Hong Kong's pension scheme heads for first loss since 2018, prompting fund managers to seek wider investment scope

Fri, December 24, 2021

The Mandatory Provident Fund (MPF), Hong Kong's compulsory retirement scheme, is set to register its first loss in three years due to the equities slump that wiped out value in the city's stock market and the exchanges of Shanghai and Shenzhen.

The nearly 400 investment funds under the MPF scheme lost HK$14.8 billion (US$1.9 billion) in the first 11 months, according to the data provider MPF Ratings. The pension of each of the city's 4.5 million MPF members shrank by about HK$3,288, a loss that is unlikely to be recovered, with Hong Kong's key index still wallowing among the world's top losers as the year draws to a close.

The MPF funds suffered a 0.4 per cent loss on average in the first 11 months. If the trend continues this month, the HK$1.2 trillion (US$153.8 billion) pension scheme will post its first yearly loss since 2018 when the funds fell 8.21 per cent on average

Hong Kong and China equity funds were the worst performing MPF funds, losing 12.8 per cent in the year to November, according to MPF Ratings. A crackdown on Chinese tech companies, along with a slowdown in the property market and pandemic-driven economic slump contributed to a sell-off this year.

The Hang Seng Index has lost about 15 per cent so far this year through December 22, erasing about US$283 billion of market value from its 64 blue-chip members. The CSI 300 Index, which tracks the biggest companies listed in Shanghai and Shenzhen, fell 5.6 per cent. MSCI China, a gauge of more than 741 companies listed in onshore and offshore markets, slumped 23 per cent.

To enhance longer term returns, analysts said the pension regulator should continue to relax investment restrictions on MPF fund managers.

The Mandatory Provident Fund Schemes Authority (MPFA) in November last year relaxed rules, allowing MPF fund managers to invest in yuan-denominated Chinese shares listed in Shanghai and Shenzhen.

Analysts attributed this year's milder loss to the easing of the investment rules. Before that, Hong Kong and China equity funds could only have Hong Kong stocks or Chinese stocks listed overseas in their portfolio but not shares listed on mainland bourses.

MPF: Hong Kong's pension regulator mulls allowing members to invest in sovereign bonds

"Before the relaxation, we only had 300 stocks in the original Hong Kong equity sleeve," said Jacky Cheng, senior associate at consultancy firm Willis Towers Watson. "Now, under the new Hong Kong and mainland sleeve, we have more than 1,000 stocks."

Cheng said the combined returns of the mainland-listed shares and Hong Kong were better than Hong Kong stocks alone in the past three-year period.

"The easing of rules does raise the profile of Chinese equities as a whole, arousing interest from investors to tap into the structural growth opportunities both in the onshore and offshore China equities space," said Ronald Chan, head of equities for Asia at Manulife Investment Management, the largest MPF provider in Hong Kong.

While the MPF's investment returns have not been good this year, Chan said Manulife's MPF China Value Fund, which has exposure to A shares and is one of the most popular funds in the company's MPF profile, showed cumulative returns of 29.7 per cent for three-year period to November and 52.9 per cent over a five-year horizon.

"Over the longer term, China A-shares provide opportunities in companies and sectors that are not available in China H shares and Hong Kong names, helping investors diversify and look for exposure in China's structural growth," Chan said.

The MPFA, meanwhile, is set to continue easing rules further. Next year, the MPF will allow investments in Chinese government bonds.

Christopher Hui Ching-yu, Secretary for Financial Services and the Treasury, said on Wednesday that the government will seek legislators' approval by the middle of next year to amend a law to allow pension funds to invest in bonds issued by the central government and the mainland's policy banks.

"This initiative will further diversify the products for MPF investment, which is not only responding to the MPF industry but also helping MPF schemes members seize the opportunities in the mainland bond markets to strive for better return," said Ayesha Macpherson Lau, chairwoman of the MPFA.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.

MONOPOLY CAPITALI$M
China Cements Rare Earths Dominance With New Global Giant




Bloomberg News
Thu, December 23, 2021

(Bloomberg) -- China formed a rare-earths giant by merging some key producers, creating a behemoth that will strengthen its control over the global industry it has dominated for decades.

The group is formed through merging rare-earth units of government-owned companies including China Minmetals Corp., Aluminum Corp. of China and Ganzhou Rare Earth Group Co., according to a stock exchange filing from China Minmetals Rare Earth Co. The new entity, China Rare-Earths Group, will speed the development of mines in the south, state broadcaster CCTV reported.

Bloomberg News reported in September that China was planning to create two giants -- one in the country’s north and the other in the south, each focusing on a different subset of materials. China controls most of the world’s mined output of rare earths, a broad group of 17 elements that are used in everything from smartphones to fighter jets, and has a stranglehold over processing.

The move aims to better allocate resources, realize green development and upgrade deep-processing of the rare-earth sector, according to CCTV. The State-owned Assets Supervision and Administration Commission will hold a 31.21% stake in the new group, while Chinalco, China Minmetals and Ganzhou Rare Earth Group will each own 20.33%, it said.

“This is part of a broader repositioning of Chinese industry to feed the supply chain for the coming years of electrification, and it’s a recognition that the supply chain is the key tool for success in the coming decade,” said Jim Litinsky, the CEO of MP Materials, which is the only U.S. producer of rare earths. “It’s great for the business in the sense that I think the West is increasingly realizing that there needs to be an integrated localized supply chain.”

