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Thursday 21 May 2015 38 BUSINESS DAY THOMSON REUTERS Italy’s Renzi says may lower retirement age in next budget Italy is considering rolling back part of a landmark pension reform passed in 2012 to allow people to retire years earlier on a slightly lower pension, Prime Minister Matteo Renzi said on Tuesday. Italian public spending on pensions amounts to around 15 percent of national income, more than any other European country. A reform adopted by former Prime Minister Mario Monti at the height of the euro zone debt crisis sharply increased the retirement age to 66 for men and women, to come into full effect by 2018, in an attempt to make the system more sustainable. The reform, named after Monti’s Welfare Minister Elsa Fornero, helped calm financial markets but was deeply unpopular in Italy. “We’re studying a mechanism not to cancel Britain’s top share index rose on Tuesday, led by Land Securities which raised its dividend payout and helped offset a drop in heavily weighted miners and telecoms firm Vodafone. The blue-chip FTSE 100 index was up 26.23 points, or 0.4 percent at 6,995.10 points at the close. The index has gained nearly 7 percent so far this year. Shares in Land Securities rose 4 percent, one of the biggest FTSE 100 gains, after Britain’s largest listed property developer hiked its dividend by 3.7 percent, saying a boom in demand for commercial property had boosted its net asset value by 27.6 percent in the year ended March 31. “Land Securities numbers were good and highlight that the office space market will continue to improve with a further pickup in the economy. The company will benefit from a rise in the rental demand,” Securequity trader Jawaid Afsar said. Bottler Coca Cola HBC was the top riser, gaining 4.3 percent after the Fornero law but to give people a bit more freedom,” Renzi, who faces important regional elections later this month, told state television broadcaster RAI. “If a woman wants to retire at 60 or 61 instead of working until 65 while accepting about 30 euros (per month) less in her pension she’ll be able to do it,” he said, adding that he planned to present the changes in the autumn, as part of the 2016 budget. Pensions are always a highly sensitive issue in Italy, which has one of the world’s oldest populations. Earlier this week Renzi promised to make a one-off payment averaging around 500 euros to almost 4 million pensioners in response to a constitutional court ruling that another part of the Fornero reform was illegitimate. Britain’s FTSE gains, Land Securities up after dividend hike ATUL PRAKASH AND ALISTAIR SMOUT Barclays lifted its target price to 1220 pence from 1175 pence following above expectation earnings reported last week. Gains in the broader stock market were capped by a drop in miners after prices of key industrial metals fell. The UK mining index was down 2.5 percent. BHP Billiton dropped 3.9 percent after J.P. Morgan cut its target price for the stock to 1,425 pence from 1,600 pence. The FTSE 100 performed less strongly than continental European indexes, with analysts attributing much of its underperformance to its heavy weighting in mining stocks. The materials sector, including miners, trimmed over 11 points off the FTSE 100. “We see no near-term catalyst for an improvement in the outlook for metal prices,” said Jeremy Batstone-Carr, market analyst at Charles Stanley, adding that he had a preference for euro zone shares over Britain’s blue chips. “The pressure is still on the mining sector... and UK shares look comparatively less attractive than other places.” A street of the municipality of Salgar in Antioquia department is seen covered in mud and debris after a landslide in this May 19, 2015. A landslide sent mud and water crashing onto homes in a town in Colombia’s northwest mountains on Monday, killing more than 50 people and injuring dozens, officials said. REUTERS Hollande vows to push on with reform despite French teacher strike • Hollande pledges reform will pass despite critics • Teachers oppose Socialists’ secondary school reform INGRID MELANDER AND JESSICA CHEN Tens of thousands of teachers went on strike across France on Tuesday to protest against measures aimed at revamping the country’s creaking school system, but the government pledged to stick by its reform plan. Billed as countering elitism and ensuring fairer use of teaching resources, the reform has faced criticism from trade unions, the conservative opposition, sections of the left and even Germany, which fears German-language teaching will suffer. France’s 840,000 teachers have long been a bastion of support for the Socialists and many voted for President Francois Hollande in the 2012 presidential election. But the proposed reform has turned many against his already unpopu- Russia demands access to two Russians detained in Ukraine Russia’s foreign ministry on Tuesday demanded the right to visit two citizens detained last week in eastern Ukraine who Kiev says are Russian soldiers guilty of carrying out “terrorist acts” on its territory. Kiev said on Monday the two men had killed Ukrainian troops and would be prosecuted. It has used them to support its accusations of lar government. “They’re getting it completely wrong. We want a reform but not this one,” 34-year-old physics teacher Sebastien Bourdellot said at a protest march in Paris. “I voted for Hollande in 2012, I even put up posters for him, but I really regret it.” Opinion polls show that while one in two teachers backed Hollande in the first round of the 2012 election, he is losing support and some are now tempted by the far-right National Front. The plan, labelled a “shipwreck for France” by one conservative deputy, is to give schools more leeway on what they teach, promote inter-disciplinary learning and counter