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Business

U.S. 'looking at' CalPERS holdings in Chinese defense firms: top White House official

WASHINGTON (Reuters) – The Trump administration is “looking at” investments in Chinese military companies by the California Public Employees’ Retirement System (CalPERS), U.S. National Security Adviser Robert O’Brien said on Wednesday.

“It’s something we are looking at,” O’Brien said in response to a question during an appearance at the conservative Heritage Foundation thinktank. “It’s an issue of security for American investors.”

The California state executive agency is the largest U.S. public pension fund. It manages pension and health benefits for more than 1.6 million California public employees, retirees, and their families.

“Some of the CalPERS investment policies are incredibly concerning,” O’Brien said. “We’ve got folks who are going to rely on their pension for their retirement and putting those investments into companies that don’t have GAAP accounting and they don’t have the same reporting requirements that American companies do is scary.”

Last month, U.S. Representative Jim Banks urged California to fire the fund’s chief investment officer, Yu Ben Meng, citing what he called the official’s “long and cozy” relationship with Beijing. Banks also assailed the fund’s investments in Chinese firms.

“At the least, I think a thorough investigation of Mr. Meng’s relationship to the Chinese Communist Party and a comparison of CalPERS investments in Chinese companies before and after Mr. Meng’s 2008 hiring are both warranted,” the Republican lawmaker wrote in a letter to California Governor Gavin Newsom.

A U.S. citizen born in China, Meng has twice worked for CalPERS, the first time starting in 2008 and the second time beginning in January 2019 when he became CIO managing $400 billion in investments, according to the CalPERS website.

In between the CalPERS stints, Meng worked for three years as deputy CIO with China’s State Administration of Foreign Exchange (SAFE), which oversees China’s U.S. Treasury security holdings, the website says.

Citing an online article in China’s People’s Daily, Banks asserted that China’s Thousand Talents Program recruited Meng for the job at SAFE. According to the FBI, TTP is a part of “China’s non-traditional espionage against the United States.”

CalPERS CEO Marcie Frost defended Meng in a statement.

“This is a reprehensible attack on a U.S. citizen. We fully stand behind our Chief Investment Officer who came to CalPERS with a stellar international reputation,” she said.

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World News

Slovak party challenges election after missing out on seats: newspaper

BRATISLAVA (Reuters) – Leftist coalition PS/Spolu is challenging the result of Slovakia’s national election in the Constitutional Court, alleging irregularities caused it to fall below the threshold for winning parliamentary seats, newspaper Dennik N reported on Wednesday.

PS/Spolu won 6.96% of the vote in the Feb. 29 ballot, just below the 7% threshold required for coalitions of two political parties to enter parliament. Dennik N said the group was 926 votes short.

The court has 90 days to look at the challenge. Constitutional experts says it should not have an immediate impact on talks on forming a new government.

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World News

Coronavirus: 1st case of COVID-19 reported in Ottawa

Ottawa has it’s first reported case of the new coronavirus disease, known as COVID-19.

The case was confirmed in a daily update posted by Ontario health officials Wednesday morning.

Officials said it involves a man in his 40s who recently travelled to Austria.

He went to Ottawa Hospital and is now in self-isolation.

Meanwhile, the province announced additional COVID-19 cases Wednesday morning, bringing the provincial total up to 41.

One of the cases involves a man in his 50s who recently attended a conference in Toronto, but there is no word on if he recently travelled internationally. Officials are now investigating whether or not that case is Ontario’s first instance of community spread of the virus.


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Economy

UPDATE 2-Britain scraps business rates for small firms

* “Exceptional step” to deal with coronavirus

* Tax cut, worth 1 bln stg, is for 2020-21 year

* Launches fundamental review into future of business rates

* Interest rates cut after sharp fall in trading conditions (Adds detail, reaction)

By James Davey

LONDON, March 11 (Reuters) – British finance minister Rishi Sunak scrapped business rates for small firms in an “exceptional step” to help them get through disruption caused by the outbreak of coronavirus.

The measure, announced in his first annual budget speech on Wednesday, means that over the next year nearly half of all business properties in England will not pay a penny of business rates.

