Britain to compensate military personnel hit by Cyprus bank levy

LONDON, March 17 | Sun Mar 17, 2013 6:22am EDT

LONDON, March 17 (Reuters) - Britain will compensate its military personnel based in Cyprus hit by a bank levy imposed on Cypriot accounts as part of a euro zone bailout, finance minister George Osborne said on Sunday.

"For people serving in our military, people serving our government out in Cyprus ... we are going to compensate anyone who is affected by this bank tax," he told BBC television.

Britain has about 3,500 military personnel based in Cyprus.

The euro zone agreed on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion) but demanded depositors in its banks forfeit some money to stave off bankruptcy.

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Egypt moves to help foreign investors repatriate funds

CAIRO, March 17 | Sun Mar 17, 2013 6:23am EDT

CAIRO, March 17 (Reuters) - Egypt's central bank opened a scheme on Sunday allowing foreign investors in the stock and government debt markets access to dollars despite severe shortages of foreign currency.

In a statement posted on its website, the central bank said it had decided to restart and broaden a mechanism helping foreign investors to repatriate their funds that was used in 2000-2003 - also a period of dollar shortages when the Egyptian pound's value fell sharply.

"In addressing the central bank's responsibility for moving the Egyptian economy securely through the exceptional circumstances that the country is going through, it has decided to reenact those mechanisms starting Sunday," the bank said.

Egypt has endured two years of political instability, driving tourists and foreign investors away and draining its foreign reserves. These fell to a critical level of $13.5 billion at the end of February from $36 billion just before the uprising that ousted President Hosni Mubarak in 2011.

The Egyptian pound has lost more than 8 percent against the dollar since the end of last year and central bank has rationed dollars through auctions to commercial banks to slow the slide in the pound and the reserves.

The "Foreign Investors' Repatriation Mechanism" will be expanded to cover treasury bills and bonds in addition to investments on the Egyptian stock market, the statement said.

Egypt wants to negotiate a $4.8 billion loan from the International Monetary Fund and has rejected the possibility of short-term IMF financing during its current political uncertainty. The IMF's Director for the Middle East and North Africa Masood Ahmed is due in Cairo for talks with the government on Sunday.

Parliamentary elections were supposed to start on April 22 but a court cancelled President Mohamed Mursi's decree calling them. An appeal against the ruling is being heard on Sunday.

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RPT-UPDATE 7-Savers forced to bear costs in Cyprus bailout

Sun Mar 17, 2013 6:25am EDT

* Cypriot bailout of 10 billion euros agreed by euro zone

* One-off levy on bank deposits to raise almost 6 bln euros

* IMF's Lagarde says backs deal, will make contribution soon

By Annika Breidthardt and Robin Emmott and John O'Donnell and Jan Strupczewski

BRUSSELS, March 16 (Reuters) - The euro zone struck a deal on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risks of a wider bank run.

Cyprus becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help in the wake of the region's debt crisis.

In a radical departure from previous aid packages, euro zone ministers forced Cyprus' savers, almost half of whom are believed to be non-resident Russians, to pay up to 10 percent of their deposits to raise almost 6 billion euros.

"I wish I was not the minister to do this," Cypriot Finance Minister Michael Sarris said after 10 hours of late-night talks where euro zone finance ministers agreed the package.

"Much more money could have been lost in a bankruptcy of the banking system or indeed of the country," he said, adding that he hoped a levy and bailout would mark a new start for Cyprus.

Without a rescue, Cyprus would default and threaten to unravel investor confidence in the euro zone that has been fostered by the European Central Bank's promise last year to do whatever it takes to shore up the currency bloc.

The bailout was smaller than initially expected and is mainly needed to recapitalise the Mediterranean island's banks that were hit by a sovereign debt restructuring in Greece.

The levy on bank deposits will come into force on Tuesday, after a bank holiday on Monday. Cyprus will take immediate steps to prevent electronic money transfers over the weekend.

"As it is a contribution to the financial stability of Cyprus, it seems just to ask for a contribution of all deposit holders," Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting in Brussels, told reporters.

Such levies break the taboo of hitting bank depositors with losses, but Dijsselbloem said it would not have otherwise been possible to salvage its financial sector, which is around eight times the size of the economy.

"We are not penalising Cyprus... we are dealing with the problems in Cyprus," Dijsselbloem said.

In return for emergency loans, Cyprus also agreed to increase its corporate tax rate by 2.5 percentage points to 12.5 percent.

