Mish's Global Economic Trend Analysis

Word of Thanks
Spain Modifies Bankruptcy Laws to Prevent Corporate Liquidations; 65,000 Companies, 1.3 Trillion Euro Delinquencies in Play
Pro-Russia Troops Install Minefields, Border Markers in Crimea; Gazprom Ups Price of Natural Gas 37%, Calls in $2 Billion Gas Debt

Posted: 09 Mar 2014 06:43 PM PDT

Every day numerous people send links to articles, edit my typos, comment on the blog, monitor comments on my blog, translate articles, etc.

It's a community and I appreciate the global involvement and global help.

Each day I get between 50 and 200 emails from readers. I respond to most of them. But even though I spend 2 hours or more every day reading and answering emails, I cannot respond to all of them.

Frequently, I offer a one word response: thanks.

That does not do justice to how I feel, especially to those who send something every day or nearly every day.

Unlike other bloggers, I seldom offer "hat tips" and the reason is simple. I tend to read emails LIFO (last in first out), and most often when someone sends me a link, another person already has.

So here is my word of thanks. But I also need to do more. For those who contribute every day, I need to offer special thanks.

Spell Checkers

I have three mainstay spell checkers: Randy, Curt, and Mark. What one of them misses, another one of them will catch. The only problem is how long it takes me to find the email pointing out my error. Typically it's not spelling per se, as I spellcheck myself, but rather stuff like saying "an" when I mean "and" or vice versa. When you proof your own article you do not see such things.

Content

I am going to get in trouble over this one because I am sure to leave someone out. Apologies offered in advance.

Every day I get emails from Bran in Spain. Every day, Richard sends numerous links I consider writing about. So does Mark the spellchecker.

Tony, Brisbane Bear, Bigpond, and Hugh send frequent emails about Australia and Asia. Many others, including Dave, Bob, Joe, Tony, Donald, and Mayraj send so much content that it's hard for me to know where to stop listing names.

Blog Monitoring

I have one person, "fedwatcher", who monitors comments and removes anything inappropriate.

I hope I touched all the bases here, but most likely I didn't. If I missed your name, please accept my apology.

Thanks!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Spain Modifies Bankruptcy Laws to Prevent Corporate Liquidations; 65,000 Companies, 1.3 Trillion Euro Delinquencies in Play

Posted: 09 Mar 2014 04:53 PM PDT

In the name of saving jobs, the Spanish government has decided to change the rules as to whether or not a business is viable.

In bankruptcy proceedings, companies will no longer be free to decide whether they prefer to liquidate the company.

Instead, corporations will be obliged to accept debt restructuring offerings from creditors on creditor-proposed terms centered around debt-to-equity conversions.

Via translation from El Economista.

According to various judicial, legal and bankruptcy administration sources consulted by elEconomista, companies will no longer be free to decide whether they prefer to liquidate the company.

New rules favor foreign financial institutions including the vulture funds, to take over companies. The decree aims to end the massive liquidation of companies in bankruptcy.

Followup post by el Economista

The Ministry of Economy approved the bankruptcy reform legislation to save viable businesses including a provision that transforms debt into equity.

If creditors representing at least 60% of the financial liability agree, forced conversion of loans into equity may last up to five years. If creditors representing at least 75% of the financial liability agree, forced conversion of loans into equity may last ten years.

Dissenting creditors may choose a haircut equivalent to the nominal amount of the shares that would correspond subscribe or take and, where appropriate, the corresponding premium or assumption.

Judges may override the 60% threshold to as low as 51%.

1.3 Trillion Euro Delinquencies in Play

Via translation Libre Mercado discusses the number of potential forced debt-to-equity conversions.

Deputy Prime Minister Soraya Saenz de Santamaria, said that the new law completes a package of measures that are aimed at companies that, despite their high debt, "can continue to run their business while maintaining their employment."

In Spain, 90% of companies that enter bankruptcy end up in liquidation. At first, this may seem logical and even reasonable: if a company is not viable, what is best for everyone to pay the maximum of their debts, creditors save everything and these goods are reallocated to more productive tasks. The problem is that, perhaps, not every business in competition (and even more in preconcursal phase) should close.

According to the Registry of Forensic Economists (REFOR), 65,000 companies, of them 15,000 "quality" companies with the rest being microenterprises that are "at risk of death because of refinancing problems.

Debt held by businesses is equivalent to 130% of GDP, about 1.3 tillion euros. The Ministry of Economy believes that the new RDL could facilitate the refinancing of up to 10% of this amount: 130 billion euros.

Think these debt-to-equity terms will be extremely one-sided?