China Minmetals Rare Earth surged as much as 8.5% in Shenzhen and Aluminum Corp. of China Ltd. gained more than 5% in Shanghai.

Read more on how China’s grip on rare earths began with decision 30 years ago

The country’s dominance of the sector has been an increasing concern. The little-known materials were thrust into the spotlight in 2019 when China considered export controls as part of its trade war with the U.S., which relies on the country for 80% of its imports. While ultimately no restrictions were ever implemented, it highlighted the risks of being dependent on one country and spurred a raft of announcements from Western economies pledging to boost their rare-earths independence.

The latest round of consolidation follows restructuring efforts by Beijing that created six licensed groups in 2016. The government also controls production, granting annual quotas to the firms. This year’s volume has been set at 168,000 tons.

Rare earth prices have surged this year as demand outpaced supply, while a power shortage exacerbated disruptions and a broad rally in commodity prices increased production costs. Neodymium and praseodymium -- two elements used in permanent magnets -- have jumped to the highest in a decade.

“The new boom cycle is about the fact that in EV we’re going from low single-digit penetration to all vehicles in decades, so the amount of scale needed to be successful is enormous,” Litinsky said.

What the US could learn from China's nuclear power expansion

HOW TO BUILD RITE
Daniel Van Boom 

One of the world's great powers is making significant progress toward reaching carbon neutrality. It's not the US.

Like many countries, China has made a pledge to reach net zero emissions by 2060. Unlike many countries, it's actually doing something to get there. That's not a reference to its commitment to stop financing overseas coal plants, nor its steady expansion of wind and solar power. China's progress comes in the form of 150 new nuclear reactors, which it plans to construct over the next 15 years.

Just the mention of nuclear power is enough to make some wince. There's a powerful perception that these plants are unsafe and devastate the local environment. Yet nuclear power is clean, reliable and safe. Traumatic imagery of nuclear meltdowns like those at Chernobyl and Fukushima obscure the statistics: Coal kills about 350 times as many people per terrawatt produced as nuclear.

China's expansion of nuclear power will be the biggest in the history of the world, but its merits go beyond simple scope. The country is also pioneering the use of "Generation 4" reactors, which promise to be safer and more efficient. One such design is known as a "pebble bed reactor," where atomic fuel is encased within graphite balls that can withstand more heat than nuclear fission is capable of generating. These pebble bed reactors are said to be incapable of meltdown. On Tuesday, China became the first country in the world to connect a Generation 4 PBR to the grid. Another is under construction.

The US and Europe were once enthusiastic about nuclear power, which promised to produce energy "too cheap to meter." Development of new plants reached a peak in the '70s, but a meltdown at Pennsylvania's Three Mile Island plant in 1979 soured enthusiasm. Seven years later, the Chernobyl incident in the Soviet Union killed it entirely. Two decades after that, as governments were rethinking their aversion to nuclear energy, Fukushima in 2011 acted as a nail in the coffin.

Since Fukushima, however, climate change has altered the equations by which we calculate nuclear energy's merit. The world needs to drastically ramp up power production, yet it can no longer rely on the polluting means it's long been accustomed to. Solar and wind power are important elements of a carbon-neutral future, but there's fierce debate over whether they alone will be sufficient. Acceptance of nuclear power has been on the rise as a result, with a May study reporting that 76% of Americans are in favor of atomic energy, the highest percentage since pre-Fukushima.

"If you're going to decarbonize the global energy system, you're going to need a lot of energy, a lot more than we have," said Armond Cohen, executive director of the Clean Air Task Force. "We [support] nuclear from around the bend. It's not like we're pro nuclear, we're pro 'anything that can solve the climate problem'."

China's nuclear expansion is a double opportunity. The People's Republic emits nearly a third of the world's carbon and burns six times as much coal as the US. If nuclear energy can reduce those emissions, the whole planet will benefit. An even better scenario would be China developing cheap, safe reactors that can be constructed around the world. Many governments make big claims about reducing carbon, but few have charted a course to actually getting there. Nuclear adoption will help.

China has not come out of 2021 in a positive light. In addition to ongoing genocide in Xinjiang, the Chinese Communist Party this year embarked on a heavy-handed Big Tech crackdown and has set a questionable example on COVID management. But on the topic of nuclear energy, at least, it appears China has something to teach the US.

For its part, the US has gone the opposite route. In April, New York's Indian Point Power Plant had its final reactor shut down. California plans to close two reactors in 2025 that generate 15% of its carbon-free electricity. Less nuclear doesn't necessarily mean more solar or wind, as environmentalists hope, but rather more natural gas. New York's gas usage was 30% higher in November compared to the same month last year, according to S&P research, with the closure of the Indian Point plant being a major cause.

PG&E's Diablo Canyon nuclear power plant in Avila Beach, California, in 2012. Bloomberg/CNET

Nuclear's great costs

The public's association of nuclear power with calamity is one reason why atomic energy has languished in the West. The other key issue is cost. Nuclear plants were once relatively affordable to build, but many argue they're prohibitively expensive. The price tag for two overdue reactors being built in Georgia looks to exceed $27 billion.

