In this briefing:
- A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
- India Union Budget FY20: Electoral Compulsions Visible but Not Completely Overboard!!
- Asian Credit Monitor: Infrastructure Leasing & Financial Services – INR Bond Default
- China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
1. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
Our analysis shows that there are an unbelievable 25+ LNG developers that have stated (within the last year) they will take a final investment decision (FID) on their LNG liquefaction plants in 2019. Unless demand surprises to the upside, the expected LNG supply deficit in the mid-2020s could easily turn into a glut. In total there is almost 250 million tonnes per annum (mtpa) of capacity that plans to take FID this year – the equivalent of 80% of current global supply. In total there are ~US$180bn of contracts up for grabs – it should be a bumper year for the oil service (E&C) companies. This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .
Exxon Q4’18 conference call, “While we see a lot of high growth opportunities in LNG, capacity will come on in big chunks. It won’t be necessarily coordinated, so we’ll see, I suspect, periods of oversupply.”
2. India Union Budget FY20: Electoral Compulsions Visible but Not Completely Overboard!!
Expected Election Budget
The Indian Union Budget FY20 announced last week in the run-up to General Elections in May 2019 was without a doubt, a populist budget. It has directly touched the two key vote banks in India i.e. Middle Class and the Farmers. While a welfare announcement for farmers was expected due to significant distress in the rural hinterland, the tax sops given to the middle class was an unexpected surprise to take care of a growing disenchantment of this particular section considered to be a strong supporter of the ruling party.
Within acceptable fiscal imprudence
Despite being a populist budget with a slew of welfare handouts, the Government continued its commitment on fiscal prudence as the slippages are marginal. Even the assumptions in the budget don’t seem very aggressive albeit some of them might be difficult to achieve.
Consumption boost amid flagging economic growth
We believe that the income support scheme to the farmers and the tax sops to the middle class may eventually drive consumption and that may also benefit the government through indirect taxes. However, on the flip side these welfare schemes have come at the cost of capital expenditure that may derail the high growth that was witnessed in the manufacturing sector in recent times.
Our verdict: A one-off
The Modi government over the last four odd years has implemented and introduced a number of programs, interventions which we believe will go a long way in boosting the productivity of the Indian economy structurally. Notable ones were in health, infrastructure, financial inclusion, pension and social security. Since all these measures are more long term in nature and might not have an immediate impact on the electorate, this interim budget is a departure in a sense, aimed to enhance the government’s chance of a 2nd term. Therefore, we think this budget is a one-off event and believe that this government’s focus on productivity enhancements and structural reforms may continue going forward if re-elected. As it is, all the fiscal assumptions will be revisited in July, but the current estimates we believe are not too far off the mark.
Will the voter be enthused, that’s anybody’s guess.
We look at some of the key points in detail
3. Asian Credit Monitor: Infrastructure Leasing & Financial Services – INR Bond Default
We chose to study Infrastructure Leasing & Financial Services Ltd (ILFS)’s default case. The company is engaged in infrastructure development and financing activities in India. Since the start of June 2018, the company has defaulted on a series of payments, resulting in rating downgrades. More recently, in January 2019, ILFS’ affiliated company Jharkhand Road Projects Implementation Company failed to pay INR760m due to its lenders. This resulted in CRISIL downgrading the bonds to D, which amounts to junk status. ILFS is one of the most important companies in the Indian infrastructure space and this default indicates signs of worry for investors.
4. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
- US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
- Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
- A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach.
That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks. - The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
- Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
