Reinsurers set to bear brunt of costs for Suez Canal grounding

A ship sails through Egypt’s Suez Canal. Suez Canal Authority’s chairman said last month damages caused by Ever Given blockage could reach around $1 billion. (Reuters)
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Updated 08 April 2021

Reinsurers set to bear brunt of costs for Suez Canal grounding

  • Ships typically have protection and indemnity insurance covering third party liability claims including environmental damage and injury
  • Suez Canal Authority chairman said losses and damages from Ever Given blockage could reach around $1 billion

LONDON — Reinsurers are set to foot most of the bill for the grounding of the ship that halted traffic in the Suez Canal, industry sources said, with payouts expected to run into hundreds of millions of dollars.
International supply chains were thrown into disarray when the 400 meter (430 yard) Ever Given ran aground in the canal on March 23, with specialist rescue teams taking almost a week to free the vessel.
Around 400 vessels were affected by the canal’s closure, which led to some having to divert around Africa to get supplies to global markets.
Ships typically have protection and indemnity (P&I) insurance, which covers third party liability claims including environmental damage and injury. Separate hull and machinery (H&M) policies cover vessels against physical damage.
Alan Mackinnon, chief claims officer with UK Club, the Ever Given’s P&I insurer, said it expected a claim against the ship’s owner from the canal authorities for possible damage to the canal and for loss of revenues, and separately claims for compensation from some of the owners of the delayed ships.
“I expect we will get a claim from the Egyptian authorities quite soon and the claims from the other shipowners will trickle in over the coming months,” Mackinnon told Reuters.
Suez Canal Authority chairman Osama Rabie said last month that losses and damages from the Ever Given blockage could reach around $1 billion, but that the actual amount would be calculated after the investigations, though it was unclear when this would be completed.
The UK Club will cover the first $10 million of P&I losses.
Beyond that, the wider pool of P&I insurers will cover up to $100 million, at which point re-insurers such as Lloyd’s of London step in for up to $2.1 billion of claims. P&I insurers would contribute for part of a further $1 billion of cover.
When asked if claims could reach the upper levels of cover at $2.1 to $3.1 billion, UK Club’s Mackinnon said “we are confident we are not in that territory at all.”
“This is not an existential moment for the P&I sector. It may be a large claim but we are structured to deal with large claims.”
Analysts at DBRS Morningstar said that total insured losses “will remain manageable given the relatively short period of time that the canal was blocked.”
Lloyd’s of London last week said the incident would likely result in a “large loss” for the commercial insurance and reinsurance market of at least $100 million.
Yumi Shinohara, deputy manager of the fleet management department with Japan’s Shoei Kisen, the owner of Ever Given, said it had not received any compensation claims yet.
Container ships of the Ever Given’s size usually have H&M insurance limits of $100-$140 million, brokers say.
An insurance source in Tokyo, who declined to be named, said the three Japanese H&M insurers would pay for salvage costs and any repair fees for the hull. Mitsui Sumitomo Insurance, the main Japanese hull insurer for the vessel, declined to comment.
Other insurance sources said the Japanese hull underwriters would also spread their exposure with re-insurers.


EU proposes six-month tariff freeze with US

Updated 10 April 2021

EU proposes six-month tariff freeze with US

  • Brussels seeks compromise in 16-year-old dispute over aircraft subsidies

BERLIN: The EU has suggested that it and the US suspend tariffs imposed on billions of dollars of imports for six months, EU trade chief Valdis Dombrovskis was quoted as telling Germany’s Der Spiegel on Saturday.

That would go beyond a four-month suspension agreed to last month, and send a signal that Brussels is seeking compromise in a 16-year-old dispute over aircraft subsidies.

The dispute about airplane subsidies is one of two ongoing trade fights with Europe. Former US President Donald Trump in 2018 imposed a tariff on steel and aluminum imports, using an obscure provision of US code that allows him to do so on issues of national security. 

European leaders, whose manufacturing industry was hit hard by the measures, decried the reasoning because most of them are longtime US allies. The EU imposed a retaliatory set of tariffs that same year.

The two sides exchanged proposals for a solution but disagreements over ensuring future compliance and aid repayment derailed efforts. The US offered a truce on Oct. 14, 2020 if Airbus agreed to repay state loans at a level of interest assuming a 50 percent product failure rate; however, the EU declined and decided to move forward with tariffs. 

“We have proposed suspending all mutual tariffs for six months in order to reach a negotiated solution,” Dombrovskis told the news magazine.

“This would create a necessary breathing space for industries and workers on both sides of the Atlantic,” he added.

