Pakistan: IMF assistance too near yet too far

There are no known reasons about what is causing delay in IMF Staff Level Agreement. According to media reports the Fund seeks assurances from the friendly countries for funding gap. It seems the program is near from the Government side but still too far from the IMF side.

In a week mired with political uncertainty, the movement at Pakistan Stock Exchange remained jittery. Furthermore, the IMF has set forth another condition regarding written assurances from friendly countries to fund balance of payment gap before the Staff Level Agreement (SLA). The ICBC has given assurance that it will provide another refinanced US$500 million loan in few days bringing total commercial loans refinanced up to US$1.7 billion.

Pakistan’s foreign exchange reserves inched by US$18 million to US$4.3 billion as on March 10, 2023, culminating to an import cover of less than a month.

The benchmark index closed the week at 41,330 points, down 1.11%WoW. Participation in the market increased, with daily volumes averaging 223.02 million shares during the week, from 209.24 million shares in the prior week depicting a gain of 6.6%WoW.

Other major news flows during the week included: 1) Saudi Arabia extended US$1.2 billion deferred oil payment facility till February next year, 2) GoP raised PKR26 billion through PIBs auction, 3) July-January LSM output declined 4.40%YoY, 4) Bank deposits were up 15%YoY to Rs22.9 trillion in February, 5) workers’ remittances for February post 5%MoM growth and 6) GoP announced plan to borrow PKR7 trillion from banks in three months.

Top performing sectors were: Woolen, Glass and Ceramics, and Sugar & Allied industries, while the least favorite sectors included: Miscellaneous, Close- End Mutual Fund, and Synthetic and Rayon.

Stock-wise, top performers were: YOUW, TGL, CEPB, DGKC, and BNWM, while laggards included: PSEL, NESTLE, FHAM, BAHL, and RMPL.

Flow wise, individuals were the major buyers with net buy of US$4.23 million, followed by Banks/DFI with net buy of US$1.06 million), while Insurance companies were major sellers during the week, with a net sell of US$2.08 million.

Any further development on the IMF front is likely to set the direction of the market. The recorded high inflation of 31.5%YoY in February 2023 is expected to remain a thorn in the country’s side, driven by hikes in tariffs along with Rupee devaluation. This may lead the market to another hike in upcoming Monetary Policy accouchement scheduled for April 04, 2023.

Moreover, the local currency has continued to slide against the US dollar with no certainty regarding its limit. With this backdrop, analysts continue to advocate scrips that have dollar-denominated revenue streams to hedge against the currency risk, which include the Technology and E&P sectors.

 

 

 

UBS examining takeover of Credit Suisse

UBS AG was examining on Saturday a takeover of embattled lender Credit Suisse that could see the Swiss government offer a guarantee against the risks involved.

The 167-year-old Credit Suisse is the biggest name ensnared in the market turmoil unleashed by the collapse of US lenders Silicon Valley Bank and Signature Bank over the past week, and its slide has fanned fears of broader banking problems.

To get the crisis under control, UBS was coming under pressure from the Swiss authorities to carry out a takeover, Reuters' sources said. Under the plan, Credit Suisse's Swiss business could be spun off, they added.

Credit Suisse Chief Financial Officer Dixit Joshi and his teams were meeting over the weekend to assess their options for the bank, people with knowledge of the matter said.

The bank's share price swung wildly this week, during which it was forced to tap US$54 billion in central bank funding, and Credit Suisse had lost a quarter of its market value by Friday night.

The mood in Switzerland, long considered an icon for banking stability, was pensive as executives wrestled with the future of the country's biggest lenders.

"Banks in permanent stress" read the front page headline of the Neue Zuercher Zeitung newspaper on Saturday morning.

Credit Suisse ranks among the world's largest wealth managers and is considered one of 30 global systemically important banks whose failure would cause ripples throughout the entire financial system.

In a sign of its vulnerability, at least four of Credit Suisse's major rivals, including Societe Generale SA and Deutsche Bank AG, have put restrictions on their trades involving the Swiss bank or its securities.

Goldman Sachs cut its recommendation on exposure to European bank debt, saying a lack of clarity on Credit Suisse's future would put pressure on the broader sector in the region.

Although the banking system was more robust than it was at the time of the financial crisis in 2008, a more forceful policy response is likely needed to bring some stability, Goldman analyst Lotfi Karoui wrote in a note to clients.

Already this week, big US banks provided a US$30 billion lifeline for smaller lender First Republic while US banks altogether have sought a record US$153 billion in emergency liquidity from the Federal Reserve in recent days.

