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China records its weakest economic growth rate in more than two years – Industry roundup: 15 July

The largest listing on the LSE in over a decade: Consumer giant Haleon is demerging from GSK

Investors in the British pharmaceuticals giant GSK have voted to approve a demerger of its consumer brands into a new company, Haleon, firing the starting gun on the largest London stock market listing in a decade, as per a recent article in the Guardian.

GSK now expects Haleon to begin trading on the London Stock Exchange’s (LSE) main market at 8:00 a.m. on Monday 18 July, after investors in GSK voted to approve the demerger. Once the demerger takes place, investors will receive one share in Haleon for every existing GSK share that they own, which will leave GSK shareholders owning 54.5% of the new business. About a third (32%) will be owned by Pfizer, and the balance by GSK itself.

“This will be the largest London Stock Market listing in a decade, with the new company becoming a big beast with a new skin in the consumer goods world,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (HL).

Haleon’s operations made revenues of £9.5 billion and profits of £1.6 billion in 2021, according to its prospectus for the share offer. Haleon, whose portfolio of brands will include Sensodyne toothpaste and Advil and Panadol painkillers, is expected to seek a valuation of as much as £45 billion that “will immediately take its place as a top 20 ‘Footsie’ company and will become Europe’s largest company listing for over a decade,” as per a recent Forbes report.

“The idea behind the demerger is for value to be unlocked in both businesses, but GSK is parcelling off a considerable quantity of its sizeable debt pile into Haleon, expected to be around £10 billion. The consumer business will start life with a net debt to cash profits (EBITDA) ratio of up to 4.0, compared to the 2.0 times planned for New GSK, which will focus on the pharmaceutical business.  With the New GSK dividend expected to tick along at a lower level from 2023, and the consumer business likely to be cutting debt at least initially, it could take years for the overall dividend to return to its current level. As with any dividend, there are no guarantees,” observed Streeter.

Analysts at Credit Suisse have ascribed Haleon an equity valuation of £33 billion, while other analysts value it at up to £40 billion, plus a debt pile worth more than £10 billion after paying dividends worth £7 billion to GSK and £3 billion to Pfizer, as reported in the Guardian.

India’s central bank to allow rupee settlement system for international trade

The Reserve Bank of India (RBI), the country’s central bank, has introduced an Indian rupee settlement system for international trade.

“In order to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in the Indian rupee (INR), it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR,” said the Reserve Bank of India (RBI) notification issued on July 11.

Under the system, authorized banks will require approval from the RBI to institute the rupee trade settlement mechanism.

Exports and imports under the new arrangement will be denominated and invoiced in rupees, and the exchange rate between the currencies of the two trading partner countries will be market determined. To settle trade transactions with any country, Indian banks might open special rupee vostro accounts of correspondent bank(s) of the partner-country, as per the RBI.

A vostro account refers to an account maintained in local currency by a local bank for a foreign bank.

Under this new settlement system, exporters and importers can use the special vostro account linked to the correspondent bank of the partner country for receipts and payments denominated in rupees, according to the RBI. This mechanism may enable Indian exporters to receive advance payment against exports from overseas importers in rupees.

“Before allowing any such receipt of advance payment against exports, Indian banks shall ensure that available funds in these accounts are first used towards payment obligations arising out of already executed export orders/export payments in the pipeline,” explained the RBI notification.

According to the RBI, any surplus balance in the vostro accounts could be used for capital and current account transactions based on mutual agreements. The balance in special vostro accounts can also be used for payments for projects and investments, export and import advance flow management, and investment in government securities.

China records its weakest economic growth rate in more than two years

Economic growth in China contracted last quarter – with the economy expanding at a 0.4% annual rate in the April to June period, China’s National Bureau of Statistics (NBS) said. The world’s second-largest economy grew at the slowest pace since the first quarter of 2020, when the pandemic first erupted and the world saw its first COVID-19 lockdown come into force in the Chinese city of Wuhan.

Economists polled by The Wall Street Journal had forecast China’s economy to grow 0.9%. The worst quarterly performance in over two years highlights the scale of the slowdown caused by the country’s “zero COVID” policy that led to stringent lockdowns and left millions of Chinese citizens confined to their homes for months.

Aggressive efforts to stamp out COVID-19 infections brought factory production, business activity and consumer spending to a halt in China and compounded the global supply chain snarls that pushed up inflation.

On a quarter-to-quarter basis, China’s economy shrank 2.6%. For the first half of this year, the economy expanded 2.5%, way below the 5.5% annual target set by the government. Beijing admitted Friday that reaching its GDP goals this year would be hard, according to a recent article published on CNN. 

“There are challenges to achieve our expected economic growth target for the whole year,” said Fu Linghui, a spokesperson for the NBS, at a press conference in Beijing. But he expected the economy to rebound in the second half.

U.S. inflation hits a new 41-year high of 9.1%: CPI Report

U.S. inflation surged to a four-decade high in June, with the Consumer Price Index (CPI) jumping by 9.1% year-over-year, according to fresh data released Wednesday by the Bureau of Labor Statistics.

According to a recent article on CNN, “Much of the June increase was driven by a jump in gasoline prices, which were up nearly 60% over the year. Americans faced record-high gas prices last month, with the national average topping $5 a gallon across the country.”

The CPI for June also showed that overall prices that consumers pay for a variety of goods and services rose by 1.3% from May to June. Excluding volatile food and energy prices, the so-called core CPI increased 5.9%, compared with the 5.7% estimate.

The U.S. Federal Reserve (Fed) pays particular attention to the CPI report when assessing future inflationary trends, and given the latest CPI data, it is widely expected that the Fed will raise its benchmark interest rate by at least 75 basis points at its upcoming meeting on July 26-27.

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