This should boost Cypriot revenues, limiting the size of the loan needed from the euro zone and keep down public debt.

Dijsselbloem said that under the programme, the island's debt would fall to 100 percent of economic output by 2020.

RUSSIAN AID

International Monetary Fund Managing Director Christine Lagarde, who attended the meeting, said she backed the deal and would ask the IMF board in Washington to contribute to the bailout.

"We believe the proposal is sustainable for the Cyprus economy," she said. "The IMF is considering proposing a contribution to the financing of the package... The exact amount is not yet specified," Lagarde said.

Cyprus, with a gross domestic product of barely 0.2 percent of the bloc's overall output, applied for financial aid last June, but negotiations were stalled by the complexity of the deal and reluctance of the island's previous president to sign.

Moscow, which has close ties with Nicosia, is likely to help by extending a 2.5 billion euro loan already made to Cyprus by five years to 2021 and reducing the interest rate.

"We have had contacts in recent weeks with the Russian government," said the EU's top economic official Olli Rehn.

"My understanding is that the Russian government is ready to make a contribution with an extension of the loan and a reduction of the interest rate," said Rehn, who is responsible for economic affairs at the European Commission, the EU executive.

Cyprus' finance minister Sarris will travel to Moscow for meetings on Monday to try to pin down the new loan terms.

Cyprus originally estimated that it needed about 17 billion euros - almost the size of its entire annual output - to restore its economy to health.

But because a loan of that magnitude would increase its debt to unsustainably high levels and call into question its ability ever to pay it back, policymakers sought to reduce it by finding more revenue sources in Cyprus itself.

Separately, euro zone ministers agreed to extend the maturity of emergency loans to Ireland and Portugal to smooth out their return to market financing this year and next, but details of the extensions will be decided only in April.

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Russia ready to extend Cypriot loan, cut interest, EU's Rehn says

BRUSSELS, March 16 | Fri Mar 15, 2013 11:37pm EDT

BRUSSELS, March 16 (Reuters) - Russia's government is ready to ease the conditions of a 2.5 billion euro loan it made to Cyprus by extending the 5-year maturity beyond 2016 and by cutting the 4.5 percent interest, EU Economic and Monetary Affairs Commissioner Olli Rehn said.

"My understanding is that the Russian government is ready to make a contribution with an extension of the loan and a reduction of the interest rate," Rehn said on Saturday.

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RPT-Lagarde wants IMF to give to Cyprus bailout, can't say how much

BRUSSELS, March 16 | Fri Mar 15, 2013 11:39pm EDT

BRUSSELS, March 16 (Reuters) - A rescue plan agreed for Cyprus is financially sound and allows the International Monetary Fund to make a contribution, but it is too early to say how much it will give, the Washington-based lender said on Saturday.

"We believe the proposal is sustainable for the Cyprus economy, it is fully financed... The IMF is considering proposing a contribution to the financing of this package," the IMF's Managing Director Christine Lagarde said.

"The exact amount is not yet specified. It will take some time," she told a news conference.

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UPDATE 8-Savers forced to bear costs in Cyprus bailout

Sat Mar 16, 2013 3:08am EDT

* Cypriot bailout of 10 billion euros agreed by euro zone

* One-off levy on bank deposits to raise almost 6 bln euros

* IMF's Lagarde says backs deal, will make contribution soon

* Cypriots incredulity at decision gives way to fury

By Annika Breidthardt and Robin Emmott and John O'Donnell and Jan Strupczewski

BRUSSELS, March 16 (Reuters) - The euro zone struck a deal on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risks of a wider bank run.

Cyprus becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help in the wake of the region's debt crisis.

In a radical departure from previous aid packages, euro zone ministers forced Cyprus' savers, almost half of whom are believed to be non-resident Russians, to pay up to 10 percent of their deposits to raise almost 6 billion euros.

"I wish I was not the minister to do this," Cypriot Finance Minister Michael Sarris said after 10 hours of late-night talks where euro zone finance ministers agreed the package.

"Much more money could have been lost in a bankruptcy of the banking system or indeed of the country," he said, adding that he hoped a levy and bailout would mark a new start for Cyprus.

Without a rescue, Cyprus would default and threaten to unravel investor confidence in the euro zone that has been fostered by the European Central Bank's promise last year to do whatever it takes to shore up the currency bloc.

But on the Mediterranean island, initial incredulity at the decision gave way to anger.

