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US debt load ended year at US$34 trillion – Industry roundup: 4 January

US national debt hits new record of US$34 trillion

The US government’s debt ended 2023 at a new record level of US$34 trillion, only weeks ahead of deadlines for Congress to agree to new federal funding plans.

Data issued by the Treasury Department showed that “total public debt outstanding”, aka the national debt, had reached $34.001 trillion on 29 December 29. That figure represents the total amount of outstanding borrowing by the US federal government accumulated over the nation’s history.

The new record came only three months after the US national debt surpassed US$33 trillion, as the budget deficit — the difference between what the government spends and what it receives in taxes — escalated.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a fiscal watchdog, called the record figure “a truly depressing ‘achievement.’”

“Though our level of debt is dangerous for both our economy and for national security, America just cannot stop borrowing,” she said in a statement.

Concern is heightened by the national debt increasing at a time when the US economy is relatively strong and unemployment is low, conditions that offer the opportunity to trim the federal deficit. The government often boosts spending during weak economic periods and high unemployment in an effort to stimulate growth.

White House spokesperson Michael Kikukawa said the rising debt was “driven overwhelmingly by repeated Republican giveaways skewed to big corporations and the wealthy,” which led to cuts to Social Security, Medicare and Medicaid that hurt ordinary Americans.

Kikukawa said President Joe Biden had a plan to reduce the deficit by US$2.5 trillion by “making the wealthy and big corporations pay their fair share and cutting wasteful spending on special interests,” including large pharmaceutical and oil companies.

Lawmakers in Washington are facing deadlines for the passage of fiscal year 2024 department budgets in January and February after Congress passed two stopgap funding bills to avert government shutdowns. The fiscal year started on 1 October.

The most recent bill, passed in mid-November, extended funding until 19 January for priorities including agriculture, military construction, veterans’ affairs, transportation, housing and the Energy Department. The rest of the government was funded until 2 February 2. It did not include additional aid for Ukraine or Israel.


HSBC challenges Revolut and Wise with forex app for non-customers

HSBC plans to debut an international payments app to directly challenge the dominance of fintechs such as Revolut and Wise that have won retail customers by offering cheap foreign exchange.

Zing will initially be offered in the UK, but Europe’s largest bank plans to roll out the service in other regions over the coming months as it looks to take a slice of the fast-growing market servicing affluent consumers.

The app will be available on Apple’s Appstore and Alphabet’s Google Play platform within days and will be open to non-HSBC customers as the bank prepares to “attack” the worldwide retail payments market, according to Nuno Matos, chief executive officer of HSBC’s wealth and personal banking business.

Matos said it would take about three minutes for a new user to sign up. “Zing has a global ambition,” he revealed in an interview. “We want to establish ourselves as a global platform for international payments, which ties perfectly with our international payments strategy for HSBC and you should see us very soon in Asia, in the Middle East and in EU markets.”

The move is the latest response by established global financial giants in their competition against the startups that have rapidly expanded over the past decade by offering services ranging from cross-border payments to savings accounts and investing products on mobile devices.

HSBC already has a product called Global Money that offers existing customers a fee-free, currency service. Since its debut in 2020, the service has attracted many customers and processed transactions worth about US$11 billion in 2022.

Matos expects Zing will attract users who might then consider doing more of their banking with HSBC as part of a drive that started last year to become the leading financial institution for internationally mobile customers.

“It’s a bold move for us,” said Matos. “This is HSBC playing outside of its traditional perimeter of customers, and really attacking, if you want, of taking advantage of a contingent, which is big, is growing, looks like us, and it’s here for us.”


China’s top banks step up scrutiny of smaller peers

Some of China’s top banks are looking more closely at the asset quality of their smaller peers and have tightened standards for interbank lending, in an bid to curb credit risk as a deepening debt crisis in the Chinese property market ripples through the economy.

Reports quoting inside sources stated that two of China’s biggest state-owned banks and a leading joint-stock bank have tightened their reviews of smaller lenders over the past two months to identify those with poor asset quality that have a high risk of default.

The two state-owned banks opted to reduce interbank lending limits and set shorter maturity periods for smaller peers deemed high risk, according to two sources who wished to remain anonymous.

The move reflects increasing concerns about the health of smaller banks in the world’s second-largest economy, and the impact of a deepening property sector crisis and ballooning local government debt.

The cautious approach taken by some big banks in dealing with smaller peers could exacerbate capital woes for the latter as they have fewer other fundraising options, which could force Beijing to step in with more supportive measures.

China’s mid-sized and smaller banks account for roughly half of the trading volume in the interbank lending market, data from the China Foreign Exchange Trade System (CFETS), which is overseen by the central bank, showed.

One of the sources cited, a senior official at the leading joint-stock bank which is among those to review credit exposure to smaller peers, said the bank had tightened its criteria for lending to smaller banks. Among the measures taken, it has stopped purchasing bonds issued by smaller banks that have total assets below US$40 billion, said the source.

