Crown Prince Mohammed Bin Salman are “violating (Islamic) sharia law” with some of their recent reforms “and should go to jail.”

Saudi commentator Jamal Kashoggi tells VOA that he’s “not optimistic about the reforms,” but that he would “still like to be optimistic … since everyone will suffer if they fail.” Kashoggi worries that the reforms are “not engaging Saudi society, enough.” 

“We wish Mohammed Bin Salman well, and we need economic (and social) reform,” he said, “but, we also need to discuss (these issues). The change,” he said, “is being done in very narrow circles. (Ordinary) people are not feeling engaged.” 

Was Saudi society more moderate?

Hilal Khashan, who teaches political science at the American University of Beirut, is not convinced that Saudi society was more moderate before the Iranian Revolution in 1979. He thinks that parts of Saudi society have always had a conservative streak to them, pointing out that Wahabi conservatives killed many moderate Muslims, including the Shafa’i mufti of Mecca when they overran the city and the nearby resort city of Ta’ef in 1924.

A handful of prominent Saudi conservative clerics have been arrested since Mohammed Bin Salman replaced his cousin, Mohammed Bin Nayef, as crown prince, in June. 

“By weakening the clerical establishment and making clerics simple government workers,” Khashan said, “(Mohammed Bin Salman) will be able to give women more rights, as he is proposing.” Saudi women were allowed to drive, starting in September, and this week were given permission to attend sports matches with their families.

Khashan believes that economic considerations are a key factor in the decision to allow Saudi women to drive. 

“If 10 million women are given the right to drive in Saudi Arabia,” he said, “and if just a fraction of those women buy cars, take driving lessons or buy insurance, that would contribute to stimulating Saudi Arabia’s stagnant economy.” Allowing women to drive will also curtail the expensive practice of hiring foreign chauffeurs to drive women around.

Both Kashoggi and Khashan believe that the Saudi government will eventually prevail in its efforts to reform society. 

“Conservatives,” Kashoggi said, “have already lashed out. They’ve been lashing out since 2003. Al-Qaida, or ISIS, or the radical Wahabis … these are the extremists in Saudi Arabia … and they don’t want change. They have resisted, and will continue to resist. … The only thing stopping them is (government) security.”

Clashes with clerics

Khashan points out that in clashes with conservative clerics back in the 1960s, after King Faisal opened a school for girls in Riyadh, and when the king opened the first TV station in Riyadh in 1965, the government prevailed. 

“Whenever the state clashes with the (conservative) clerical establishment, the state emerges victorious,” he said, “and there’s no reason to believe that things will not be the same, this time.”

Jordanian analyst Shehab Makahleh is less certain about who will come out on top, however. 

“There is a kind of opposition among royal family members who are not happy (about the reforms),” he said, “and they have had a number of meetings to clarify where the country is heading in the coming five to 10 years.”

Makahleh believes that King Salman may soon abdicate in favor of Mohammed Bin Salman “in order to gain more support from the international community” for his ambitious reform program and to promote a more secular model of society.
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For Yu Kaiguang, harsh new United Nations sanctions on North Korea are a disaster.

The trader in the Chinese border city of Dandong has seen business all but dry up, and he spends his days scrambling to obtain payment from the suddenly broke North Korean state companies to whom he sold on credit.

“They have no money to pay us in cash, and the worst is that because of sanctions they can’t settle the bill with goods such as coal, as they did in the past,” said Yu, reached by telephone at the offices of his Dandong Gaoli Trading Company.

Yu said he’s owed about $1 million in all for deliveries of toothpaste, instant noodles and other household items. He’s trying to avoid laying off staff by continuing to export foodstuffs such as pine nuts and red beans. “If they become unemployed, it would be bad for both the state and society.”

​Common problem for traders

Yu’s plight appears increasingly commonplace across Dandong, where the bulk of the cross-border trade is handled. Interviews with four trading companies and recent media reports indicate Chinese companies are hurting in a city where North Korean trucks used to rumble across the Yalu River bridge several times a week delivering metal scrap and returning with everything from televisions to toilet bowls.

The owner of another firm, Dandong Baoquan Commerce and Trade Co., which used to import iron ore and coal and export basic consumer goods, said he was owed around $200,000 by his North Korea clients.