Addendum

Reader Bran who lives in Spain sent the following pertinent comment: "1.3 trillion is the total debt held by businesses. The article did not stipulate how much of that is delinquent, but it's at least the 10% they hope to save. Registered delinquent business debt has been rising towards 10%. If they talk of saving 10% there is a lot more at stake than the 130 billion euros they think they can save."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Pro-Russia Troops Install Minefields, Border Markers in Crimea; Gazprom Ups Price of Natural Gas 37%, Calls in $2 Billion Gas Debt

Posted: 09 Mar 2014 12:10 PM PDT

The takeover of Crimea by Russia is nearly complete. All that remains is the final vote on March 16. There would not be a vote if the outcome was uncertain.

Troops Install Minefields, Border Markers in Crimea

Bloomberg reports Pro-Russia Forces Occupy Ukraine as Separatist Vote Looms.

Pro-Russian forces advanced in Ukraine's Crimean peninsula, ignoring Western calls to halt a military takeover before the region's separatist referendum. The U.S. estimates Russia now has 20,000 troops confronting a smaller Ukrainian force there. Ukraine has stepped up its eastern border defenses in the worst standoff between it and the West since the Cold War.

Pro-Russian units planted minefields in the Kherson region, north of Crimea on Ukraine's mainland, and began to install border markers between the two regions, news website Khersonskie Vesti reported today. Ukraine's border control service said Russian forces now control 13 border bases as well as the ferry crossing across the Kerch Strait to Russia, preventing guards from inspecting trucks arriving in Crimea.

Authorities on the peninsula ordered an anti-aircraft regiment in the city of Yevpatoriya to lay down its arms or its base would be taken over, news service Interfax reported.

The peninsula, where Russian speakers comprise a majority, will join Russia once parliament in Moscow passes the necessary legislation and there's nothing the West can do, according to Sergei Tsekov, the deputy speaker of Crimea's parliament.

"There's no comeback, and the U.S. or Europe can't impede us," Tsekov said by phone on March 7 from Moscow, where he met Russian officials to discuss the region's future. "Crimea won't be part of Ukraine anymore. There are no more options."

The U.S. and European allies will impose sanctions if there isn't a quick resolution, Obama said at the White House on March 6.

Russia Calls in $2 Billion Gas Debt, Gazprom Ups Price of Natural Gas 37%.

A Bloomberg video claims Russia Calls in $2 Billion Gas Debt. In addition, Ukraine Sees Gazprom Charging 37% More for Gas in Second Quarter.

Ukraine faces a 37 percent increase in the price it pays for Russian natural gas after OAO Gazprom canceled a discount and threatened to cut supplies, Ukrainian Energy Minister Yuri Prodan told reporters today.

Ukraine will pay about $368.50 per 1,000 cubic meters of the fuel in the second quarter, Prodan said. Russia agreed last year to cut the price it charges Ukraine to $268.50. Gazprom rescinded the discount last week and said Ukraine risks a repeat of 2009, when the Moscow-based company reduced shipments during a pricing dispute.

Ukraine needs to import about 30 billion cubic meters of gas this year, of which a third may come from Slovakia, Prodan said March 5. Gazprom said March 7 in a statement it's owed $1.89 billion by Ukrainian state gas company NAK Naftogaz Ukrainy for supplies already received.

Minimal Sanctions

It is likely the US issues some sanctions. They probably will not be meaningful. as noted on March 5, Russia Has Upper Hand in Ukraine, No Meaningful Sanctions Coming.

It was easy enough to impose sanctions on Iran because there was no meaningful trade with Iran other than oil. And global oil supply can come from anywhere.

Secondly, and unlike the US which has little trade with Russia, Germany, the UK, and other European countries do have meaningful trade with Russia.

Finally, Germany gets 30% of its natural gas supply from Russia. Impose severe sanctions and Russia can shut down those supply lines, most of which happen to run through Ukraine.

Obama can pretend to put down a tough stance, but don't expect any meaningful reaction globally. Events are already firming up along those lines.

Germany and the UK already rejected major sanctions. Europe gets much of its natural gas from Russia and hoarding supplies is now underway.

See Natural Gas Hoarding in Europe Thanks to US Sanction Proposals; Boehner vs. McCain; LNG the Solution.

The chart is from Gazprom and Morgan Stanley.

It is mathematically impossible to be more than 100% dependent on a supplier, at least over the long-term. Certainly, for short periods of time imports can exceed usage, but over the long haul they cannot.

That said, I do not know the timeframe for the chart. It's possible the chart is reflective of recent hoarding.

Regardless, the chart shows the huge dependencies some European countries have for Russian natural gas.

I feel sorry for those who will soon be living in a nation they do not feel part of. But there is little that can be done about it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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