It doesn't have to be this way, says Jacopo Buongiorno, professor of nuclear science at the Massachusetts Institute of Technology. He points to numerous reasons that costs have ballooned. First, giant infrastructure projects of all kinds have seen more delays and cost increases in the West, not just nuclear power plants. Second, the US and much of Europe went on a 20-year nuclear hiatus after Chernobyl. Nuclear construction know-how and efficiency were lost during that time.

Then there are simple organizational flaws.

"In Asia, the company that designs the plant is often the same company that builds and then operates the plant," he said. "In the US we have seen the technology companies that create the blueprints for components and modules toss them over the fence to another company that then has to build them."

"If the two sides have not talked to each other from the very beginning, there is no guarantee that what was designed is actually constructible."

Nuclear power in the US does have one specific challenge not faced by other industries: the complex web of regulations that's been spun in the years since Chernobyl. China's method of nuclear expansion is similar to the one proven to work by France in the '70s: Design a few plants and then build a lot of them. Meanwhile, different states in the US have different safety requirements, which inhibits any company's ability to standardize design.

"Nuclear needs to be heavily regulated, but it's inefficiently regulated," Cohen said. "Is it really plausible that we're going to have 27 designs in the world?"

He looks to the airplane industry as an example of how to streamline. Companies like Boeing and Airbus have only a handful of aircraft designs. That makes it easier to mass produce, but it also simplifies problem solving. It's easier to work out why 1,000 planes have the same issue than to solve 20 different issues across 20 different designs.

"If China can bring a cheaper unit to the world, just as they brought cheap solar panels, then bring it on," he said.

© Provided by CNET The tristructural isotropic, or TRISO, particle fuel for X Energy's nuclear power plant design. X Energy

Green future

China's nuclear ambitions don't end at its own borders. One of President Xi Jinping's signature projects is the Belt and Road Initiative, which sees China building bridges, airports and other infrastructure across the developing world. If China can make capable reactors at competitive prices, they can be exported across Africa and energy-hungry countries like Pakistan and Bangladesh. One senior Chinese Communist Party member said he hopes China will build 30 reactors overseas by the end of the decade.

"China has already announced that they're not going to make any coal investment overseas, so the next phase of infrastructure is going to be nuclear," said Sha Yu, associate research scholar at the Center for Global Sustainability. Yu expects that nuclear's space in China's energy mix will expand considerably in the next three decades, from around 4% now to between 15% and 25% by around 2050.

Such advancements may prod the US into revitalizing its interest in atomic energy. Several companies already have next-generation nuclear plants in development. X-Energy has a pebble bed reactor it hopes will be operational by 2027, and the Bill Gates-backed TerraPower is advancing toward meltdown-proof reactors that run off depleted nuclear fuel. NuScale last month struck a deal to build a small modular reactor in Romania.

The question is how much these activities will be supported by the government. There are some signs of life. President Joe Biden's landmark infrastructure bill will see just under $10 billion devoted to nuclear projects, including $3.2 billion that will go to developing Generation 4 technology. More was to come in Biden's Build Back Better legislation, though that bill's future is now in doubt.

"The Biden Administration's plan is to have a carbon-free grid by 2030. That is an enormous challenge, and the resources that are being discussed now are not commensurate with its magnitude," said MIT's Buongiorno.

"It's a fantastic start, but we're going to need a lot more."

Report shows the extent of Republican efforts to sabotage democracy

Ed Pilkington in New York 

THE GUARDIAN

The Republican assault on free and fair elections instigated by Donald Trump is gathering pace, with efforts to sabotage the normal workings of American democracy sweeping state legislatures across the US.

© Provided by The Guardian Photograph: Paula Bronstein/AP

A year that began with the violent insurrection at the US Capitol is ending with an unprecedented push to politicize, criminalize or in other ways subvert the nonpartisan administration of elections. A year-end report from pro-democracy groups identifies no fewer than 262 bills introduced in 41 states that hijack the election process.

Of those, 32 bills have become law in 17 states.

Related: Alarm as Texas quietly restarts controversial voting program

The largest number of bills is concentrated in precisely those states that became the focus of Trump’s Stop the Steal campaign to block the peaceful transfer of power after he lost the 2020 presidential election to Joe Biden. Arizona, where Trump supporters insisted on an “audit” to challenge Biden’s victory in the state, has introduced 20 subversion bills, and Georgia where Trump attempted to browbeat the top election official to find extra votes for him has introduced 15 bills.

Texas, whose ultra-right Republican group has made the state the ground zero of voter suppression and election interference, has introduced as many as 59 bills.

“We’re seeing an effort to hijack elections in this country, and ultimately, to take power away from the American people. If we don’t want politicians deciding our elections, we all need to start paying attention,” said Joanna Lydgate, CEO of the States United Democracy Center which is one of the three groups behind the report. Protect Democracy and Law Forward also participated.

One of the key ways that Trump-inspired state lawmakers have tried to sabotage future elections is by changing the rules to give legislatures control over vote counts. In Pennsylvania, a bill passed in the wake of Trump’s defeat that sought to rewrite the state’s election law was vetoed by Democratic governor Tom Wolf.

Now hard-right lawmakers are trying to bypass Wolf’s veto power by proposing a constitutional amendment that would give the legislature the power to overrule the state’s chief elections officer and create a permanent audit of election counts subject to its own will.