elitism. The government says it is essential to help more children succeed and promised on Tuesday to push ahead with the reform. “There will be a reform, and it will be one that aldirect Russian participation in the separatist conflict. Moscow denies active military involvement. Russia’s embassy in Kiev has asked to meet the detained men and to provide them with “necessary help in accordance with the norms of international law”, the foreign ministry said in a statement. “The Defence Ministry lows everyone to succeed,” Hollande told a joint news conference with German Chancellor Angela Merkel in Berlin. He assured her that learning German was a priority in French schools. LOST SUPPORT Around one in four teachers in lower secondary schools affected by the reform joined the strike, the Education Ministry said. Police estimated that around 3,500 people took part in the march in Paris, much lower than past protests on school issues. The SNES-FSU union put strike turnout at over 50 percent of all secondary school teachers and said that over 10,000 people rallied in the capital. Critics argue the reform will increase competition between schools and so exacerbate inequalities. Others fear a shift of resources away from German, Latin and Greek -- currently the choice of a minority of the of the Russian Federation ... has already said these citizens are not currently serving in the Russian armed forces,” the ministry statement added. TASS news agency quoted Russian Defence Ministry spokesman Major General Igor Konashenkov on Monday as saying the two prisoners had served in the Russian armed forces but were no most gifted pupils -- that will drag down overall standards. Much of the criticism has focused on 37-year-old Education Minister Najat Vallaud-Belkacem, a Moroccan-born daughter of working-class parents and a rising star in the government who is often hailed as a success story for French integration efforts. Ex-president Nicolas Sarkozy, now head of the opposition UMP, said she was an icon of what he called the government’s “unrelenting quest for mediocrity.” An Odoxa opinion poll last week showed that over 60 percent of French people oppose the reform and think it will harm pupils’ performance rather than improve it. “People are often very wary of reform in France, there is a real fear of reform,” said Eric Charbonnier, education policy analyst at the OECD think tank group. longer Russian soldiers on May 17, the day they were captured. In a video posted online by the Ukrainian interior ministry on Monday, one of the prisoners who gave his name as Alexander Alexandrov said he had been on a spying mission as part of a 14-member special forces group from the Russian town of Togliatti.
Thursday 21 May 2015 BUSINESS DAY 39 THOMSON REUTERS Oil down over 3 pct on dollar rally, ample supply worry • Dollar at two-week high against basket of currencies • U.S., Saudi Arabia crank out more oil than needed BARANI KRISHNAN Oil prices fell more than 3 percent on Tuesday, with U.S. crude extending losses for a fifth straight day, as the dollar rallied amid evidence that the United States and top oil exporter Saudi Arabia were pumping more than the world needed. North Sea Brent and U.S. crude were down more than $2 a barrel each as the dollar hit two-week highs against a basket of currencies, making crude and other dollardenominated commodities less affordable for holders of currencies such as the euro. The sell-off in oil also came ahead of Tuesday’s end-of-business expiry in Takata to declare 33.8 million vehicles defective - Detroit News ATUL PRAKASH AND LIONEL LAURENT Japanese air bag manufacturer Takata Corp is expected to declare about 33.8 million vehicles defective on Tuesday, a move that is expected to lead to the largest auto recall in U.S. history, the Detroit News reported, citing three officials briefed on the announcement. The company is expected to announce that it has filed U.S. crude’s front-month contract, which often results in unusually heavier market activity. Volume in U.S. crude’s July contract, the new front-month from Wednesday, was markedly higher than the expiring June contract , Reuters data showed. The tumble in crude came despite an industry report scheduled later in the day that was expected to cite a third straight weekly decline in U.S. crude stockpiles. The American Petroleum Institute (API) report is due at 4:30 p.m. EDT (2030 GMT), ahead of official inventory numbers on Wednesday from the U.S. government’s Energy Information Administration. “There is certainly a degree of profit-taking going on today before the expiry of the June contract, but it’s primarily driven by the dollar’s strength,” said Sal Umek of the Energy Management Institute in New York. “Regardless of what the API and EIA say, we are nearly 90 million barrels higher in U.S. crude, and about 14 million higher in gasoline, from a year ago, putting us well above the five-year average,” Umek said. U.S. crude’s front-month contract was down $2.20 at $57.23 a barrel by 1:15 p.m. EDT (1715 GMT). Brent fell $2.24 to $64.03 a barrel. Goldman Sachs said it expects the current oil rally, which began at the end of the first quarter, to fizzle and U.S. crude futures to trade near the year’s low at around $45 a barrel by October. Saudi Arabia’s crude exports hit their highest level in almost a decade in March, official data showed on Monday. . Analysts said investors also were less worried over the risks to Middle East oil supplies from fighting in Iraq, where Shi’ite militiamen have been deployed to battle Islamic State militants who seized the city of Ramadi. Saudi-led forces are meanwhile carrying out strikes in Yemen against Houthi rebels aligned to Iran. “Such concerns are exaggerated,” said Carsten Fritsch, analyst at Commerzbank. “In actual fact, the oil supply from the region has continued