Co-op credit societies, normally open on Saturdays, were shut for business in the coastal town of Larnaca as depositors started queuing early in the morning to withdraw their cash.

"I'm extremely angry. I worked years and years to get it together and now I am losing it on the say-so of the Dutch and the Germans," said British-Cypriot Andy Georgiou, 54, who returned to Cyprus in mid-2012 with his savings.

"They call Sicily the island of the mafia. It's not Sicily, it's Cyprus. This is theft, pure and simple," said a pensioner.

The bailout was smaller than initially expected and is mainly needed to recapitalise Cypriot banks that were hit by a sovereign debt restructuring in Greece.

The levy on bank deposits will come into force on Tuesday, after a bank holiday on Monday. Cyprus will take immediate steps to prevent electronic money transfers over the weekend.

"As it is a contribution to the financial stability of Cyprus, it seems just to ask for a contribution of all deposit holders," Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting in Brussels, told reporters.

Such levies break the taboo of hitting bank depositors with losses, but Dijsselbloem said it would not have otherwise been possible to salvage its financial sector, which is around eight times the size of the economy.

"We are not penalising Cyprus... we are dealing with the problems in Cyprus," Dijsselbloem said.

Dijsselbloem said that under the programme, the island's debt would fall to 100 percent of economic output by 2020.

In return for emergency loans, Cyprus agreed to increase its corporate tax rate by 2.5 percentage points to 12.5 percent.

This should boost Cypriot revenues, limiting the size of the loan needed from the euro zone and keep down public debt.

RUSSIAN AID

International Monetary Fund Managing Director Christine Lagarde, who attended the meeting, said she backed the deal and would ask the IMF board in Washington to contribute to the bailout.

"We believe the proposal is sustainable for the Cyprus economy," she said. "The IMF is considering proposing a contribution to the financing of the package... The exact amount is not yet specified," Lagarde said.

Cyprus, with a gross domestic product of barely 0.2 percent of the bloc's overall output, applied for financial aid last June, but negotiations were stalled by the complexity of the deal and reluctance of the island's previous president to sign.

Moscow, which has close ties with Nicosia, is likely to help by extending a 2.5 billion euro loan already made to Cyprus by five years to 2021 and reducing the interest rate.

"We have had contacts in recent weeks with the Russian government," said the EU's top economic official Olli Rehn.

"My understanding is that the Russian government is ready to make a contribution with an extension of the loan and a reduction of the interest rate," said Rehn, who is responsible for economic affairs at the European Commission, the EU executive.

Cyprus' finance minister Sarris will travel to Moscow for meetings on Monday to try to pin down the new loan terms.

Cyprus originally estimated it needed about 17 billion euros - almost the size of its entire annual output - to restore its economy to health.

But because a loan of that magnitude would increase its debt to unsustainably high levels and call into question its ability ever to pay it back, policymakers sought to reduce it by finding more revenue sources in Cyprus itself.

Separately, euro zone ministers agreed to extend the maturity of emergency loans to Ireland and Portugal to smooth out their return to market financing this year and next, but details of the extensions will be decided only in April.

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High-yield gets a taste of Dim Sum

Fri Mar 15, 2013 6:22am EDT

* Offshore renminbi sees record high-yield issuance

* Rates at lowest ever make market attractive

* Investors play the currency and get the coupon

By Nethelie Wong

March 15 (IFR) - Companies from Moscow to New York drove new high-yield bond issues in the overseas renminbi market to a record last week with three new issues totalling at least Rmb3.25bn (US$516m).

The offerings, including one that was set to price late on Friday, attracted orders of over Rmb14bn even as mounting demand for sub-investment grade Dim Sum paper pushed yields to a record low.

That trend is expected to continue, with one head of debt capital markets in Hong Kong already predicting that April will be a record month for high-yield and unrated fundraisings in the offshore renminbi, or CNH, market.

Investors are keen on the paper, too.

"There has been a lot of issuance (of high-yield in dollars), but I like the levels being offered in the CNH space," said one hedge fund manager in Singapore.

Another asset manager in Singapore said that investors liked the fact that, unlike dollar bonds, Dim Sum paper cannot be easily shorted. So if they like the credit, the offshore renminbi bonds are a safer bet. "Some guys like the currency exposure as well," he added.

Issuers are also happy. On a comparative basis, some of the transactions priced this week provided lower funding costs for junk-rated issuers than they would get in the dollar market.