Last month state media reported – citing the Central Economic Work Conference held on 11-12 December at which leaders set economic targets for 2024 – that it was necessary to effectively resolve risks in small and medium-sized banks.

Although roughly 4,000 small banks are not by themselves seen as a systemic risk, the concern is that enough of them have largely funded themselves via short-term money market borrowing, posing a collective danger should a few of them fail.


Goldman Sachs Asset Management raises US$650 million for life sciences fund

Goldman Sachs Group’s asset management arm has completed fundraising for its debut fund dedicated to backing high-technology businesses in healthcare, a sector where many companies have lost significant value since 2021.

The GSAM unit of the New York investment bank has raised $650 million for West Street Life Sciences I, through which the firm backs early- and mid-stage businesses focused on areas such as precision medicine, cell therapy, immunotherapy, synthetic biology and artificial intelligence, Goldman said. The fund gives the firm a chance to capitalise on recently reduced company values in the sector. 

The size of the West Street Life Sciences I fund, which exceeded its original target, makes it one of the largest first-time private life sciences growth funds, GSAM claimed in a press release. The US$650 million in equity commitments was drawn from a “global, diverse group of institutional, strategic and high net worth investors."

GSAM’s West Street Life Sciences states that its strategy is focused on “growth-oriented private equity investments in life sciences, specifically targeting early to mid-stage therapeutic companies with multi-asset portfolios in addition to life sciences tools and diagnostics companies.”

Around US$90 million of the fund has already been allocated to five companies in the group’s portfolio, including bladder cancer-treatment focused Moma Therapeutics, molecular glue developer Nested Therapeutics and neurological disease biotech Rapport Therapeutics.

Amit Sinha, head of the Life Sciences Investing Group, said the sector is entering a “golden era of innovation.”

“We believe the current environment provides an attractive opportunity for investing in the next generation of leading life sciences companies,” Sinha added. “Through our global platform, we seek to be a capital provider of choice and help our companies realise their full potential.”


Mexico kicks off Latin America’s 2024 bond sales

Emerging-market sovereign bond sales for 2024 have begun; Mexico initiating the new season with the Latin American country’s largest deal on record for t.

Mexico raised US$7.5 billion with the sale of benchmark global dollar notes due in five, 12 and 30 years, according to local sources cited in reports. 

While sentiment across global markets was negative, orders for the deal had reached US$20 billion, they said, adding that the bonds priced on Tuesday at 115, 215 and 235 basis points over Treasuries respectively, as pricing tightened from initial guidance.

Mexico’s President Andres Manuel Lopez Obrador is ramping up spending in his final year in office, resulting in the nation’s largest fiscal deficit since 1988 as he increases cash aid programmes and seeks to finish landmark projects ahead of June elections. The policy contrasts with his usual fiscal austerity, which supportef the peso currency in recent years as Mexico’s stability stood out across emerging markets.

The President’s budgeted support for state-run oil producer Petroleos Mexicanos for the first time this year after providing repeated cash injections and tax breaks. Lawmakers, meanwhile, more than tripled the US$18 billion ceiling for external debt in the 2024 budget compared to the 2023 limit amid spending for projects including an ocean-connecting rail link and a new gasoline refinery.

As a result, Mexico is expected to see the largest increase in net debt issuance among its regional peers this year, Nathalie Marshik, a managing director for fixed income at BNP Paribas in New York, wrote in a note last month.

Hong Kong airport debuts local currency bond of HK$4 billion

The Airport Authority Hong Kong is offering its first-ever local currency public bond, pricing a HK$4 billion (US$510 million) debt deal as passenger traffic recovers at the Asia financial hub.

The 3.5-year bond is priced to yield 3.83%, according to a source familiar with the matter. The proceeds will be used for the airport’s capital expenditure, including plans for its third runway project and general corporate purposes, said the source, who added that the airport operator received orders over HK$11.1 billion from 57 accounts.

The airport’s previous bond offering was a year ago, when it marketed a US$3 billion four-part debt deal, including a five-year green note of US$1 billion.

Hong Kong’s airport passenger traffic has recovered to about 80%of the pre-pandemic level, the airport authority said a week ago. Passenger traffic at the airport is expected to fully recover to the pre-pandemic level by the end of 2024, it added.


Bitcoin slumps on downbeat report

Bitcoin’s price fell by 8% on Wednesday, reversing gains early this week as concerns over the anticipated approval of a spot bitcoin (BTC) exchange traded fund (ETF) unsettled the market.

Last week Reuters reported that approval of a bitcoin ETF could occur by the first days of January. However, optimistic expectations that the US Securities and Exchange Commission (SEC) was about to issue its consent were rebuffed by financial services firm Matrixport.

The firm’s analyst Markus Thielen anticipates that the SEC will decline all bitcoin spot ETF proposals in January, despite the frequent meetings and updated S-1 prospectuses between filers and the SEC in recent weeks. He pointed out in a report that the applications still fall short of a critical requirement that must be met before the SEC can approve them.