to grow.” Residents wait for help after a landslide sent mud and water crashing onto homes close to the municipality of Salgar, in Antioquia department, Colombia May 19, 2015. A landslide sent mud and water crashing onto homes in a town in Colombia’s northwest mountains on Monday, killing more than 50 people and injuring dozens, officials said. REUTERS a series of four defect information reports with the U.S. National Highway Traffic Safety Administration (NHTSA), declaring both driver and passenger air bag inflators defective in the vehicles, the report said. (http://bit.ly/1L6KRCx) The U.S. Department of Transportation and the NHTSA said earlier that they would make a “major” announcement related to the air bag recall. Takata had no immediate comment on the report. The number of vehicles with potentially defective Takata air bags recalled globally since 2008 has risen to around 36 million following recalls over the past week by Japan’s Toyota Motor Corp, Nissan Motor Co Ltd and Honda Motor Co Ltd. The automakers have said that they decided to proceed with the recalls after finding some Takata air bag inflators were not sealed properly, allowing moisture to seep into the propellant casing. Moisture damages the propellant and can lead to an inflator exploding with too much force, shooting shrapnel inside the vehicle. Six deaths have been linked to the defective air bags, all in cars made by Honda, which has borne the brunt of the Takata recalls to date and which gave a disappointing profit forecast last month due to higher costs related to quality fixes. Shell-BG deal may be end point rather than harbinger CLYDE RUSSELL There is a widespread assumption that weak commodity prices are likely to spark a wave of merger and acquisition activity as stronger companies seek to buy assets on the cheap. The $70 billion buyout of BG Plc by larger rival Royal Dutch Shell is generally viewed by investors and analysts as the first big deal in a likely series of major mergers and acquisitions in the resource sector. After all, the last time commodity prices fell sharply, around 15 years ago, there was a rash of mega-mergers, such as Exxon with Mobil and Conoco with Phillips in the energy space, and BHP with Billiton and Rio Tinto’s purchase of Alcan. Notwithstanding the Shell-BG deal, it appears executives may be more cautious this time around, eschewing mega-mergers in favour of smaller acquisitions and in-house projects to add shareholder value. Ryan Lance, the chief executive of ConocoPhillips, was adamant that he didn’t expect a “big M&A wave any time soon”. Speaking at the Asia Oil & Gas Conference in Kuala Lumpur on Monday, Lance said the rationale that drove the previous round of major deals doesn’t quite apply any more. Why would a giant international energy or resource company want to go down the M&A route currently? The normal motivators for such mega-deals are the cost synergies that executives believe can be extracted, the ability to acquire reserves at attractive prices and the addition of assets that fill gaps in existing portfolios. The Shell-BG deal was most probably motivated by the desire to build on assets in liquefied natural gas (LNG), particularly in Australia where BG already has an operating coal seam to LNG plant on the east coast, and Shell effectively has stranded gas reserves after it deferred a decision to build its own plant. It’s likely that there will be more of these kinds of deals, but on a smaller scale, as companies attempt to add assets that are complementary to their existing businesses. COST REDUCTION, IN- TERNAL PROJECTS But Lance was also clear that while ConocoPhillips looked at deals from time to time, it hadn’t seen anything that was as attractive as developing the internal pipeline of projects. In the energy space, he said that the advent of U.S. shale oil and gas production, and the massive addition of reserves they provided, had made acquisitions for the sake of adding to reserves less likely. Both large and mid-size companies also had less need to fill in their portfolios with large deals, he said, while the need to merge to drive cost reductions had been less urgent with the work being done to strip out costs within companies. The cost reduction mantra was one highlighted repeatedly at the conference in the Malaysian capital, but the focus of most speakers was on how to drive efficiencies within existing businesses, and how to deliver greenfield projects without the cost blowouts that typify the resource industry. What this is likely to mean is a move toward “modularity” in resource projects, meaning the repeated construction of identical units to identical standards in order to cut down on both building and operating costs. There is no shortage of resource projects being planned around the world, from deepwater oil in Brazil and Africa, to LNG in western Canada. What has changed is that these projects will now have to be far more rigorously costed than they were before, and companies are more likely to concentrate their efforts in these areas as opposed to seeking to use mega-deals to try and drive shareholder returns in a low commodity price environment. Perhaps instead of large M&A deals, this time the commodity cycle will deliver more spinoff-type deals, such as BHP Billiton’s demerger of its aluminium and energy coal assets into South 32, which started trading on Monday. South 32 actually reverses much of the BHP merger with Billiton, and Rio Tinto is looking to do something similar, albeit on a smaller scale, with the planned sale of its Pacific Aluminium assets. Currently, with the industry’s focus on cutting costs in order to preserve dividends and thus shareholder value, the valuations of companies that may present as M&A targets are likely still too high.
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