It came hours after the Bank of England cut interest rates and outlined support for bank lending, saying it had acted after seeing a “sharp fall” in trading conditions in the last week, particularly in the retail sector and anything driven by discretionary spending.

Business rates, a particular burden for retailers, are taxes to help pay for local services, charged on most commercial properties. They are currently calculated according to the rentable value of a property and have an annual inflationary uplift, or multiplier.

“Our (party political) manifesto promised that for shops, cinemas, restaurants, and music venues with a rateable value of less than 51,000 pounds ($65,900) we would increase their business rates retail discount to 50%,” Sunak told parliament.

“Today I can go further and take the exceptional step for this coming year of abolishing their business rates altogether.”

Sunak also scrapped the tax for 2020-21 for tens of thousands of other businesses in the leisure and hospitality sectors.

These include museums, art galleries and theatres; caravan parks and gyms; small hotels; sports clubs; night clubs; club houses and guest houses.

Sunak said these businesses could potentially be some of the hardest-hit from the spread of coronavirus.

He said the tax cut was worth over 1 billion pounds and could save each business up to 25,000 pounds.

But while the small firms benefited, all larger firms got was a promise of a “fundamental review” into the long-term future of business rates. This will be concluded by the autumn.

“A restructure of business rates to reduce the disproportionate burden on retail chains looks further away than ever,” said Patrick O’Brien, research director at GlobalData.

Britain’s retail sector has for years complained that the current business rates system is archaic, unfair and needed reform.

Lobby group, the British Retail Consortium (BRC), points out that the industry is the largest private sector employer in Britain, employing about three million people. While it accounts for 5% of the UK economy, it is burdened with 10% of all business taxes, and 25% of business rates.

The BRC argues this disparity is damaging Britain’s high streets, causing shops to close and harming the communities they support. (Reporting by James Davey and Andrew MacAskill; editing by Kate Holton)

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World News

Saskatchewan officials say province is preparing for potential coronavirus outbreak

Saskatchewan government officials are denying accusations from the provincial NDP that the province is not prepared for a potential outbreak of the novel coronavirus disease, COVID-19.

“They’re trying to prepare for every scenario,” Health Minister Jim Reiter said. “Part of the plan is looking at supplies. Not just provincially, but nationally, there are discussions with federal officials making sure all provinces are prepared.”

Opposition health critic Vicki Mowat claims her party is hearing differently from some people working in the province’s health-care sector.

“One of the concerns we are hearing from a lot of folks who are in the health-care sector is that they haven’t received instructions on what to do,” Mowat said. “They don’t know how to be able to move forward and haven’t received anything beyond the public notices that have come out.

“People deserve to know that their government has a plan in place if there is an outbreak.”

Reiter said he is confident in the province’s health officials and relies on them to make the right decisions in terms of preparation.

“Certainly, I’m not a medical professional and I don’t pretend to be. I’m a politician and I think my job is to ensure that medical professionals have the resources they need. We trust them to do their job,” Reiter said.

The province says it is working to update a 10-year-old pandemic strategy to include a plan for COVID-19.

“They are in constant communication with other provinces. I have a great deal of comfort in Dr. Shahab and his crew that they’ll handle this appropriately.”

Based on statistics provided to the public by Shahab, 80 per cent of people infected with COVID-19 will not require hospitalization but, rather, self-isolation.

“We’re also on the downward slope of influenza season right now, so the longer this goes without confirmed cases in the province, the better we will be there because that will open some capacity.”

There have yet to be any confirmed cases of COVID-19 in Saskatchewan.


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Business

Oil falls as Saudi, UAE plan for higher output capacity

LONDON (Reuters) – Oil prices fell on Wednesday after Saudi Arabia and the United Arab Emirates announced plans to boost production capacity and OPEC and the U.S. Energy Information Administration (EIA) slashed oil demand forecasts because of the coronavirus outbreak.

Brent crude was down $1.01, or 2.7%, at $36.21 per barrel by 11:01 ET (1601 GMT), while U.S. West Texas Intermediate (WTI) crude was off 92 cents or 2.7% at $33.44‮‮.‬‬

With the collapse of coordinated output cuts by Saudi Arabia, Russia and others, the Saudi energy ministry has directed producer Saudi Aramco to raise its output capacity to 13 million from 12 million barrels per day (bpd).