Financial officers at companies like to compare funding costs in different markets by checking what spread over Libor they achieved. And from that standpoint, the levels are very attractive.

CHEAPER THAN DOLLARS

Chinese property developer Gemdale, for example, sold a Rmb2bn five-year bond last Thursday at 5.625%. That would have swapped to US dollars rates at just 375bp over Libor, far below where it could have raised funds in that market.

As a comparison, Country Garden, far larger but with a similar rating to Gemdale at Ba3/BB-, has US dollar bonds due 2018 yielding 5% in secondary. That yield swaps into 400bp over Libor.

Gemdale's trajectory also helps explain why investors are so keen on Dim Sum high-yield.

The company last year raised Rmb1.2bn from a three-year Reg S bond at 9.15%. Those bonds performed very well in the secondary market and were being quoted last week at a yield 4.939%/4.405%.

The gains were not limited to Gemdale.

The Citigroup High-Yield Dim Sum index reached an all-time high of 110 last week, marking an average yield of 4.58%, the index's lowest ever. The return on the index in the past 12 months was a respectable 11.4%.

RECORD ISSUANCE AHEAD

With yields so low and investors still hungry, more issuance is a natural consequence - now wonder last week was the most active ever for the asset class.

On March 13, Russian Standard Bank more than doubled the total issue size of its 8% due February 14 2015 paper to Rmb1.25bn with a well-received Rmb750m tap. The reopening came only a month after the original deal, but saved an impressive 73bp in funding costs for the lender.

Come Friday, Nasdaq-listed cloud computing provider 21Vianet Group was again underlining the depth of demand with the first Dim Sum bond from China's internet sector.

Indicated at 8%, the unrated deal had received orders of Rmb3.75bn by Friday afternoon. The amount demanded was more than the firm's reported assets of Rmb2.97bn as of September 30 2012.

"If the deal goes well, it will open doors for other listed Chinese small-cap companies and start a new sector for the CNH market," said a DCM banker.

It also will offer further proof that the offshore renminbi offers a good funding avenue for junk-rated companies.

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UPDATE 2-Fragile Portugal gets more time on bailout goals

Fri Mar 15, 2013 6:34am EDT

* Lenders give Portugal extra year to make spending cuts

* Now expect economy to slump 2.3 pct, not 1 pct, this year

* Finance Minister says European slump has hits country

* Unemployment expected to rise higher

By Sergio Goncalves

LISBON, March 15 (Reuters) - Portugal's creditors have eased its budget goals and granted it more time for deeply unpopular spending cuts under its bailout after the economy's outlook worsened further, Finance Minister Vitor Gaspar said on Friday.

The international creditors said they expect gross domestic product to slump by 2.3 percent this year, much deeper than the 1 percent drop they forecast at the time of their last review in November - starkly illustrating the impact of successive waves of austerity on Portugal's already fragile economy.

Gaspar told a news conference the country had passed the seventh bailout review by inspectors from the 'troika' - the European Commission, IMF and European Central Bank - which would qualify it for the next tranche of rescue loans worth 2 billion euros. The review lasted about a week longer than previous ones.

"Europe still lives a period of crisis," Gaspar said. "We all know how this external setting affects the Portuguese economy."

Last month, the European Commission forecast Portugal's economy would shrink by 1.9 percent this year, mainly blaming Europe's recession.

Portugal's own recession is in its third year and is the country's worst since the 1970s - brought on by a fall in consumption and investment after the government imposed painful tax hikes and spending cuts under the 78-billion-euro bailout.

With resistance to further austerity within Portugal having gathered pace in recent weeks, the lenders granted an extra year for Lisbon to make permanent spending cuts worth 2.5 percent of GDP, or roughly 4 billion euros.

These now have to be carried out incrementally until 2015 and not 2014.

The growing demands for an easing of the government's austerity programme have come not just from the leftist opposition, but also increasingly from businesses.

Antonio Saraiva, head of the Portuguese Industry Confederation - the biggest employers' group - said this week it was "unthinkable and impossible" to cut state spending by 4 billion euros in two years.

LEEWAY ON BUDGET

While economic growth is still expected to return next year, that too was revised lower, to 0.6 percent from 0.8 percent, Gaspar said.

The lenders also agreed to ease this year's budget deficit goal to 5.5 percent of GDP from 4.5 percent previously. Gaspar said. They had already eased the targets once last September.

European statistics agency Eurostat had not accepted revenues from the privatisation of airport authority ANA to boost last year's budget, meaning the deficit reached 6 percent of GDP in 2012.