In March, the two sides agreed on a four-month suspension covering all US tariffs on $7.5 billion of EU imports and all EU duties on $4 billion of US products, which resulted from long-running World Trade Organization cases over subsidies for planemakers Airbus and Boeing.

Dombrovskis also said the EU would closely monitor US President Joe Biden’s “Buy American” laws which provide for US public contracts to be awarded exclusively to American firms.

“Our goal is to push for procurement markets that are as open as possible all over the world,” he told Der Spiegel.


Saudi Credit Bureau issued 116m reports in 16 years

Updated 10 April 2021

Saudi Credit Bureau issued 116m reports in 16 years

  • SIMAH plays an important role in helping consumers, corporates, and SMEs obtain financing
  • Its credit data on individuals and corporate borrowers helps remove the uncertainty that has traditionally been associated with lending

RIYADH: The Saudi Credit Bureau (SIMAH) issued more than 116 million credit reports to the Saudi market since its establishment in 2004 until the end of December 2020, helping its members identify their customers’ credit behavior and bring more transparency to the Kingdom’s lending system.
Over the same period, the size of SIMAH’s database of consumers rose to around 18 million — individuals and companies. The number of credit scores it provided between 2018 and 2020 amounted to over 28 million.
SIMAH plays an important role in helping consumers, corporates, and small and medium-sized enterprises obtain financing.
Its credit data on individuals and corporate borrowers helps remove the uncertainty that has traditionally been associated with lending.
The new data comes as SIMAH launched its latest awareness campaign Amwalk-2. The financial literacy program is designed to help all segments of society achieve their financial goals, reduce defaults and enhance the culture of savings.
With Amwalk-2, SIMAH aims to shed light on issues related to financial and credit aspects of individual consumers, in an effort to raise the level of financial literacy and introduce consumers to the importance of financial planning.
It also aims to enhance the essential role of SIMAH, being the first licensed credit bureau in the Saudi market, in helping consumers assess their creditworthiness and guide them toward the most optimal use of credit cards.
Through Amwalk-2, SIMAH is actively contributing to the preservation of consumers’ rights and follows the eight credit principles: Neutrality, transparency, education, awareness, credit behavior, complaints, protection and confidentiality.
It seeks to stress the importance of a credit report in organizing and managing budgets, taking financing decisions and knowing financial obligations with credit donors.
“Amwalk-2 comes as an extension of Amwalk-1 that SIMAH launched in 2019, as one of the largest financial education programs. We believe in the importance of spreading financial culture and try to play a role in this aspect by highlighting consumers’ rights,” SIMAH CEO Swaied Alzahrani said in a statement.
“Financial education is progressively necessary. It’s turning into essential for the typical family making an attempt to determine the way to balance its budget, buy a home, fund the children’s education and ensure an income when the parents retire. Recent developments have created financial education more and more necessary for financial well-being.”


Aramco agrees $12.4 billion pipeline deal with EIG

Updated 10 April 2021

Aramco agrees $12.4 billion pipeline deal with EIG

  • Aramco to hold 51% stake in new company
  • Aligns with recently announced "Shareek" program

RIYADH: Aramco has agreed a $12.4 billion leaseback deal with a consortium led by EIG Global Energy Partners in one of the biggest energy infrastructure transactions.
It represents a continuation of Aramco’s strategy to unlock the potential of its asset base and maximize value for its shareholders, it said in a statement.
A newly-formed unit called Aramco Oil Pipelines Company will lease usage rights in Aramco’s stabilized crude oil pipelines network for a 25-year period.
In return, Aramco Oil Pipelines Company will receive a tariff payable by Aramco for the stabilized crude oil that flows through the network, backed by minimum volume commitments.
Aramco will hold a 51 percent majority stake in the new company and the EIG-led consortium will hold a 49 percent stake.
The Saudi oil giant said it would retain full ownership and operational control of its stabilized crude oil pipeline network and that the transaction would not impose any restrictions on Aramco’s actual crude oil production volumes.
“This landmark transaction defines the way forward for our portfolio optimization program,” said Aramco President Amin Nasser. “We are capitalizing on new opportunities that also align strategically with the Kingdom’s recently-launched Shareek program. Aramco’s strong capital structure will be further enhanced with this transaction, which in turn will help maximize returns for our shareholders.”

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Oil prices dip on mixed supply and demand outlook

Updated 10 April 2021

Oil prices dip on mixed supply and demand outlook

  • Downward pressure has been exerted by the decision of OPEC+ to increase supplies by 2 million barrels per day between May and July

LONDON: Oil prices edged lower on Friday on rising supplies from major producers and concerns over a mixed picture on the COVID-19 pandemic’s impact on fuel demand.

