Daily Archives: July 26, 2017

Not many commodities are hot anymore; investors are quite comfortable shunning the segment. But perhaps you may want to know about a commodity that in contrast is particularly overheated these days.

Natural gas firm service transportation out of Alberta, for the upcoming winter season.

Firm service prices are being bid up to unusual levels, even in the face of a relatively low commodity price forecast. Producers appear somewhat panicked about their ability to access markets for their natural gas. This is understandable; current market conditions for AECO-priced gas are extremely shaky with some forecasts of sub $1 gas for the next few weeks due to capacity constraints. This happens not infrequently whenever there is a pipeline outage for western Canadian production, which has few market options. It is also a sign of the times that the producers are desperate to access markets that are in the shadow of potential US shale output, which could spring to life at the sign of any price increases. Thats not normal behaviour, its an indication of how few options gas producers have.

This might seem an inconsequential irritant to the industry, the only byproduct of which would be cheaper gas for consumers. But its actually a big red flag warning of underlying problems. And then, right on top of this fiasco, lands the news that the $36 billion Pacific North West LNG export terminal will not proceed . Petronas, the major partner in the project, politely blamed market conditions, which might be believable were it not for the numerous US LNG export facilities marching towards completion.

Canada is about to have two of its major economic engines strangled into near oblivion while we stand around and watch. First was the oil sands, and now natural gas development is being throttled. As a country, we are playing with fire. Or maybe more accurately, putting out a fire that weve been relying on.

We all know that oil sands investment has pretty much stopped dead, knocking out one of the bigger lights in the Canadian economy. Natural gas might follow a similar path if it becomes a stranded commodity that can only be sold at ridiculous discounts. It is true that both the Alliance and TCPL systems are working to handle substantially more gas in the next few years, but that gas will still be destined for highly competitive US markets that already are digesting growing shale production. The result will be reduced netbacks all the way to Canada.

Capital will not flow into Canadian natural gas developments indefinitely when the only markets are severely discounted ones; at some point investors will tire of pumping money into a sector whose product sells at 20 year lows (and they maybe already have). Lower corporate netbacks and decreased investment levels may not make headlines immediately, but those factors surely will prick up ears when people hear about government deficits growing by tens of billions.

The Canadian economy is under attack on multiple fronts. The softwood lumber industry is once again getting slapped around by the US. If one removes lumber, and oil and gas from Canadas economic equation, or large parts thereof, there will be a massive government revenue gap and the only way the economic equation can be balanced will be to slash the spending side, such as on our vaunted social safety nets.

Oil, gas and lumber are tough shoes to fill for the nation. Manufacturing is big for southern Ontario, but not so much for the rest of the country. Hydroelectric energy is great, now that its been built, but creating any new dams will (or should) trigger the same blizzard of outrage that any petroleum based megaproject now does. Please dont point to other green energy sources for economic salvation; Ontarios fiasco of subsidizing renewable energy sources has created an unsustainable and bizarre power market where consumers cant afford the power bills and renewable energy sources reap huge benefits, all through the miracle of unsustainable mountains of government debt.

Canada is a resource-based nation. We may want to get away from that, and at some point we will, but if we decide to make the big switch in the near future wed better be ready for the pain that will be part of the ride. We cant continue in a half hearted manner where we accept low returns by keeping our product from markets where it will be welcomed. That only serves to make our production schemes uncompetitive in a global marketplace, and weve seen recently how quickly capital can evaporate when better opportunities exist elsewhere.

The environmental movement cheers these sorts of things, because any hindrance to petroleum development is a good thing in their eyes. If they get their wish, the world will get to witness firsthand the effects of strangling one of the worlds strongest, safest, cleanest, and most progressive economies, because the debt fairies wont hang around forever to watch it all implode. And on the flip side, for those who think strangling Canadas energy sector will save the planet, remember that Canada in total is responsible for about 2 percent of global greenhouse gases. There is nothing Canada can do short of shutting itself down that will have a meaningful impact on global emissions.

Wake up, Canada! We are presently a resource-based economy. Every resource based economy on earth tries to diversify, but its not easy. It wont be for us either. No matter how green you see the future, the path to get there must be a gradual one to avoid economic chaos. For now, our social infrastructure and standard of living are financed by natural resources, and we are accepting a fraction of the value we could be getting by strangling ourselves in red tape and second guessing. To get to a green future, we must first not kill the golden goose.

Either get behind energy megaprojects by demanding more of our politicians, or be prepared for a substantially reduced standard of living. The death of these developments, one by one, impacts us all.