In several states, nonpartisan election officials who for years have administered ballots impartially are being replaced by hyper-partisan conspiracy theorists and advocates of Trump’s false claims that the election was rigged. In Michigan, county Republican groups in eight of the 11 largest counties have systematically replaced professional administration officials with “stop the steal” extremists.

Several secretaries of state, the top election officials responsible for presidential election counts, are being challenged by extreme Republicans who participated in trying to overturn the 2020 result. Trump has endorsed for the role Mark Finchem in Arizona, Jody Hice in Georgia and Kristina Karamo in Michigan who have all claimed falsely that Trump won and should now be in his second term in the White House.

Jess Marsden, Counsel at Protect Democracy, said that the nationwide trend of state legislatures attempting to interfere with the work of nonpartisan election officials was gaining momentum. “It’s leading us down an anti-democratic path toward an election crisis,” she said.

Exxon Cuts Baytown Refinery Rates After Extinguishing Fire


Barbara Powell and Francesca Maglione
Fri, December 24, 2021



(Bloomberg) -- Exxon Mobil Corp. says an overnight fire at its Baytown, Texas, refinery that injured four people has been extinguished.

The blaze occurred at 1 a.m. local time at the plant, which is the fourth-largest in the U.S., capable of processing more than half a million barrels of oil a day. Gasoline trading in New York jumped as much as 4 cents per gallon on the New York Mercantile Exchange.

The fire at units involved in gasoline production comes as U.S. stockpiles of the fuel hit their lowest for this time of year since 2015. Gasoline futures, meanwhile, are at their highest seasonally in eight years. Prices rose 1.8% to settle at $2.2061 per gallon in New York.

The blaze broke out in a unit called a reformer feed hydrotreater, according to Wood Mackenzie’s Genscape unit. Other units impacted include a toluene benzene unit and a nearby cooling tower, according to a person familiar with operations.

Reformer feed hydrotreaters remove sulfur from partially refined oil to help the finished gasoline meet clean-air rules. The units process feedstock used by reformers to make high-octane gasoline. The toluene unit extracts aromatics from feed sent to it by the reformer. If the fire impact is prolonged, it could affect prices of premium gasoline.

Exxon spokeswoman Julie King said Baytown is adjusting rates at other Baytown facilities to focus on stabilizing the affected units, but did not discuss the impact on fuel production.

The injured workers are in stable condition after being transferred to a local hospital, said Casey Cook, a public information officer at the Baytown Fire Department.

A Baytown woman who allegedly suffered injuries during the refinery explosion near her home has filed a lawsuit against Exxon, Potts Law Firm said Friday in a statement. The lawsuit, filed in Harris County, alleges that Tona Credit suffered hearing loss and related balance issues resulting from the concussive force of the blast at the gasoline-producing refinery unit.

It’s the second such blaze at Baytown in the last two years. In 2019 a fire on the plastic-producing side of the industrial complex injured about 37 people.

Air quality monitoring at the site and fence line has shown no adverse impact so far, King said.

Exxon on Wednesday reported a leak at one of Baytown’s sulfur-removal units, according to a filing with a state regulator. The leak was discovered at around 10 p.m. Tuesday, according to the filing.

NEUVO BATMOBILE
Meet the Thundertruck, an All-Electric 800 HP 4×4 Concept With ‘Bat Wing’ Solar Panels

Demetrius Simms
Thu, December 23, 2021


With the electric revolution upon us, solar power can often seem like an afterthought in the auto industry, relegated to quirky student-design projects. But Wolfgang LA, a creative agency in, yes, Los Angeles, aims to change that with a new electric, all-terrain pickup concept.

Meet the Thundertruck, a battery-powered 4×4 that looks like something out of a sci-fi flick—and a would-be rival to the Cybertruck. Unlike the Tesla, though, this EV truck incorporates solar power directly into its design: A solar-enabled “Bat Wing Awning” expands above the truck to capture the sun’s rays and power accessories like a built-in induction stove, fridge and, of course, the A/C. You can also use it to keep your satellite phone charged when you’re off grid.


The Thundertruck with its solar panels expanded. - 

Credit: Courtesy of Wolfgang LA

The retractable solar awning would, in theory, free up the EV’s 180kWk battery to power its substantial mill. That’s no small feat. According to the agency, the Thundertruck will feature a dual motor drivetrain that makes 800 hp with 800 ft-lbs of torque. The setup would propel the truck from zero to 60 mph in just 3.5 seconds, despite its hefty 6,120 pounds. The EV will also have a towing capacity of 7,500 pounds and a cargo bed with up to six feet of space. That kind of payload has the potential to drain power and range. Nevertheless, Wolfgang claims the truck will be able to travel 400 miles on a single charge, a figure that would immediately place it among the market leaders. If true, of course.

Aside from its solar super power, the Thundertruck is designed to be a fully fledged all-terrain vehicle. Like the Cybertruck, the body is decidedly geometric, eschewing curves for angular lines. In renders, the EVs exterior is sleek and black, which allows those blue light-emitting headlights to pop. And because this vehicle is made for overlanding, it comes equipped with extendable loading ramps in the rear for two- to four-wheel bikes.