UAE national oil company ADNOC also said it would raise crude supply to more than 4 million bpd in April and accelerate plans to boost its output capacity to 5 million bpd, a target it previously planned to achieve by 2030.

“Saudi’s shock and awe strategy suggests to us that to bring Russia back to the negotiating table, it is serious in causing severe price and revenue pain for all oil producers,” UBS analysts said in a note.

“Higher oil inventories will likely weigh on prices over the coming months.”

(Graphic: Oil price forecasts dim after price war begins – here)

Russian Energy Minister Alexander Novak said Saudi Arabia’s plans to increase production capacity were “probably not the best option”, adding Moscow had several phone calls with OPEC and non-OPEC members, but that no partners had agreed to its proposal.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) said in a monthly report that it expected global demand to rise by just 60,000 bpd in 2020, a reduction of 920,000 bpd from its previous forecast.

The U.S. Energy Information Administration (EIA) also said global oil demand is expected to dive by 910,000 bpd in the first quarter due to coronavirus outbreak.

Oil prices had climbed $2 earlier in the session on hopes that spending cuts by North American producers to cope with multi-year low crude prices would lead to a drop in output. Numerous U.S. companies have already cut back spending, including Occidental Petroleum Corp, Marathon Oil Corp and Diamondback Energy Inc.

“Any reduction in spending and drilling will take time to show up in actual production figures and is unlikely to mitigate the bearish impact of a massive Saudi output increase, in case the latter does happen,” oil brokerage PVM’s Tamas Varga said.

Weekly data on U.S. inventories shows little effect from the coronavirus outbreak. Crude stocks rose by 7.7 million barrels, but inventories of gasoline and diesel fell sharply, as refining runs remain at seasonally low levels.

“Demand for products is robust – which surprises me. It certainly is coming as a surprise to market watchers here as fear of the impacts to demand brought on by the coronavirus have not shown up,” said Tony Headrick, energy market analyst at CHS Hedging.

Policymakers and central banks have been taking measures to bolster their economies against disruption caused by the coronavirus outbreak, the latest being the Bank of England which unexpectedly cut interest rates by half a percent on Wednesday.

“Oil’s supply-demand dynamics still point to a bias for weakness, as Saudi Arabia and Russia engage in a price war that threatens to push global markets into oversupplied conditions, at a time when global demand is being eroded by the coronavirus outbreak,” Han Tan, market analyst at FXTM.

(Graphic: Oil price dive turns up the heat on OPEC finances – here)

A worker at Equinor’s Martin Linge offshore oil and gas development has been diagnosed with the coronavirus and is being held in isolation, the Norwegian energy firm said. It said activity on the field will be reduced on Wednesday.

However, China’s independent oil refiners are cranking up production as local governments begin to relax strict measures to contain the coronavirus and fuel demand begins to recover.

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Economy

BAML cuts Latam 2020 GDP forecast to 0.7% on coronavirus, oil shocks

BRASILIA, March 11 (Reuters) – Economists at Bank of America Merrill Lynch have substantially lowered their 2020 economic growth forecast for Latin America, citing the hit to activity from the global coronavirus outbreak and the region’s exposure to lower oil prices.

They now expect growth of just 0.7%, compared with 1.2% as recently as two weeks ago, and in the worst-case scenario, growth will slow to just 0.2% this year.

The region’s biggest economy Brazil is now expected to grow 1.5% compared with the previous projection of 1.9%, BAML said, and the second biggest, Mexico, is seen contracting 0.1% instead of expanding 0.5%.

“LatAm is very exposed to China and commodity prices,” BAML economists wrote in a note dated March 10, noting the recent collapse in oil after Russia and Saudi Arabia triggered a price war.

“On the back of the (coronavirus) outbreak and oil war, we now expect LatAm to grow 0.7% in 2020, down from 1.2%. Chile, Peru and Brazil are the most sensitive countries to the combined China and commodity shock,” they said.

Colombia’s growth outlook this year was revised down to 2.7% from 3.1%, Peru’s lowered to 2.0% from 2.7%, and Chile’s trimmed to 0.8% from 0.9%.