Next year's deficit target will now be 4.0 percent of GDP compared to 2.5 percent previously - which now becomes the goal to be met in 2015. Debt will now continue rising, to peak around 124 percent of GDP in 2014.

Unemployment, which spiked to hit a record 16.9 percent at the end of last year, creating an additional fiscal headache for the government and stoking protests, is now expected to climb to 18.2 percent this year and 18.5 percent in 2014.

Previously, the European Commission expected the jobless rate to peak at 17.3 percent this year.

The Portuguese, who had shown much tolerance for austerity, have stepped up protests and strikes since the middle of last year, when the government reversed a hike in social security contributions which angered thousands.

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Global convertible bond activity double 2012 levels

LONDON, March 15 | Fri Mar 15, 2013 6:36am EDT

LONDON, March 15 (Reuters) - The volume of convertible bonds issued globally so far this year is more than double the same period in 2012, according to Thomson Reuters data, the strongest start to the year since 2008.

A $3.2 billion offering from mid-sized lender China Minsheng Banking Corp this week helped push the total volume of convertibles - bonds which can be exchanged into shares at a predetermined level - to $25.4 billion this year.

Bank of America Merrill Lynch is top of the league table for global convertible debt underwriting with a 10 percent market share, followed by UBS and Goldman Sachs , with 9.6 percent and 9.5 percent respectively.

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Michigan expected to announce takeover of Detroit finances

By Steve Neavling

DETROIT, March 14 | Thu Mar 14, 2013 6:00am EDT

DETROIT, March 14 (Reuters) - Michigan Governor Rick Snyder is expected to announce on Thursday an emergency state takeover of Detroit, putting a lawyer with extensive experience managing corporate bankruptcies in charge of the destitute city's finances.

The dramatic move will culminate the long decline of the once thriving center of the U.S. auto industry and birthplace of the Motown trend in popular music.

Republican Snyder is "highly likely" to name an emergency financial manager for Detroit at a news conference scheduled for 2 p.m local time on Thursday, a source with direct knowledge of the decision said.

The top candidate for the job is Kevyn Orr, 54, a partner in the Washington, D.C., law firm Jones Day, who has long experience handling corporate bankruptcy and restructuring cases, said another source with direct knowledge of the choice.

Orr is best known for his work on the restructuring of Michigan-based Chrysler, which filed for bankruptcy in 2009, earning $1 million in fees during the first year of the case.

He has other Michigan ties, having received both graduate and law degrees from the University of Michigan. And he is African-American, which some politicians have said could help him deal with community leaders in a city that is 83 percent black.

Orr did not return calls and emails requesting comment. Snyder also declined to comment.

The emergency manager will face the huge and controversial task of repairing the finances of a city in crisis. Detroit has run operating deficits for nearly a decade, is starved of cash and facing a crushing burden of debt from commitments such as pensions and health insurance.

Detroit is the poorest major city in the United States with more than a third of the population officially classified as living in poverty, and it has an unemployment rate of 18.2 percent compared with a national rate of 7.7 percent, according to government figures.

Basic services such as street lights and police protection have broken down, and the city has suffered from mismanagement and political corruption.

Detroit's mayor for seven years until 2008, Kwame Kilpatrick, was convicted this week of two dozen federal charges of corruption and bribery for a scheme to collect kickbacks on city contracts for himself and associates. He could face up to 20 years in prison on some of the charges.

Detroit city leaders have long opposed a state takeover, saying that they were making progress on improving the financial situation. Mayor Dave Bing, a former professional basketball player and steel executive, last week announced that it was futile to resist a state takeover, and he would try to work with the emergency manager.

But a defiant city council has called on residents to fight the move, saying that the state is usurping the right of Detroit residents to elect their own leaders.

"We fought for everything we have. How do you stand on the sidelines," Councilman Kwame Kenyatta said on Wednesday in a fiery speech on civil rights at a council meeting.

The city could challenge the takeover in state court but such attempts have failed in Michigan in the past.

Under Michigan state law, the financial manager will have broad powers to run the city, supplanting the elected city council and mayor. The manager could ultimately recommend that Detroit file the largest municipal bankruptcy in U.S. history.

The manager will be able to renegotiate labor contracts, privatize services and sell certain city assets. A law passed in December 2012 that takes effect on March 28 will boost those powers, allowing the manager to terminate collective bargaining agreements with the city's 48 unions.

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