“I had to lay off about 10 staffers, but I had no other choice because it was the government policy,” Han Lixin said, referring to the sanctions. “I’m still in business hoping to trade with other countries, but it takes a lot of time and efforts to develop customers.”

Large-scale trade involving North Korean resources such as iron ore and coal has been banned entirely under the sanctions, dealing a big blow to Dandong’s port, whose operator defaulted on a $150 million corporate bond this week in part because of cratering revenues.

Both economies hurting

“The sanctions have a broad effect, and both the economies of North Korea and China are suffering a lot,” said Jin Qiangyi, professor at the Institute of Northeast Asia Studies at Yanbian University in Northeast China. “Chinese companies doing business with North Korea may see quite a lot of losses, and the companies that have already invested in North Korea will suffer more.”

Dealing with North Korean companies was never easy. Wang Chengpeng, former manager of Dandong Hongwei Trading Company, quit doing business with the North entirely because of hassles, restrictions and low-profit margins, even before the latest sanctions began to bite.

Despite that, China has long been the North’s biggest economic partner. Beijing accounted for more than 90 percent of its neighbor’s foreign trade of about $6.5 billion in 2016, according to the South Korean-owned Korea Trade Investment Promotion Agency. China continues to be a key source of food and fuel aid to help keep North Korea’s weak economy from collapsing, and Chinese officials say they won’t agree to measures that could cut off basic life necessities and possibly cause Kim Jong Un’s dictatorship to topple.

Sanctions holding

China’s patience with Kim has grown increasingly thin, however, and Beijing has lent its support to increasingly tough resolutions unanimously approved by the Security Council this year that target North Korea’s economy in response to its ballistic missile launches and latest nuclear test.

China has said it sees sanctions purely as a means of inducing North Korea to return to nuclear disarmament talks and has rejected unilateral measures not approved by the Security Council, of which it is one of the five veto-wielding permanent members.

Still, despite some allegations of cheating, China appears to be seeking to enforce the sanctions that also ban exports of lead, textiles and seafood, prohibit joint ventures, and bar any country from authorizing new permits for North Korean workers, all sources of hard currency for Pyongyang.

The sanctions have also blacklisted a number of firms in the extraction and financial industries, imposed travel bans and frozen the assets of some government officials, banned the import of natural gas liquids and condensates, and capped the country’s crude oil imports.

It’s hard to gauge the exact impact of sanctions on the North Korean economy because the crucial food and energy sectors are less likely to be hurt by external conditions, said Lee Seok-ki, a senior researcher at the South Korean government-run Korea Institute for Industrial Economics and Trade.

However, while the North’s economy has been expanding, by 3.9 percent in 2016, according to an estimate by the Bank of Korea in South Korea, that rate almost certainly can’t be sustained if sanctions continue, Lee said.

China for its part is watching North Korea to see how its ally will respond to the new measures, eager for signs of a shift in tactics by Kim and an improvement in relations between Beijing and Pyongyang that have “sunk into a standstill,” as Jin puts it.
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A solid rebound for the job market in October as the U.S. economy added 261,000 jobs. Job gains were strong across the board, and the unemployment rate fell to 4.1 percent, its lowest level in 17 years. But, as Mil Arcega reports, American workers are not seeing any real growth in their wages.
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Venezuelan President Nicolas Maduro has announced that the country and state oil company PDVSA will restructure its burgeoning foreign debt, even as he vowed to make a payment of more than $1 billion that came due on Thursday.

The announcement did not put Venezuela or PDVSA into default, but suggests that Maduro’s cash-strapped government may be preparing to do so as heavy debt payments aggravate the country’s crippling economic crisis.

Why is Venezuela so heavily indebted?

Even though the OPEC nation was flush with cash during a decade-long oil boom, Venezuela’s ruling Socialist Party borrowed heavily during the era of late president Hugo Chavez to finance generous social programs that made him popular. The country also dismantled mechanisms meant to ensure Venezuela saved money when oil prices were high, leaving it without sufficient hard currency reserves to import basic goods such as food and medicine after prices crashed in 2014. Hunger and preventable diseases are as a result taking a growing toll on the population of 30 million.

Why can’t Venezuela refinance its debt?

The most common refinancing mechanisms are effectively blocked by U.S. sanctions levied this year, in response to accusations that Maduro was undermining democracy, which prevent U.S. banks from acquiring newly issued Venezuelan debt.