The drivers seat of the Thundertruck shows holographic instrumental displays

. - Credit: Courtesy of Wolfgang LA  

NOTE THE STEERING WHEEL IS ON THE RIGHT HAND SIDE

The noir theme continues inside. The studio hasn’t revealed many details about the cabin, but the renders show a monochrome interior with “head up” holographic instrumentation displays that project your speed, temperature and fuel levels onto the windshield so you can keep your eyes on the road—or lack thereof. There’s also a sizable touchscreen to the side of steering wheel, which would likely control the infotainment system.

For those who crave even more power, Wolfgang’s TT Range Extender can be added to your 4×4 model to transform it into a beastly 6×6. The larger model promises an even more robust 560 miles of range, operates on a bigger 210 kWK battery pack and delivers more grunt, too—a whopping 940 hp with 1200 ft lbs of torque. All that with an expanded 10-foot cargo bed.

The six-wheel version of the Thundertruck. - Credit: Thundertruck

Thundertruck

The downside is, of course, that the Thundertruck is only a concept at this point—and, notably, not one by an established automaker. Wolfgang LA founders—Mike Geiger, Seema Miller, and Colin Jeffery—point out that they have all partnered with carmakers like BMW, Kia and Chevrolet before starting the agency. Will that translate into a full production version of the Thundertruck? We, for one, hope it does.

See inside a 958-foot cargo ship, from the crew's living quarters to the massive engine room

Grace Kay
Thu, December 23, 2021

A view of the Maersk Ohio from above. Courtesy of Bryan Boyle

A merchant mariner captured life at sea on a video tour of a Maersk container ship.


The video shows the everyday life of cargo ship crew as they spend holidays and months on end at sea.


Second mate Bryan Boyle said workers celebrate the holidays on board through festive meals and community.

A merchant mariner gave a tour of a 958-foot cargo ship in 2019 that showed the intricacies of hulking freighters that haul 90% of the world's goods.

In the video, second mate Bryan Boyle records the vast array of machinery that keeps the ship moving, as well as the crew's and officers' living quarters on the Maersk ship, which was built in 2006.

Though the video was taken in 2019, Boyle told Insider it provides insight into the lives of shipping crew today as hundreds of cargo ships wait to dock in US ports.

The merchant mariner said it can be difficult to be away from family for months on end, especially during the holidays, but crew find ways to celebrate even as they work through Thanksgiving and Christmas.

"I recall a few unique experiences such as singing and playing music together on Christmas since one of the Able Bodied Seaman onboard was a skillful harmonica player," Boyle told Insider. " Another time we were anchored in Dubai on New Years' Eve surrounded by many ships. We were counting down to the new year and then many of the ships started to blow their whistles in celebration as fireworks were being launched from shore in front of us."

Entertainment options for the ship's crew of 20 to 25 people are limited on the cargo ships. Boyle said that workers' time off can include a mix of movies and games, as well as gym time.

The video shows the officers' lounge, which has a pingpong table and TV, as well as the general crew's lounge, which has a poker table. During Thanksgiving, Boyle said he and other officers gathered to watch a football game in the lounge, using a satellite television.

Take a look at a view of the crew's mess hall below.

Courtesy of Bryan Boyle

In the ship's voyage, it sets out from Norfolk, Virginia, making several stops in the US before heading toward Belgium, Germany, and the Netherlands.

"I've had the opportunity to work on some interesting vessels," Boyle told Insider. "I've gotten to go to places that the average person wouldn't even know about. It's one of the most appealing aspects of the job."

Boyle said that there's a thrill to arrive at new destinations, remembering how he spent over a month in Africa on one trip. But the amount of time that crews get to explore new destinations has dwindled over the years, he said, as ships rush to get in and out of ports as fast as possible and early COVID-19 restrictions set limits to crew excursions.

The video shows Boyle's living quarters, as well as a movie locker that holds hundreds of titles.

Boyle's living quarters on the ship.Courtesy of Bryan Boyle

The video also highlights the mix of old and new technology that helps keep the supply chain moving, pairing engine control rooms that look like they belong on a spaceship with a massive gyrocompass.

The engine control room.Courtesy of Bryan Boyle

The navigation bridge also provides an unrestricted view of the waters ahead and operates as a space where the captain and officers can man the entire operations of the vessel.

The navigation bridge.Courtesy of Bryan Boyle

The ship has a massive gyrocompass that helps guide its course.

The first seaworthy gyrocompass was produced in 1908. It operates as a type of nonmagnetic compass that uses a fast-spinning disc and the rotation of the Earth to find geographical direction.

The ship's gyrocompass.Courtesy of Bryan Boyle

The video shows the engine room and the combustion engine that helps power an equally giant propeller.

The engine.Bryan Boyle

Boyle takes viewers on a tour of the exterior of the ship as well, labeling individual parts of the ship and even touring the ship's lifeboat.

A lifeboat on the ship.Courtesy of Bryan Boyle

The video ends by showing how the ship pulls up to a dock in Germany.

Cranes discharge containers from the ship. More cranes gradually reload fresh containers before the Maersk Ohio heads back to Norfolk.

A crane takes containers off the ship.Courtesy of Bryan Boyle

Watch Boyle's full video on YouTube.

GREEN CAPITALI$M
A $180 Billion Green-Debt Boom Grows Faster Than Its Impact

Greg Ritchie and Priscila Azevedo Rocha
Wed, December 22, 2021

(Bloomberg) -- The green debt market is growing at a faster pace than the real-world projects it was created to support, thanks to some financial engineering.