Brent crude futures for June fell 37 cents, or 0.59 percent, to $62.83 a barrel while US West Texas Intermediate (WTI) crude for May was at $59.24, down 36 cents.

Both contracts are on track for a 2-3 percent drop this week but still far from a low of $60.47 hit two weeks ago.

Downward pressure has been exerted by the decision of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, to increase supplies by 2 million barrels per day between May and July.

Analysts expect global oil inventories to continue to fall, but predict fuel demand will accelerate in the second half of the year as the global economic recovery gathers steam.

“A lot of destocking is going on, so we are well into the rebalancing process,” said Energy Aspects analyst Virendra Chauhan.

Physical markets will still need to pick up before prices and inter-month spreads can rally, he added.

For all the optimism, renewed lockdowns in some parts of the world and problems with vaccination programs could threaten the oil demand picture.

Stephen Innes, chief global markets strategist at Axi, said oil prices are expected to trade in a range between $60 and $70 as investors weigh these factors.

“Oil is currently in a wait-and-see mode, with market participants looking at the vaccination pace to understand when oil demand will recover further and at nuclear talks in Vienna to see when more Iranian barrels might come back,” said UBS commodity analyst Giovanni Staunovo.

Talks to bring Iran and the US fully back into the 2015 nuclear deal are making progress, delegates said on Friday, but Iranian officials indicated disagrement with Washington over which sanctions it must lift.

“If a fulsome framework can be crafted in the coming weeks, significant quantities of Iranian oil will likely hit the market in H2 2021,” RBC Capital analyst Helima Croft said in a note this week.


Pakistan's current $16 billion forex reserves will make import payments ‘easy’ — experts

Updated 10 April 2021

Pakistan's current $16 billion forex reserves will make import payments ‘easy’ — experts

  • The country's foreign currency reserves increased to $22.18 billion after four years, following significant Eurobond inflows
  • The situation has not done much for the national currency that may come under pressure in the long term due to debt servicing

KARACHI: Pakistan's foreign exchange reserves have reached $22.18 billion, with more than $16 billion held by the central bank, after a span of four years, as the country raised $2.5 billion by issuing Eurobonds, said an official statement released on Thursday.

"The State Bank of Pakistan (SBP) has received the proceeds of government's $2.5 billion Eurobond issuance in its account," said the statement circulated on Thursday night. "As a result, SBP's foreign exchange reserves closed above $16 billion, their highest level since July 2017."

According to economic analysts, the inflows have brought the government in a more comfortable position to pay for its imports, including any COVID-19 vaccines.

"The inflow of $2.5 billion has raised the cushion of the State Bank and it will also improve the country's current account position," Dr. Abid Qaiyum Suleri, member of the government's Economic Advisory Council (EAC), told Arab News on Friday.

"The inflows have made it easy for the country to make payments for imports of COVID-19 vaccine, wheat or sugar due to an improved reserves position," he continued. "This is also the right time to tap international market."

Some economists also suggested that Pakistan should utilize the Eurobond proceeds to pay off some of its debts.

"The country has arranged the liquidity to pay off previous external debts because time to make these payments is due and the prices of oil are also increasing with the ease of lockdown," Dr. Vaqar Ahmed, joint executive director at the Sustainable Development Policy Institute (SDPI), said.

"For the payment of external debts and oil imports the Eurobond proceeds can be utilized," he added.

The inflows did not generate any major fluctuations in the currency and interbank markets as the rupee only appreciated 0.05 percent to close at Rs152.94 against the greenback on Friday.

"Going forward the rupee can come under pressure due to debt servicing since the country is availing G20 debt relief at present," Samiullah Tariq, head of research at the Pakistan-Kuwait Investment, told Arab News. "Only strong and enduring inflows can resist the fall of rupee. Otherwise, we expect three to four percent depreciation in the long run."

Despite its limited impact on the national currency, an official statement announced that the country had returned to the international market for the first time by issuing securities since 2017.

"Pakistan has entered the international capital market after a gap of over three years by successfully raising $2.5 billion through a multi-tranche transaction of 5, 10 and 30-year Eurobonds," the finance ministry said on Thursday.

"The transaction generated great interest as leading global investors from Asia, the Middle East, Europe and the US participated in the global investor calls and the order book," it added.

This is for the first time that Pakistan has adopted a program-based approach with registration of Global Medium-Term Note program.

"The program will allow Pakistan to tap the market at short notice," the ministry continued in its statement. "The government intends to make full use of this program and become a regular issuer in the International Capital Markets."