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$200 billion investment on world infrastructure – Industry roundup: 27 June

US declares $200 billion investment on world infrastructure at G7 summit

The G7 has been compelled to renew its program, the Global Investment and Infrastructure Partnership, to provide funds for infrastructure to underdeveloped and developing nations. During the G7 summit with the group of seven leaders, the US is expected to contribute US $200 billion to a global infrastructure initiative over the next five years, in combination with contributions from other G7 members, for a total target of $600 billion.

Emerging nations typically lack the necessary infrastructure to help them navigate a global crisis such as the pandemic, making the road to recovery more difficult. According to Ursula von der Leyen, President, European Commission (EC), the program's goal is to “present a positive investment impulse to the world to show our partners in the developing world that they have a choice.”

The G7 project was sparked as a result of China’s Belt and Road Initiative, where China has been investing in infrastructure in Africa and Asia, including financing for projects such as seaports and 5G wireless networks, during the last decade.

Some of the main projects highlighted at the summit included a secure subsea cable connecting Europe and Southeast Asia, as well as an industrial MRNA vaccine plant in Senegal, solar projects in Angola, a modular nuclear reactor plant in Romania, and a port connecting Christmas Island to the rest of the world.

According to a recent report by the International Energy Agency (IEA), World Bank, and World Economic Forum, clean energy investment in emerging and developing economies, which was less than $150 billion in 2020, needed to increase by more than seven times, exceeding $1 trillion annually, to place the world on track to achieve net zero emissions by 2050. The IEA further stated that emerging and developing countries account for only one-fifth of clean energy investment. However, they comprise two-thirds of the world's population. Officials stated that while Africa, South America and part of Asia are the main targets for the US-led initiative, places in Eastern Europe, such as Ukraine, could also be part of the program.

Mars generates greater profits as other major companies split up to maintain revenues

Mars, the privately held conglomerate known for its chocolate and pet food based in Virginia US, reported annual sales of nearly US $45 billion in 2021, making it more profitable than Coca-Cola, Nestle, Unilever and Mondelez. The pet unit appears to be the secret sauce for growth according to reports—after investing billions in expansions, it now employs roughly half of the company's 140,000 staff.

Last week, Kellogg's proposal to split itself into three different companies, one of which would be based on its leading snacks business, highlighted the major challenges large food conglomerates face in maintaining organic growth. Reports also show other companies cutting back, such as Kraft Heinz's sale of its nuts business, including the Planters brand, last year.

On the contrary, Mars has outperformed a number of competitors by choosing a completely different route. Instead of expanding its food portfolio and buying underperforming companies, the company grew tremendously in the pet food and veterinary services sectors. Despite the exceedingly odd combination, this pairing of a chocolate bar and a large pet-care company has succeeded, according to reports.

During CEO Grant Reid's eight-year tenure, Mars increased annual sales by more than half, from $28 billion to $45 billion, outperforming Coca Cola’s $38 billion in revenues and representing more growth than consumer behemoths Nestlé and Unilever.

Mars owns over 800 pet-care hospitals and generates 20% of its revenue from pet-related business lines, attributed to a $9.1 billion acquisition of veterinary group VCA. Mars Petcare President Poul Weihrauch will succeed Reid as CEO of the entire conglomerate in September 2022.

OCC continues interagency discussions on cryptocurrency

The Office of the Comptroller of the Currency (OCC) outlined the threats of cryptocurrencies to US banks in its semiannual report. The crypto market’s recent two major collapses have motivated the OCC to improve techniques surrounding digital properties, stated acting Comptroller Michael Hsu. Earlier this month, Celsius Network suspended withdrawals after a substantial market decline, similar to how the algorithmic stablecoin dubbed TerraUSD caused markets to crash after falling in value last month.

According to the OCC's Semiannual Risk Perspective, which was released last Thursday, it continues to engage on an interagency basis to study potential crypto-asset use cases. Additionally, the firm expects to provide more clarity on the legal viability of crypto-assets as well as on its compliance, safety and soundness.

However, discussions between banking institutions about crypto assistance have been temporarily halted. According to Politico Pro and American Banker, the Federal Deposit Insurance Corporation (FDIC) has ceased work on its upcoming assistance for banks that hold crypto properties for their customers. Reports indicate that there is no current timeline for the OCC to release any crypto-related assistance.

These banks are in the early stages of developing their frameworks. Large bank examination teams established by the OCC will reportedly incorporate climate-related financial risk examination into supervision strategies and will continue to engage with bank management to better understand the challenges banks face in this effort, such as identifying and collecting appropriate data and developing scenario analysis capabilities and techniques.

While the report focuses on large banks, it does note that midsize and community banks are beginning to consider the implications of climate-related financial risks based on products, geographies or other potential concentrations.

Deloitte collaborates with NYDIG to provide Bitcoin

UK-based Deloitte and NYDIG, a technology and financial services firm dedicated to Bitcoin for institutions, private firms and banks, have announced a strategic alliance to assist businesses of all sizes in implementing digital asset capabilities.

NYDIG is expected to collaborate with Deloitte's blockchain and digital assets practice on a variety of Bitcoin-related projects, including banking, consumer loyalty and rewards programs, and employee benefits.

The collaboration reportedly establishes a centralized approach for clients seeking assistance in implementing Bitcoin products and services. It is expected to enable businesses to use Deloitte's multidisciplinary services in conjunction with NYDIG's Bitcoin financial and technology products and services. According to reports, Deloitte has begun to integrate Bitcoin wallets into existing user experiences, as well as to offer Bitcoin rewards programs and Bitcoin-secured lending.

BIS and China's central bank to establish a renminbi liquidity plan

The central bank of China announced that it had signed an agreement with the Bank for International Settlements (BIS), establishing a Renminbi Liquidity Arrangement (RMBLA) to support participating central banks during market fluctuations. The People's Bank of China (PBOC) stated that the arrangement's initial partners will also include Bank Indonesia, the Central Bank of Malaysia, the Monetary Authority of Singapore, the Hong Kong Monetary Authority and the Central Bank of Chile.

According to the announcement, each participant will contribute a minimum of 15 billion yuan ($2.2 billion) or the equivalent in US dollars. The BIS stated that the funds could be contributed in either yuan or US dollars and placed in a reserve pool with the BIS.

Russia forced into historic default by sanctions

Russia reportedly made its first default on international bonds in more than a century as a result of broad sanctions that effectively cut the nation off from the international financial system and rendered its assets untouchable.

Some bondholders stated that they had not received overdue interest 27 June, despite the fact that a key payment deadline had passed on Sunday 26 June. Reports indicate that Russia has struggled to meet payments on US $40 billion in outstanding bonds since the Ukraine conflict.

The U.S. Treasury Department's Office of Foreign Assets Control (OFAC) has confirmed that the default has been imposed. The payments in question are $100 million in interest on two bonds, one in US dollars and one in euros, which Russia was supposed to pay on 27 May. The payments had a 30-day grace period that expired on 26 June.

According to Russia's finance ministry, the payments were made in euros and dollars to its onshore National Settlement Depository (NSD), stating that it had met its obligations. Due to the lack of a specific deadline in the prospectus, lawyers believe Russia may have until the end of the next business day to pay the bondholders.

Credit rating agencies typically downgrade a country's credit rating to reflect default, but this is not the case with Russia because most agencies no longer rate the country. According to reports, the legal situation pertaining to the bonds appears to be complicated. Russia's bonds are said to have a rare variety of terms, with an increasing level of ambiguity for those sold recently.

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