While no official estimate exists for the difference between green finance and actual green business, a growing chorus of auditors, researchers and climate activists warn that the numbers provided by bankers offer an exaggerated picture of their role in fighting climate change.

“Financial institutions can paint a picture of themselves which makes their contribution to the climate transition more meaningful than it actually is,” said Stanisław Stefaniak, a sustainable finance researcher at the Warsaw-based think-tank Instrat.

The concern centers on the reselling of green loans, whereby the finance industry’s contribution to an underlying project gets counted as often as the original debt is refinanced. After issuing green loans, bankers can bundle them into a green bond that can then be sold on to another financial institution. Both can claim they are financing the climate transition.

The accounting conundrum means the amount of green financial assets on banks’ and asset managers’ balance sheets outstrips real-world green capital expenditures. This year, financial institutions printed a record $180 billion in green bonds, more than any other private sector.

“It is difficult to put a number on the level of double counting that will happen due to the private nature of the loan market,” said Maia Godemer, a sustainable finance analyst at BloombergNEF. The “caveat,” however, is that we risk ending up with a “brighter picture about the actual decarbonization that is enabled by credit institutions,” she said.

The repackaging and restructuring of debt is a well-established and fully legal form of financial engineering. Though there are examples to show that such models can backfire if applied without restraint -- the subprime mortgage meltdown being a case in point -- rebundling debt can also add liquidity and bring more stakeholders into a market to help it grow.

Since banks are under pressure from regulators, particularly in Europe, to make their lending greener, this kind of refinancing serves them well. But the disconnect from actual green business may complicate efforts to track their contribution to the urgent decarbonization needed to avoid a climate catastrophe.

“If the bank has a legitimate exposure that it is able to report but then sells or repackages the loan, there is a risk that the purchaser getting the credit could be viewed as benefitting from financial engineering as opposed to representing the sustainable money going into the real economy,” said Tim Conduit, a partner at Allen & Overy. “It is a question of how the different green exposures are reported.”

Policy makers are starting to counter this potential for greenwashing in the debt market. Proposed amendments to the European Union’s green bond standard include a clause that would prevent “the creation of green bonds out of thin air” by continuous refinancing, according to Paul Tang, a lawmaker responsible for guiding the legislation through the European Parliament.

Wes Bricker, who co-leads PwC LLP’s trust solutions practice, says that if the EU’s goal is to use the green asset ratio reported by banks “to identify the volume of investment into green projects so that policy makers and society can understand if we are transitioning at a sufficiently rapid pace, we can get an inaccurate signal by inflating.”

“It depends on what we want from that number, who is using it and for what purpose,” Bricker said.

Even established asset classes such as green bonds have a questionable climate impact. They often provide money to refinance completed green projects and the label doesn’t oblige the issuer to use the freed-up capital on another green project. And this year saw the emergence of green derivatives and repos, which regulators have warned may be prone to greenwashing as they race to design a rulebook for such products.

The EU’s regulatory packages are global in scope, and affect non-EU firms if they target clients in the bloc. The idea is to steer capital away from activities that hurt the planet and into projects that protect the environment and social justice.

Frédéric Hache, who heads the Brussels-based Green Finance Observatory, says European policy makers should be guided by the vision articulated during the climate summit in Scotland last month. He proposes that any bank refinancing its green loan book via green securities not count the loans toward its green asset ratio.

“COP26 has recently highlighted the crucial importance of avoiding the double counting of carbon credits for environmental integrity and credibility purposes,” he said. “The same applies to green claims.”

Runaway ESG Debt Issuance Poised for Fresh Boost From Junk Sales

Caleb Mutua and Olivia Raimonde
Thu, December 23, 2021



(Bloomberg) -- Investors racing to buy debt tied to environmental, social and governance goals are expected to propel issuance to fresh highs next year, boosted by leveraged finance.

Sales of green, social, sustainability and sustainability-linked bonds from corporations and governments worldwide surpassed $1 trillion for the first time this year. Underwriters of the bonds and loans, who’ve been on a hiring spree to keep up with demand, are braced for another surge.

A 50% increase in sustainable bond issuance is possible in 2022 and high yield has “a lot of room to run,” according to Amanda Kavanaugh, head of sustainable financing for the Americas at Mitsubishi UFJ Financial Group Inc.

The Japanese lender also expects a rise in sustainability-linked leveraged loans next year. “There is going to be a significant uptick,” Kavanaugh said.

Citigroup Inc. has a “pretty healthy” pipeline of sustainability-linked bonds for the first-quarter, said Philip Brown, managing director of global sustainable debt capital markets. Brown projects about $1.3 trillion in global sales of green, social, sustainability and sustainability-linked bonds alone next year, including more junk and emerging market issuance.

“Many corporations across sectors are making commitments to sustainability and that is going to precipitate further issuance,” said Brown in a telephone interview Dec. 10. “We see larger order books, a greater degree of oversubscription and therefore a greater price tension.”

Brown expects a two-to-three basis points pricing advantage -- a so-called greenium -- for issuers on average across most sectors in 2022, allowing them to cut borrowing costs. Citi is the third largest underwriter of green bonds, according to Bloomberg data.

