In this briefing:
- A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
- Indonesia’s Negative Investment List – “Open For Business” Is Lip-Service Only
- Asian Credit Monitor: Infrastructure Leasing & Financial Services – INR Bond Default
- BTPS – Sharia Lender Improves High Returns
- 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. Indonesia’s Negative Investment List – “Open For Business” Is Lip-Service Only
First of all, Kung Hei Fat Choy and Saang Tai Gin Hon in the Year of the Earth Pig! As equity markets in Asia mostly take a break today we turn our attention to Indonesia.
When President Joko Widodo (Jokowi) took office in 2014 one of the first speeches he made to a foreign audience contained the claim that Indonesia was “open for business”. Fast-forward four years to December 2018 and the government’s announcement that its Negative Investment List (NIL) was being revised and that 54 sectors were to be opened to foreign investment. The president sticking to his word? Well, no. That policy lasted less than seven days – the list of sectors wasn’t even published – before the announcement came that it was under review. Cabinet ministers were scrapping with each other, private sector businesses were unhappy and Indonesia’s proclivity to retreat into its nationalist shell was on full show once again.
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. BTPS – Sharia Lender Improves High Returns
Bank Tabungan Pensiunan Nasional Syariah (BTPS IJ) is 70%-owned by Bank Tabungan Pensiunan Nasional (BTPN IJ), the specialized pension lender in Indonesia. The focus of BTPS is small-sized loans, under Sharia law and primarily to women and the under-banked. The business is fairly new, but credit metrics and returns have been exceptional for the past five years, and rising. The company has seen its ROA rise from 4.54% to 9.11%, from 2014 to 2018, which ranks it as one of the most profitable lenders in Asia, and likely anywhere.
5. 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.
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