Read more insightful analysis from Terry Etam here

See the article here:

Wake up Canada! Get behind energy megaprojects or get ready for the consequences - BOE Report (press release)

The latest quarterly Cross-border M&A Index shows that there were 17 inbound M&A deals in Africa in Q2 of 2017. The 17 inbound deals reflect a 48% drop from 33 deals in Q2 2016. On a quarter-by-quarter basis, inbound deal volume also dropped - by 45% - from 31 deals in Q1 2017.

Morne van der Merwe, managing partner of Baker McKenzie in Johannesburg explains, Foreign Direct Investment (FDI) in South Africa has decreased and this will continue until the local investment climate stabilises. Due to the credit ratings downgrades, the cost of raising capital for acquisitions has become more expensive, making deals more difficult. In addition, the Rand has been one of the most volatile currencies in 2017 and this volatility has suppressed deal appetite.

These factors, combined with recent political instability and uncertainty, have resulted in a perception in the market of increased risks of doing business in South Africa. Global players are finding more attractive investment destinations elsewhere.

Further, almost half the continents M&A activity flows through South Africa, so recent South African developments have had a negative knock-on effect in Africa. Political uncertainty in other jurisdictions on the continent, such as the current election in Kenya, has also made investors wary of African deal making in the short term, although we expect this to change once stability returns to the region.

The top target industry by volume and value in Africa was mining, which accounted for 23% of total deal count and $312 million or 40% of total value.

Africa has several technology hubs, including one in Cape Town, South Africa and the development of technology in the banking and finance sector, for mass usage on the continent, is well advanced. A positive explanation for there being no inbound deals in this sector in Q2 2017, is that this is not due to lack of IT development in Africa, to the contrary, but because IT companies are structuring their operations in a way that allows them to enter into partnerships offshore and bring their operations into Africa through licencing arrangements.

It is surprising that Australia was the highest inbound investor country by deal volume as one would expect it to be China or India. Australia is a resource-based economy, with the knowledge, know-how and asset base to attach to opportunities in Africa, so it does make sense that it would be investing heavily in African businesses.

Asia Pacific and the European Union were tied as top investing regions by volume, each accounting for 35% of total deal count. By value, Asia Pacific outpaced the rest with $487 million or 62% of total.

Technology tied with Business Services was a top target industry for Africas outbound deals by volume with a total of three deals for the quarter (20% of total). In terms of deal value, the Financial Services sector led slightly with $ 535 million or 35% of total deals. Technology deals came in close second, accounting for $510 million or 33% of total outbound deals from Africa.

Increase in development in African telecoms industries, as well as the opportunities presented by a rapidly developing financial services sector, remain key drivers of outbound investment activity in Africa. The growing financial services sector has also seen domestic banks make significant investments in technology, including in offshore companies. As discussed, the increase in outbound deals in the technology sector also points to African technology companies looking to base their local operations offshore.

The Index also shows that South Africa outperformed other African bidders by volume and value for outbound deals, with eight deals (53% of total) amounting to $821 million (54% of total). Top target regions for outbound deals were EU and Asia Pacific by volume, each with 40% share of total. The top target country from Africa by volume was India, with three deals accounting for 20% of total deal count.

Buyers announced 1,368 cross-border deals worth $345.8 billion, a 10% decrease in volume but only a 1% decrease in value compared to Q1 2017. As the EU gained relative stability in the wake of Brexit developments and elections in the region, it accounted for more than half of cross-border deal value and nearly half of cross-border deal volume in Q2 2017. Baker McKenzie's Cross-Border M&A Index, which tracks quarterly deal activity using a baseline score of 100, decreased to 233 for Q2 2017, down 4% from the prior quarter but up 15% from Q2 2016. In Q2 2017, cross-border M&A made up 36% and 47% of global deal volume and value, respectively.

We continue to see an increase in deal value as companies are choosing to invest more money in a smaller number of handpicked deals, said Michael DeFranco, global head of M&A at Baker McKenzie. While deal volume decreased in Q2, we are encouraged by the activity in the EU and the return of China to the deal table. As we head into the second half of 2017, we continue to believe M&A activity will pick up.

The leading bidders for cross-border deals into the EU were the US, China, and UAE, in addition to cross-regional deals from companies in the UK and Italy. Seven of the top ten most targeted countries in Q2 2017 were in the EU, compared to only four in Q1 2017.

For more information, go to crossbordermaindex.bakermckenzie.com.

Originally posted here:

M&A deals in Africa drop this quarter with South African political ... - Bizcommunity.com