Read more: BofA Sees Strong Growth in ESG Debt Next Year Despite ‘Pains’

BNP Paribas SA, the second biggest underwriter, foresees a busy January, boosted by Latin American issuers that had been waiting for a window to sell labeled bonds abroad, Anne van Riel, head of sustainable finance capital markets for the Americas at BNP, said in a telephone interview on Dec. 3.

Inflection Point

BNP expects sales of green bonds alone to hit a record $880 billion by the end of 2022. That’s up from $505 billion issued this year, according to data compiled by Bloomberg.

Morgan Stanley estimates $750 billion to $950 billion of green bonds, driven by the European Union. That would include 238 billion euro equivalent from the EU’s NextGeneration Green Bond program.

France meanwhile plans net bond issuance of 260 billion euros that will include two new 10-year benchmarks. It’s also considering a rare inflation-indexed green bond.

“We think we will get pretty close to $1 trillion mark just on green alone next year. This is going to be the inflection point year,” Trevor Allen, sustainable research analyst at BNP, said in a telephone interview Dec. 3.

Barclays Plc projects around 40% of Euro-denominated investment-grade issuance to come with an ESG label, 14% of dollar high-grade debt and 33% of the sterling market.

Significant growth in sustainability-linked bonds, which hike borrowing costs if borrowers don’t meet specified targets, is also expected.

Barclays expect SLB volume to overtake use-of-proceeds bonds in 2023. “Theoretically all bonds issued could come in a sustainability-linked structure,” strategists led by Charlotte Edwards wrote in a note earlier this month.

Read more: Sustainability-Linked Bond Issuance Hit Record High in November

Greenwashing Hazard

Even if there’s another issuance surge, it probably won’t be enough to satisfy demand. Global sustainable fund assets almost doubled from March to September, to $3.9 trillion, boosted by new disclosure rules in Europe, according to Morningstar. Sustainable fixed income funds pulled in $35 billion during the third quarter, up from about $20 billion in the corresponding period of 2020.

Excess cash will keep costs in borrowers’ favor. It could also give companies an incentive to misrepresent or inflate sustainability claims, according to James Rich, a senior portfolio manager at Aegon Asset Management.

“Investors are definitely getting better at scrutinizing labeled bonds, which is helpful,” said Rich in an interview. “But until that greenium closes, there is a financial incentive to greenwash.”

Meanwhile, pressure is increasing on managers of ESG-labeled investment funds to show they’re being truthful with customers about what they’re selling. Europe enforced its Sustainable Finance Disclosure Regulation in March -- an ambitious framework designed to fight greenwashing -- and is working on substantial updates.

In the U.S., the Securities and Exchange Commission is planning rules that require corporations to publicly disclose risks from climate change.

“Investors will always need to have their guard up a bit, as what constitutes being a ‘green’ project is subjective and even varies by geography,” said Lisa Abraham, senior ESG fixed income research analyst at Brown Advisory.

There are also doubts as to whether sustainable finance has any real impact on the environment or society, according to Bradford Cornell, emeritus professor of finance at UCLA Anderson School of Management.

“Wall Street can make more fees by doing that,” he said, referring to underwriting ESG-linked debt. “I don’t think it has much social benefit, but if they can sell more that way, they’re going to do it,” Cornell said in a Dec. 10 phone interview.

Environmental, Social and Governance  

Hedge Funds in the U.S. and U.K. Are Told to Meet ESG Rule for EU Sales

Frances Schwartzkopff
Wed, December 22, 2021


(Bloomberg) -- Europe’s main investment management association says U.S. and U.K. hedge funds will need to meet a higher ESG reporting bar than many in the industry had expected, if they want to continue selling to clients in the EU.

The European Fund and Asset Management Association (EFAMA), whose members include BlackRock Inc., the asset management arm of JPMorgan Chase & Co. and Pacific Investment Management Co., said recent guidance from policy makers means hedge funds and private equity funds targeting EU clients need to state whether their actions -- in any part of their business -- might harm the environment.

The sub-clause in question -- the Principal Adverse Impact (PAI) rule -- is part of Europe’s Sustainable Finance Disclosure Regulation enforced earlier this year. Hedge funds based outside Europe had hoped that PAI only applied to the products they sold to European clients, not to their entire business. But Europe’s rulebook for environmental, social and governance investing is proving more far-reaching in its scope than many investment managers had anticipated.

Dominik Hatiar, EFAMA’s regulatory policy adviser for sustainable finance, says the stricter interpretation of European ESG rules follows discussions between his association and the European Commission.

“In practice, this would mean that the non-EU manager needs to publish its sustainability risk policy and make a comply or explain decision on the PAI regime,” he said. For managers with more than 500 employees, “the PAI reporting regime would be mandatory,” he said.

Many hedge funds outside Europe are already turning to their lawyers for help. Attorneys at Simmons & Simmons LLP and Dechert LLP have said they’re advising clients not to assume the stricter regulation will apply to them just yet, given the far-reaching consequences of doing so.

EFAMA also says it would still like clearer guidance from the European Commission. “We hope that this question will be further clarified,” Hatiar said. He expects the commission to provide more information in the form of an updated Q&A in the first half of next year.

A European Commission spokesperson who handles SFDR questions hasn’t responded to a request for comment.

Hedge Funds Hit by ‘Onerous’ ESG Rule Turn to Lawyers

John Ainger and Frances Schwartzkopff
Wed, December 22, 2021


(Bloomberg) -- An obscure rule covering environmental, social and governance investing in Europe has prompted hedge-fund managers in the U.S. and U.K. to turn to their lawyers.