This reflected funding and liquidity strains on banks, driven by weakening depositor confidence, said ratings agency Moody's, which this week downgraded its outlook on the US banking system to negative.

In Washington, focus turned to greater oversight to ensure that banks - and their executives - are held accountable.

US President Joe Biden called on Congress to give regulators greater power over the sector, including imposing higher fines, clawing back funds and barring officials from failed banks.

Some Democratic lawmakers asked regulators and the Justice Department to probe the role of Goldman Sachs in SVB's collapse, said the office of Representative Adam Schiff.

Banking stocks globally have been battered since Silicon Valley Bank collapsed, raising questions about other weaknesses in the financial system.

US regional bank shares fell sharply on Friday and the S&P Banks index posted its worst two-week calendar loss since the pandemic shook markets in March 2020, slumping 21.5%.

First Republic Bank ended Friday down 32.8%, bringing its loss over the last 10 sessions to more than 80%.

While support from some of the biggest names in US banking prevented First Republic's collapse this week, investors were startled by disclosures on its cash position and how much emergency liquidity it needed.

The failure of SVB, meanwhile, brought into focus how a relentless campaign of interest rate hikes by the US Federal Reserve and other central banks, including the European Central Bank this week, was putting pressure on the banking sector.

Many analysts and regulators have said SVB's downfall was due to its specialized, tech-focused business model, while the wider banking system was much more robust thanks to reforms adopted in the years after the global financial crisis.

But a senior official at China's central bank said on Saturday that high interest rates in the major developed economies could continue to cause problems for the financial system.

 

ICC issues arrest warrants of Russian President

Piotr Hofmanski, President, International Criminal Court (ICC) said in a video statement Friday that an arrest warrant has been issued for Russian President Vladimir Putin for the alleged war crimes of deportation of children from Ukrainian occupied territories into the Russian Federation.

International law prohibits occupying powers from transferring civilians from occupied areas to other territories.

Hofmanski said the contents of the warrants would be kept secret to protect the identities of the allegedly abducted children.

“Nevertheless, the judges of the chamber dealing with this case decided to make the existence of the warrants public in the interest of justice and to prevent the commission of future crimes,” he said.

While the ICC’s judges have issued the warrants, it will be up to the international community to enforce them as the ICC has no police force of its own.

“The execution depends on international cooperation,” Hofmanski said.

While it’s unclear what type of international cooperation would lead to Putin’s arrest, Russia has made clear it has no intention of cooperating.

The Kremlin said earlier this week that it doesn’t acknowledge the ICC’s jurisdiction or authority.

“We do not recognize this court; we do not recognize its jurisdiction,” Kremlin spokesperson, Dmitry Peskov, told journalists in Moscow on Tuesday.

Peskov’s dismissal of the court’s authority came amid media speculation that ICC prosecutors would open two war crimes cases and issue several arrest warrants for those deemed responsible for the targeting of Ukrainian civilian infrastructure and for the mass abduction of children.

Besides seeking Putin’s arrest, the ICC on Friday also announced it had issued an arrest warrant for Maria Alekseyevna Lvova-Belova, the Commissioner for Children’s Rights in the Office of the President of the Russian Federation, on similar allegations.

The ICC said in a statement that both Putin and Lvova-Belova are allegedly responsible for the war crime of unlawful deportation of population (children) and that of unlawful transfer of population (children) from occupied areas of Ukraine to the Russian Federation.

The crimes were allegedly committed in Ukrainian occupied territory at least from February 24, 2022; the court said which marks the date of Russia’s invasion of Ukraine, which Moscow calls a special military operation.

The arrest warrants come about a year after ICC prosecutor Karim Khan opened an investigation into possible war crimes, crimes against humanity, and genocide in Ukraine.

Khan has said that, during four trips to Ukraine, he was looking at the alleged targeting of civilian infrastructure and crimes against children.

Ukraine’s Prosecutor General Andriy Kostin hailed the ICC’s decision in a statement on social media.

“The world received a signal that the Russian regime is criminal and its leadership and henchmen will be held accountable,” he said. “This is a historic decision for Ukraine and the entire system of international law.”

Andriy Yermak, Ukraine’s presidential chief of staff said the move was “just the beginning.”

There were no immediate comments from Russia following the ICC’s announcement.

On Thursday, a United Nations-backed inquiry accused Russia of committing numerous war crimes in Ukraine, including forcibly deporting children to Russian territory.

The ICC’s announcement came as Slovakia on Thursday announced that it would send its fleet of Soviet-era MiG-29 fighter jets to Ukraine.

