Business
Sri Lanka’s economic crisis and debt restructuring efforts By Reuters
COLOMBO (Reuters) – Sri Lanka’s government rejected a proposal from its international bondholders on Tuesday on restructuring the more than $12 billion the country owes to them.
It means a near two-year spell in default will drag on for Sri Lanka and that the country’s next tranche of vital IMF support money could potentially get delayed.
Below is a timeline of the key events in the crisis and the efforts to resolve it:
2021-2022: Sri Lanka’s economy crumbles after years of overspending leaves its foreign exchange reserves critically low and the government unable to pay for essentials, such as fuel and medicine.
The country’s bonds suffer from multiple downgrades by credit rating agencies warning of the increasing risk of default. At the start of 2022 it manages to make a $500 million bond payment but it leaves its foreign exchange reserves precariously low.
MAY, 2022 – Sri Lanka is declared in default after it fails to make a smaller $78 million bond coupon payment.
JULY, 2022 – Public anger drives protesters to storm then-President Gotabaya Rajapaksa’s office and residence. Rajapaksa flees to the Maldives, before moving on to Singapore.
Current President Ranil Wickremesinghe is voted into power by Sri Lankan lawmakers.
MARCH, 2023 – The International Monetary Fund approves a near $3 billion bailout for Sri Lanka after talks with Wickremesinghe’s government and assurances about its plans to repair the country’s finances.
OCTOBER, 2023
Sri Lanka announces an agreement with China’s EXIM (export/import) Bank to delay payments on about $4.2 billion worth of loans the Chinese lender it has extended to the country.
NOVEMBER, 2023
Other creditor nations including India, Japan and France agree to restructure about $5.9 billion in debt.
MARCH, 2024
A group of Sri Lankan officials arrives in London to meet with a number of investment funds that hold its more than $12 billion worth of government bonds. Talks advance to the key “restricted” phase where proposals are discussed privately and those involved agree not to buy or sell any of the debt on the open market.
APRIL, 2024
The government rejects a proposal tabled by the bondholders. The main stumbling blocks are that some the “baseline” assumptions used differ to those of the IMF and that the plan did not include a contingency option for the government in case the economy fails to recover as expected.
Business
Electric mobility has ‘won the race’ but Volkswagen hits brakes on EV strategy
Volkswagen AG’s all-in on electric vehicles plan is no more.
The namesake VW brand, which pitched its ID family of electric cars as central to its future, admitted last week it will need more plug-in hybrids as EV sales decelerate.
This marks just the latest adjustment VW has made to its electrification strategy after the company botched several model releases and fell behind in China, where local brands now dominate. The manufacturer has also shelved efforts to seek outside investors for its battery unit and scrapped plans for a €2 billion ($2.2 billion) EV factory in Germany.
In fact, the automaker is selling so many cars still running on combustion engines that it’s on track to overshoot its emissions allowance next year, leading Chief Executive Officer Oliver Blume to ask European regulators for leniency. It’s a sharp turnabout from only three years ago, when VW’s aggressive lobbying for EVs in the European Union opened up rifts between the company and some of its peers in the region.
VW had little choice but to lean into its electrification messaging after having bet heavily on “clean” diesel engines. That wager went sideways when the company was caught cheating on emissions tests, which forced a hard pivot to battery-powered vehicles. By 2019, then-CEO Herbert Diess announced to launch as many as 75 all-electric models over the next decade.
His EV-or-bust strategy — Diess argued that automakers needed to change quickly if they wanted to survive — rankled executives from Turin to Tokyo who wanted more time and flexibility to make the transition from combustion cars. The CEO even lauded what he saw as an early-mover advantage.
Electric mobility “has won the race,” Diess said when presenting VW’s battery strategy in 2021. “Many in the industry questioned our approach. Today, they are following suit, while we are reaping the fruit.”
While those spoils haven’t been as plentiful as VW hoped, the company isn’t U-turning from electric cars entirely.
Blume is striking partnerships with companies including Xpeng Inc. and preparing a new EV brand in China, offering models kitted out with gadgets like an in-car avatar to win back young consumers lost to BYD Co. and Tesla Inc. VW also has been in discussions with European peers including Renault SA about developing cheaper EVs to win over mass-market car buyers.
VW isn’t alone in having to recalibrate as a result of the EV slowdown. Countries including Germany and Sweden have ceased or pared back subsidies for electric cars that still tend to be more expensive than combustion counterparts, which has hurt the broader sector. Gaps in public charging networks also continue to turn off potential buyers.
Stellantis NV said Tuesday it will sell cars co-developed with a Chinese partner in Europe from September as it tries to lower the cost of its electric offerings. Mercedes-Benz Group AG has stopped development of underpinnings for new electric luxury sedans to save money and plans to sell cars running on gasoline longer than expected. BMW AG, which has had more success selling EVs than its German rivals, still warned this week that the EU’s plan to effectively ban new combustion-engine vehicle sales by 2035 will hurt the industry. European regulators are set to review the policy in 2026.
The slowdown has dealt a serious blow even to Tesla, which has lost $235 billion in market capitalization this year, more than triple VW’s current valuation. CEO Elon Musk has nevertheless criticized carmakers for backtracking.
“The EV adoption rate globally is under pressure, and a lot of other auto manufacturers are pulling back on EVs and pursuing plug-in hybrids instead,” Musk said last month when discussing Tesla’s first-quarter earnings. “We believe this is not the right strategy, and electric vehicles will ultimately dominate the market.”
Business
Who is Paula Vennells? Ex-Post Office boss in Horizon IT inquiry
The ordained priest who led the Post Office from 2012 to 2019 faces three days of questioning at the Horizon Inquiry.
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Business
Deutsche Bank lifts S&P 500 target on strong earnings By Investing.com
Deutsche Bank strategists increased their year-end target for the to 5,500, up from the previous 5,100.
The revision is based on a strong earnings cycle and the anticipation that market confidence will grow by the end of the year, which should positively influence US stocks.
“We see the earnings cycle having plenty of legs,” strategists said in note to clients on Friday.
“While all the growth may not materialize this year, we see market confidence in a continued recovery rising by year end, supporting equity multiples.”
However, the strategists also cautioned about potential market volatility due to geopolitical risks. Moreover, they warned that a hung election poses a “real risk” for markets.
The brokerage firm noted that although all growth may not materialize this year, the market’s confidence in a continued recovery is expected to rise by year-end. This sentiment is projected to support equity multiples.
Alongside the revised index target, Deutsche Bank has also raised its base case for S&P 500 earnings to $258 per share from the previous estimate of $250. This adjustment indicates a year-over-year growth of 13%.
If the macroeconomic growth continues to exceed trends as it has for the past seven quarters, the strategists suggest earnings could reach as high as $271 per share, which is at the upper end of their original forecast range of $250 to $271.
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