At issue is whether they need to comply with one of the most complicated corners of Europe’s Sustainable Finance Disclosure Regulation. The sub-section in question -- the so-called Principal Adverse Impact rule -- requires investment firms to state whether their actions might in any way harm the environment. U.S. and U.K. hedge funds had thought the rule applied only to products marketed in Europe. But it now seems they must state PAI risks for their entire firm, even those parts that don’t target European clients.

“It’s a very difficult issue,” according to Lucian Firth, an attorney at the London-based law offices of Simmons & Simmons LLP who advises investment managers all over the world. PAI “is one of the most difficult and onerous parts of SFDR.”

Firth has spent much of the year helping international hedge funds and private equity firms comply with Europe’s sustainable finance rulebook, which was enforced in March. He says confusion around the Principal Adverse Impact clause -- the biggest item on a list of compliance areas that has non-EU managers scratching their heads -- has the potential to upend business models across the industry.

Caymen Funds

In anticipation of the requirement, some major hedge funds outside Europe -- specifically those with more than 500 employees -- are now looking into restructuring their operations to create separate legal entities that would protect the bulk of their business from the regulation, according to Firth.

“They want to keep marketing their Cayman hedge funds in Europe, but they don’t want to be forced into doing Principal Adverse Impact disclosures across the whole of their business because that is just too burdensome and they won’t do it,” he said.

Mikhaelle Schiappacasse, a lawyer at Dechert LLP’s London office, says the current guidance from Europe around PAI is unclear. Both she and Firth point to a Q&A document on the website of the European Commission as the origin of the confusion:

“Where an AIFM (alternative investment fund manager) from a third country enters the market of a given Member State by means of a National Private Placement Regime, that AIFM must ensure compliance with Regulation 2019/2088, including the financial product related provisions.” Until this statement by the commission, fund managers outside the EU had assumed compliance only stretched as far as products marketed to EU clients. Now, they’re not so sure.

A European Commission spokesperson who handles SFDR questions hasn’t responded to a request for comment.

European regulators, meanwhile, say there’s little doubt that fund managers outside the bloc are expected to live up to the PAI clause under SFDR, not just for individual investment products marketed to EU clients, but for their entire business.

According to Dan Nacu-Manole, a spokesman for the European Securities and Markets Authority, alternative asset managers based outside the EU are “required to file entity level SFDR disclosures.”

And fund industry representatives also suggest it’s risky to interpret the commission’s guidance in any other way.

“For me, it’s clear that the requirement applies to both entity and product related requirements,” said Marc-Andre Bechet, deputy director general of the Association of the Luxembourg Fund Industry, which represents Europe’s largest hub for fund managers. “Some people might not be happy about having to comply,” but “it’s not like you pick and choose.”

Dangerous Bet

For now, however, lawyers aren’t advising their hedge-fund clients to draw that conclusion.

“We think it would be dangerous” to do so, “without thinking through the implications,” Schiappacasse said. She points out that non-EU investment firms “will already be disclosing how ESG risks are integrated into the management of the particular project” under existing SFDR rules. “Why and on what basis would such disclosure be required across the investment manager’s non-EU activities?”

The view at Dechert is therefore that “it would seem more appropriate” to apply the approach taken with Europe’s Alternative Investment Fund Managers Directive, “which is that to the extent it relates to a product marketed into the EU, the product-based disclosure and reporting requirements apply, but not the broader firm level requirements.”

Firth said he hopes the European Commission will provide further clarification. Until that happens, firms should sit tight and not make any major adjustments to how they operate, he said.

“My large clients are concerned about this,” Firth said. “They don’t want to be doing PAI for all of their U.S. business and so they are watching this space very carefully.”

(Adds comment from Dechert LLP)

Most Read from Bloomberg Businessweek

MEXICO DIRTY ENERGY
Pemex Secures $500 Million Bridge Loan for Refinery Takeover

Amy Stillman and Nacha Cattan
Thu, December 23, 2021,


(Bloomberg) -- Barclays, SMBC and Banorte are providing a $500 million bridge loan to Petroleos Mexicanos to help finance its takeover of Royal Dutch Shell’s Deer Park refinery in Texas.

The commercial bank bridge loan will help cover the total purchase cost of $1.6 billion, a sum that includes refinery assets, inventories and debts, according to people familiar with the situation who asked to remain anonymous because the information isn’t public.

The other $1.1 billion will be allocated to Pemex, as the state oil company is known, from Mexico’s National Infrastructure Fund, FONADIN, according to documents seen by Bloomberg.

A spokesman for Pemex did not immediately respond to a request for comment. Banorte and Barclays declined to comment. SMBC did not immediately return multiple requests for comment sent outside normal business hours.

The takeover comes as Mexico President Andres Manuel Lopez Obrador seeks to increase state control of the country’s energy markets, boost Pemex’s reserves, and expand its refining capacity. Pemex’s acquisition of the Houston Ship Channel refinery would secure critical fuel supplies for the state oil company.

But the purchase could also strain Pemex’s finances, which are so dismal the government recently announced it would inject billions of dollars into the company. Pemex had $113 billion of debt at the end of the third quarter, more than any other oil producer in the world.