With the move, Slovakia joined Poland, which on March 16 became the first NATO country to send its fighter jets to its embattled neighbor.

Ukraine’s leaders have repeatedly asked Western powers for fighter jets to help them in the fight against Russian forces.

Analysts say that neither Moscow nor Kyiv has air superiority in the skies above Ukraine, with the decision to send in the jets seen as a potential turning point in repelling Russia’s offensive.

Ukraine President Volodymyr Zelenskyy has repeatedly requested jet fighters, while Washington and other NATO allies have refused, citing concern about escalating the alliance’s role in the conflict.

Peskov downplayed the decision to send Polish and Slovak planes to Ukraine.

“In the course of the special military operation, all this equipment will be subject to destruction,” Peskov said. “It feels like all of these countries are thus engaged in the disposal of old unnecessary equipment.”

Poland, which considers Russia’s regional ambitions a threat to its security, has been one of Kyiv’s staunchest supporters since the conflict began.

Warsaw has already provided Ukraine with some 250 combat tanks and pledged dozens more last month, including advanced German-made Leopard tanks.

 

National Refinery stops supplying fuel to Pakistan State Oil Company

According to media reports, National Refinery (NRL) has decided to halt supplies to Pakistan State Oil Company (PSO) after the state-owned oil marketing company stopped the payments to the refinery.

PSO has been suffering from a severe financial crisis due to lack of payments from various sectors on account of supply of petroleum products. Currently, the PSO owes National Refinery PKR 3.469 billion.

PSO stopped the payments of refineries a couple of days back. These refineries are the suppliers of diesel, petrol, aviation fuel, furnace oil etc. to the state-owned company, having the largest share in the sales of petroleum products in the country.

“NRL has decided to halt the supply to PSO after the stoppage of payment and intimated the OMC in written,” said sources familiar to the development. They added, NRL was the first and other refineries might follow suit.

PSO has been entangled in financial woes for the last many years, but in recent months the situation has aggravated immensely as its inter-corporate debt has increased to PKR1,024 billion with receivables at PKR762.653 billion and payables at PKR261.155 billion.

The breakup of the PSO payments to the local refineries showed that it has to pay PKR25 billion to Pak-Arab Refinery Company (PARCO), PKR10 billion to Pakistan Refinery (PRL), PKR3.469 billion to National Refinery, PKR9.049 billion to Attock Refinery (ARL), and PKR4.108 billion to Cnergyico.

Details of the company’s receivables show that the Sui Northern Gas Pipelines (SNGPL) has so far emerged as the biggest defaulter of Pakistan State Oil.

The SNGPL owes PSO PKR492.102 billion as of March 08, 2023.

The power sector continues to haunt the state-owned oil marketing company as it is required to PKR Rs178 billion followed by Pakistan International Airlines (PIA) and the government of Pakistan, which owe PSO PKR92.5 billion.

The most crucial payment of PKR124.666 billion in the head of LPS (late payment surcharge) is also part of the total receivables that have soared to PKR762.653 billion.

 

OPEC+ terms oil price drop financially driven

OPEC Plus attributes this week's slide in oil prices to a more than one-year low to be driven by financial fears, not any imbalance between demand and supply, and expects the market to stabilize, four delegates from the oil producer group told Reuters.

Oil sank to a 15-month low on Wednesday, with Brent crude below US$72 a barrel, on concerns about contagion from a banking crisis. Crude stabilized on Thursday after Credit Suisse was thrown a financial lifeline by Swiss regulators.

"It's purely financially driven and has nothing to with the demand and supply of oil," one of the delegates said, asking not to be named. OPEC Plus is most likely ‘wait and see’ in expectation that the situation will normalize soon.

Three other delegates from the OPEC+ Plus producer group comprising the Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies, made similar remarks.

The comments will dampen any speculation that OPEC Plus is concerned about weakening prices and might consider further steps to support the market. The group's next policy meeting is not until June, though an advisory panel of key ministers meets on April 03.

One of the delegates said OPEC's latest monthly oil market report, released on Tuesday with an upgraded demand forecast for China, pointed to a sound balance between supply and demand.

"We are focusing on market fundamentals," another of the sources said.

Last November, with prices weakening, OPEC Plus reduced its output target by 2 million bpd - the largest cut since the early days of the COVID-19 pandemic in 2020. The same reduction applies for the whole of 2023.

Ministers from Algeria and Kuwait this week praised the decision and Saudi Arabia's energy minister told Energy Intelligence that OPEC Plus will stick to the reduced target until the end of the year.