Venezuela and PDVSA cannot carry out “swap” transactions in which they exchange maturing bonds for ones that come due further down the road because financial institutions with U.S. headquarters would not be able to acquire the new debt. Investors also say bondholders would have no interest in renegotiating payment timelines without a cohesive plan to reform the country’s dysfunctional socialist economic model. Maduro has repeatedly balked at carrying out such reforms.

Who are the major holders of Venezuela and PDVSA bonds?

These securities are popular among funds that invest in emerging market bonds. Their high yields – which are close to 10 times higher than those of neighboring Colombia – help increase the overall profitability of the portfolios.

Institutional investors with big holdings include T. Rowe Price Associates Inc., Ashmore Investment Management Ltd., and BlackRock Investment Management Ltd. Goldman Sachs Group Inc came under heavy fire this year for purchasing $2.8 billion in PDVSA bonds at a steep discount, which opposition critics dubbed “hunger bonds.”

What would be the consequences for Venezuela of default?

Creditors could seek to seize assets Venezuela owns in other countries, including refineries such as those operated by PDVSA’s U.S. refining and marketing subsidiary Citgo. A default could also make it more complicated for Venezuela to import products from foreign companies.  Providers of goods such as food and medicine may reduce sales to Venezuela on concern that they will not get paid, or that they could find themselves ensnared in creditor lawsuits.

What is the role of Russia and China in financing

Venezuela?

Venezuela has borrowed heavily from both nations via oil-for-loan agreements in which it pays back in deliveries of crude and fuel. Investors believe support from Moscow and Beijing has been instrumental in allowing Venezuela to keep up with bond payments so far. Russia recently said it was willing to restructure a $3 billion loan.  But both China and Russia have shown impatience with Venezuela’s continued refusal to reform its Byzantine socialist economic regulations that are widely cited as the principal obstacle to growth.

Could multi-lateral institutions such as the International Monetary Fund and the World Bank get involved in the country’s debt restructuring?

Maybe, but substantial obstacles loom. There has been no formal contact between Venezuela and the IMF and World Bank although it does have a representative on each of their boards. Before the fund could get involved again, Maduro’s government would have to agree to an economic and financial assessment – something it has for years refused to do on the grounds that it violates sovereignty. Its current willingness to submit to such a review is unclear.

How would a default affect daily life in Venezuela?

Default would likely further pummel the country’s already bruised bolivar currency, which has depreciated 99 percent on the black market since Maduro took office. Reluctance to do business with Venezuela could make it harder to import goods.
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California Gov. Jerry Brown and lawmakers asked the U.S. government Friday for $7.4 billion to help rebuild after a cluster of fires tore through the heart of wine country, killing more than 40 people and leaving thousands without housing.

In a letter to the White House, Brown joined California’s U.S. senators and 39 members of its congressional delegation to urge President Donald Trump and Congress to quickly adopt a disaster-related appropriations measure to support the state’s recovery.

Brown said the funding would go toward cleanup and programs to support housing, transportation, agriculture, environmental protection and other services for those affected by the fires.

A series of blazes that started in Northern California the night of Oct. 8 killed at least 43 people and destroyed about 8,900 homes and other buildings. At the peak, thousands of firefighters battled 21 blazes that burned simultaneously.

Officials have not yet assessed all the damage and effects of the fires, but the governor’s office and the affected counties determined that $7.4 billion in federal funding is needed to help California recover, the letter says.

The wildfires significantly damaged farmland, rangeland and watersheds, and more than a third of the funding requested, $3.1 billion, would go toward helping agricultural industries bounce back, including affected wineries, California officials said.

“The full economic impact to the agricultural, tourism, hospitality, and wine industries is still not known,” the letter says. “Nine California wineries were destroyed and 21 were damaged in the nation’s most prominent winemaking region.”

Congress last month approved $576.5 million in aid for wildfires earlier this summer in California and the U.S. West. It also has approved billions in relief funding to help states affected by hurricanes and other weather-related disasters this year.

Trump pledged aid for California fire victims on Oct. 10, saying he had told Brown that “the federal government will stand with the people of California.”

Brown said he has asked the California Department of Finance to expedite doling out $41.5 million to support the immediate needs of victims not eligible for federal aid.

During the wildfires last month, Brown declared a state of emergency for the Northern California counties of Solano, Napa, Sonoma, Yuba, Butte, Lake, Mendocino and Nevada as well as Orange County in the south.
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