BAML now expects Chile’s central bank to cut interest rates by 50 basis points to 1.25% this year instead of staying on hold, and Mexico’s central bank to reduce rates by 75 basis points instead of 50 basis points.

Colombia’s central bank will refrain from cutting rates due to the country’s already wide current account deficit and risk of the weaker currency fueling inflation, BAML said. (Reporting by Jamie McGeever Editing by Diane Craft)

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World News

Prince Harry opened up in fake call from ‘Greta Thunberg,’ pranksters say

Prince Harry reportedly opened up about personal issues from “Megxit” to his battle with ruthless media in a call with Russian hoaxers impersonating Greta Thunberg and her dad.

He also touched on Prince Andrew, U.K. Prime Minister Boris Johnson and U.S. President Donald Trump during the Dec. 31 and Jan. 22 phone calls with pranksters Vladimir Kuznetsov and Alexey Stolyarov, the Sun reports.

The British tabloid obtained both recordings of the crank calls, which provide insight into how Prince Harry has been coping after his and Meghan Markle‘s exit from the Royal Family.

Kuznetsov and Stolyarov confirmed the Sun’s report in statements to The Guardian and the BBC.

The pranksters spoke directly with the prince under the false pretense that they were Thunberg and her father, Svante Thunberg, they told BBC.

Buckingham Palace did not provide BBC with a comment on the situation.

In the Sun’s reports of the candid conversation, Harry says he’s “more normal than my family would like to believe” thanks to a decade serving in the military. He also said that Trump has “blood on his hands” when discussing the climate crisis and that life is “much better” away from royalty.

“Sometimes the right decision isn’t always the easy one, and this decision certainly wasn’t the easy one but it was the right decision for our family, the right decision to be able to protect my son,” Harry reportedly said about the couple’s step away from their royal duties.

“And I think there’s a hell of a lot of people around the world that can identify and respect us for putting our family first. But, yeah, it’s a tricky one, but we will start a new life.”

The 35-year-old also reportedly offered greater insight into the issue of their royal titles, clarifying that they didn’t, in fact, lose them at all.

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World News

‘Magic’ Budget folder changes green on Sky News leaving viewers baffled

The Chancellor Rishi Sunak has been accused of having "magic powers" by baffled viewers when the folder containing the Budget appeared to change colour on Sky News today.

In the clip, Sunak is seen departing Number 10 with the red folder under his arms while deep in conversation with a colleague.

Mysteriously, when he walks behind a car and then reappears, the folder is bright green.

The strange phenomenon is not explained by Sky News during the report, giving rise to theories that it was an "optical illusion" and jokes that the chancellor had special powers.

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A viewer on Twitter joked: “He can change the folder colour because he's a magician….. in fact a member of the 'Magic Circle'….. needs to be if he's got any hope of delivering a budget that benefits any of us!!”

Someone else commented: “Dear @SkyNews, can you explain this? Watch the folder! Crazy! Will we see magic like that from him in the #Budget2020? #coronavirus.”

“As #Budget2020 is upon us, is it strange that I’m extremely preoccupied with the Chancellors Rishi Sunak magically changing folder colour. Watch closely,” tweeted a third eagle-eyed viewer.

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The rumours of supernatural powers were later put to bed, with a Sky News producer admitting the “magic” was the work of colour editing.

Rhiannon Williams, a Climate Change Producer, tweeted: “Nothing sinister – just a small colour switch to really drive home the need to make this the greenest budget yet.”

Sunak has been chancellor for just three weeks, getting the top Cabinet role after Sajid Javid resigned.

The clip was taken before he delivered his 2020 Budget today.

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In it, Sunak said that without accounting for the impact of coronavirus, the Office for Budget Responsibility has forecast growth of 1.1% in 2020, 1.8% in 2021 and then 1.5%, 1.3%, and 1.4% in the following years.

To cope with the fallout of novel coronavirus, he said there will be £2bn of sick-pay rebates for small businesses with fewer than 250 employees.

He said that fuel duty will remain frozen for another year.