Credit Suisse sued by US shareholders

US shareholders of Credit Suisse Group AG sued the Swiss bank on Thursday, claiming that the bank defrauded them by concealing problems with its finances.

The proposed class action accuses Credit Suisse of deceiving investors by failing to disclose that it was suffering from significant customer outflows, and that it had material weaknesses in its internal controls over financial reporting.

Shareholders led by Braden Turner said that as the truth became known, and Credit Suisse's largest shareholder said it would not put more money into the bank, investors fled, causing losses as Credit Suisse's stock price sank to a record low.

The lawsuit appears to be the first by US investors over recent problems at Credit Suisse, which regained some market confidence on Thursday after securing a lifeline to borrow up to US$54 billion from Switzerland's central bank.

Credit Suisse declined to comment on the lawsuit, which was filed in federal court in Camden, New Jersey. Chief Executive Ulrich Koerner and Chair Axel Lehmann are among the other defendants.

Turner, the named plaintiff, sued on behalf of holders of Credit Suisse's American depositary shares from March 10, 2022, to March 15, 2023.

The law firm representing Turner was also first to file shareholder lawsuits against Silicon Valley Bank parent SVB Financial Group and Signature Bank. Regulators seized both of those banks within the last week.

Credit Suisse's largest shareholder is Saudi National Bank. The Saudi bank's chairman said in a TV interview on Wednesday that regulatory issues were the main reason it would not add to its 9.9% Credit Suisse stake.

 

China, Russia and Iran launch navy drills in Gulf of Oman

According to South China Morning Post, China, Russia and Iran launched joint naval exercises in the Gulf of Oman on Wednesday, as rival power the United States hosts the Middle East’s largest maritime drills nearby.

The joint naval manoeuvres with Iran and Russia will run until Sunday, China’s Ministry of Defence said, adding they will help deepen practical cooperation among the navies of participating countries.

Officially named Security Bond-2023, the exercise has been developed from similar training carried out by the three countries in 2019 and 2022, and will include aerial search operations, sea rescue and fleet formation exercises, as well as other tasks, the ministry statement said.

The statement also said other countries are involved but did not give details.

The Security Bond drills coincide with the last leg of the 18-day International Maritime Exercise 2023, which kicked off on March 02 at the US 5th Fleet’s headquarters in Bahrain.

The eighth edition of the US-led event since it was set up in 2012 involves 50 countries and international agencies – including France, Pakistan, Egypt, Saudi Arabia, Nato and Interpol.

“The Security Bond exercise will help demonstrate the will and capability of the participating countries to jointly safeguard maritime security and actively build a community of shared future for the sea, and inject positive energy into regional peace and stability,” the statement from Beijing said.

China has sent its South Sea Fleet warship, the Nanning, to take part in the drills. The type 052D destroyer has been dubbed the Chinese Aegis as it is benchmarked against the US Navy’s Arleigh Burke-class Aegis destroyers.

The 7,500-tonne Nanning is equipped with advanced integrated radar, and a 64-cell vertical launch system for a variety of air defence, land attack, anti-ship and anti-submarine missiles.

In January, the Nanning was dispatched to missions in the Indian Ocean, and then participated in the Pakistan-led multinational Arabian Sea naval exercise AMAN-23 and the International Defence Exhibition in Abu Dhabi last month.

According to a US Navy statement, this year’s IMX involves 7,000 personnel, 35 ships, and 30 unmanned and artificial intelligence systems from the participating nations and international bodies.

he exercise spans the Arabian Sea, Gulf of Oman, Gulf of Aden, Red Sea, Indian Ocean and East African coastal regions, and is expected to wind up by March 20.

The Gulf of Oman in the northwestern Indian Ocean is a key transit point for international energy shipments, connecting the Arabian Sea to the Strait of Hormuz, which leads to major oil producing nations including Iran and Saudi Arabia.

China, Russia and Iran each have various degrees of tension with the US. Beijing, meanwhile has expanded its influence and presence in the Middle East in recent years as it presents itself as a global leadership alternative to Washington

Last week, it brokered a surprise deal for long-time rivals Iran and Saudi Arabia to resume diplomatic ties after seven years, raising hopes of a lasting peace in the Middle East and highlighting China’s role as a global mediator.

Beijing is also a close partner of Moscow, and has been criticized by the US and its allies for refusing to condemn the Russian invasion of Ukraine.

China has said it will keep pushing for peace talks and President Xi Japing is expected to visit Russia in the coming weeks.