Thielen based his perspective on the political dynamics and compliance concerns. The analyst argued that while an ETF would help enable crypto to take off in the US., the SEC chair Gary Gensler still sees the industry as needing more stringent compliance.

“SEC Chair Gensler is not embracing crypto in the US, and it might even be a very long shot to expect that he would vote to approve bitcoin spot ETFs,” Thielen wrote. “This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January.”


Turkey's inflation rate climbs to nearly 65%

As inflation eases in most of the world’s major economies, the rate appears to not yet be heading downwards in Turkey.

Inflation in the Southeast Europe country rose to 64.8% on an annual basis in December, an increase from 62% in November although month-on-month inflation eased to 2.9% from 3.3%. December’s headline figure was also slightly below expectations of economists polled by Reuters of 65.1%.

It is also below the peak of 85.5% reached in October 2022. The Turkish lira saw a steep deterioration, increasing the cost of imports and eroding the salaries of the country’s many foreign workers sending money abroad.

It came as Turkey’s central bank stuck to a controversial monetary policy of lowering interest rates, spearheaded by President Recep Tayyip Erdogan. However, the Central Bank of the Republic of Türkiye changed policy in June under its new governor, Hafize Gaye Erkan and a series of successive sharp rises lifted they key rate from 8.5% to 42.5%.

The most recent was delivered in December when the bank delivered a 250 basis point hike, smaller than the recent run of 500 bps rises.

Nicholas Farr, emerging Europe economist at Capital Economics, said in a research note at the time that the central bank had not closed the door on its tightening cycle. He also forecast one more 250 basis point hike at its next meeting 25 January.

Inflation has been back on the rise since June, but market watchers say this cycle should hit its peak by mid-2024.


Deutsche Bank closes fifth trade finance securitisation

Deutsche Bank has announced the US$3.5 billion issuance of TRAFIN 2023-1, the fifth iteration of its trade finance significant risk transfer synthetic securitisation.

To provide credit protection for an underlying and revolving portfolio of US$3.5 billion in trade finance assets, Deutsche Bank originated, structured, arranged and placed a first loss tranche of US$227.5 million with a syndicate of institutional investors from Europe and the Americas. The issuance follows the maturity of TRAFIN 2018-1 – the bank’s fourth iteration of this trade finance securitisation – in November 2023.

The synthetic securitisation transaction has a 3.5-year scheduled maturity, and the weighted average life of the initial pool is around 90 days. As these short-term assets mature and the pool amortises, new trade finance assets will be selected to replenish the portfolio on a monthly basis based on pre-set conditions.

“We have been at the forefront of opening trade finance assets to capital markets and remain one of a small number of issuers in the synthetic securitisation space,” said Oliver Resovac, Global Co-Head of Trade Finance & Lending at Deutsche Bank.

“The continuation of this landmark securitisation programme – now in its fifth iteration – allows our trade finance business to originate a greater volume of transactions in the space, which, in turn, is helping us to power the real economy and develop local communities.”

In addition, TRAFIN 2023-1 represents one of only a few synthetic securitisations issued by Deutsche Bank that has been verified as compliant under the European Union’s “Simple, Transparent & Standardised” standard – enabling higher overall capital relief and tighter pricing.

The transaction comes as trade finance as an asset class continues to gain traction among institutional investors. “On the back of strong investor demand, we are also expanding into other forms of capital market investment products for trade finance, including funded risk sharing arrangements, traditional working capital, and documentary trade facilities, among others,” said Resovac. “Going forward, we believe these products will play an increasingly important role in providing additional sources of capital.”


Vedanta Resources wins support for bond restructure

India’s largest mining and non-ferrous metals company Vedanta Resources has received support from bondholders for its proposal to restructure four series of bonds.  The company meets today to pass the extraordinary resolution in respect of each series of bonds.

Across the bond series, about 97.7% to 99.6% of bondholders voted to approve an extraordinary resolution regarding consent solicitation, a company statement confirmed. The consent received comfortably exceeded the required threshold of 66.67%. These series of bonds include two that were due for maturity in 2024, one in 2025, and one in 2026.

Vedanta’s holding company is seeking to extend the debt maturity and amend certain terms and covenants to improve the credit package of the bonds, it said on 13 December.

On 22 December Vedanta Resources extended the early deadline set for the consent solicitation to its bonds on 2 January to accommodate feedback from bondholders who faced operational issues.

Consent to the revised terms will remove immediate pressure on Vedanta to repay the debt obligation. Founder and chairman Anil Agarwal had proposed restructuring four series of bonds to ease Vedanta’s massive debt burden in 2023.

Last month, Vedanta Resources said it has secured a US$1.25 billion loan from private credit lenders to repay part of the US$3.2 billion debt maturing in 2024 and 2025.

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