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Economy

Coronavirus puts private credit to the test

NEW YORK, March 11 (LPC) – Private credit funds face a challenging fundraising environment, as investors grapple with a potential decline in portfolio values while the coronavirus outbreak tests the solidness of a market that has yet to experience a significant shakeup.

Also known as non-bank lending, the private credit asset class has erupted since the financial crisis, boosted by robust investor demand, which seemed almost unabated as banks retreated from issuing loans to smaller borrowers.

But uncertainty regarding the adverse effects of a potential global pandemic on the US economy has made investors wary. Deals are on pause, investor meetings are being canceled, and fundraising schedules postponed as market participants struggle with the yet-to-be-seen fallout.

REBALANCING ACT

Private credit investors, such as pension funds and insurance companies, have asset allocation policies that specify what percentage of their portfolio is public stocks, private credit and other investment strategies.

As equity markets decline, an investor’s overall portfolio may need to rebalance to maintain allocation targets. The dollar value of private credit allocations would need to be adjusted as a consequence of reduced portfolio value.

“A significant correction in equities will leave asset allocation in severe imbalance, and rebalancing is required. The consequence of which means less short-term investments in (the) private market,” said Jess Larsen, partner and chief executive officer of Americas at fundraising advisory firm FIRSTavenue Partners.

Facing heightened market volatility, private credit investors may also take a more conservative approach. Rather than adding new private credit managers to their portfolio, investors would likely focus on renewing commitments to existing credit managers, Larsen explained.

“Signed commitments will be upheld,” he said. “However, new investments may end up being on hold until the balance is restored within their (asset allocation).”

But if the market panic created by the virus is only short-lived, a re-evaluation of the investors’ asset allocation may not be necessary, Larsen said, and “normal business” could resume in a few months.

Travel restrictions could further impact fundraising and the search for new clients.

One firm seeking capital for a successor fund postponed fundraising trips to Asia, adopting a discretionary travel policy similar to other firms across finance.

“If it’s a fund where you’re going to a lot of existing investors, you’re trying to make use of video conference calls,” the source said. Winning new investors can be more difficult without face-to-face meetings, the direct lender explained.

RISKY DOCUMENTS

An unforeseen result of the health emergency could further erode lender protections in favor of the borrower.

A recent middle market leveraged buyout (LBO) included a provision enabling a borrower to add-back losses related to the impact of the coronavirus outbreak.

The development could give private equity firms even more flexibility to inflate earnings before interest, tax, depreciation and amortization (Ebitda) projections, which affects everything from debt taken on by the company to business decisions the management can make.

Under the “extraordinary, unusual, or non-recurring charges” clause, the borrower may add-back losses attributed to several events, including natural disasters, which – while not mentioning it directly – would likely apply to coronavirus.

A report from research firm Covenant Review has warned that such a provision, while likely driven by coronavirus fears, allows the borrower to make restricted payments – which can include dividend distributions – and incur additional debt without lender input.

“It opens up the document to even more flexibility. And (private equity sponsors) can use that add-back for lost earnings in the future for other non-recurring events. But it’s also speculative – how do you determine the lost earnings from the coronavirus outbreak?” said Ian Walker, an analyst at Covenant Review.

OPPORTUNITY

Challenges create opportunities, and private credit lenders could see some upside from the market volatility derived from the virus.

A long-standing complaint by private credit managers and private equity firms that invest in the middle market is the high asset valuations of target companies, fueled by sponsors’ record amounts of dry powder.

As valuations have increased, so has leverage. Average debt-to-Ebitda levels for middle market LBOs was 6.53 times in the first quarter of 2020, up from 6.25 times in the previous quarter, according to Refinitiv LPC data.

But a long-term sell-off in the stock market may reverse the trend of high asset valuations for companies, especially for private equity firms hunting for opportunities in the public markets.

“Private markets ultimately take their cues from the public, liquid markets. Public equity values go down, so will private equity values over time. Sometimes it takes six to nine months for the effect to happen. At this point, it’s too early to make (a) judgment,” said Art Penn, managing partner at asset manager PennantPark. (Reporting by Andrew Hedlund and David Brooke; Editing by Michelle Sierra and Kristen Haunss)

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