BRICs Buying IMF Bonds to Join ‘Big Leagues,’ Goldman Says

BRICs Buying IMF Bonds to Join ‘Big Leagues,’ Goldman Says
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By Lester Pimentel and Valerie Rota

June 11 (Bloomberg) -- Brazil, Russia, India and China’s plan to shift some foreign reserves into International Monetary Fund bonds may be more a signal of their growing financial clout than a lack of demand for U.S. assets.

“They’re saying they are part of the big leagues,” Alberto Ramos, an economist at Goldman Sachs Group Inc., said in a telephone interview from New York. “They’re not buying IMF bonds to diversify reserves. They want to be seen as having a large voice” in global markets, he said.

Russia and Brazil announced plans yesterday to buy $20 billion of bonds from the IMF and diversify foreign-currency reserves. China will purchase $50 billion and India may announce similar funding, Brazil’s Finance Minister Guido Mantega said. The countries are seeking a stronger voice in international financial institutions such as the IMF, according to He Yafei, a vice foreign minister at China’s Ministry of Foreign Affairs.

Treasuries declined yesterday, pushing benchmark 10-year yields to the highest since October, after the government sold $19 billion of the securities and Russia said it may move out of U.S. debt to buy the IMF bonds. The so-called BRICs, an acronym coined by Goldman Chief Economist Jim O’Neill in 2001 for the biggest emerging markets, have combined reserves of $2.8 trillion and are among the largest holders of Treasuries.

‘Much Bigger’

“If this was the beginning of something much bigger, then the market would front-run that,” said Dominic Konstam, head of interest-rate strategy at Credit Suisse Securities USA LLC, in an interview from New York. “It wouldn’t be in the interests of Russia or China to watch the value of their assets go down.”

The 10-year yield climbed to as high as 3.99 percent yesterday from 3.86 percent, according to BGCantor Market Data. The yield has surged from 2.21 percent on Dec. 31 as the U.S. steps up debt sales to finance a record budget deficit and pull the economy out of the deepest recession since the 1930s.

Treasuries slid yesterday in part because the announcement by Russia and Brazil was a “sudden shock,” said David Spegel, head of emerging-market strategy at ING Groep NV in New York.

“We are asking to increase the voice and representation of emerging economies,” He said at a June 9 briefing for President Hu’s Jintao’s participation in a BRIC summit next week in Russia.

China has 3.66 percent of votes in the IMF, Russia 2.69 percent, India 1.89 percent and Brazil 1.38 percent, according to the fund’s Web site. The U.S. has a 16.77 percent voting power.

Selling Treasuries

Alexei Ulyukayev, first deputy chairman of Bank Rossii, said Russia would sell some of its $140 billion of Treasuries to make room for the purchase of the IMF bonds. Mantega said Brazil’s central bank would decide which assets to sell from its reserves portfolio for the transaction.

China’s State Administration of Foreign Exchange said last week that it’s “actively” considering buying as much as $50 billion of the IMF bonds.

BRIC nations can’t pull out of the Treasury market because there “aren’t a lot of alternatives out there that are AAA rated,” Spegel said.

“With their reserve levels so high -- $2 trillion from China -- where are they going to put their money?” Spegel said in a telephone interview.

The IMF board may consider late this month or in July the proposal to sell the notes, which would be the fund’s first issue, IMF spokeswoman Conny Lotze said today by e-mail. The plan will likely determine other aspects regarding use of the securities, such as whether they can be traded among countries much like U.S. Treasury bonds.

Russia Meeting

The debt will pay a yield similar to U.S. Treasuries and will be denominated in the fund’s basket of currencies, known as Special Drawing Rights, Mantega said yesterday in Brasilia. The IMF calculates the value of SDRs daily, with 44 percent weighted toward the dollar, 34 percent to the euro and the remainder split between the yen and the pound, according to its Web site.

Officials from the BRIC nations are scheduled to meet next week in Yekaterinburg, Russia, where they plan to discuss the status of the dollar as the world’s reserve currency. Ulyukayev said Russia will sell Treasuries “because a window of opportunity for working with other instruments is opening,” according to Interfax news wire. The remarks were confirmed by a Bank Rossii official who declined to be named, citing bank policy.

Geithner Trip

Treasury Secretary Timothy Geithner said in Beijing on June 2 there will be enough demand for record sales of U.S. debt. The U.S. budget deficit is projected to reach $1.75 trillion in the year ending Sept. 30 from last year’s $455 billion, the Congressional Budget Office says.

The spread between 2- and 10-year Treasuries, which reached a record 2.81 percentage points this month, averaged 0.69 percentage points during the fiscal year 2001. During the four- year period of government budget surpluses from 1998 through 2001, the spread averaged 0.22 percentage points.

Geithner met with Chinese officials after Premier Wen Jiabao called in March for the U.S. “to guarantee the safety of China’s assets” and central bank Governor Zhou Xiaochuan proposed a new global currency to reduce reliance on the dollar.

BRIC nations have been adding to their foreign reserves over the past month to stem currency rallies sparked by speculation that the developing nations will help lead the world out of recession. The Brazilian real is up 20 percent against the dollar the past three months. Russia’s ruble has gained 13 percent and the Indian rupee has climbed 10 percent.

The four countries increased international holdings by more than $60 billion last month, according to data compiled by central banks and strategists.

“They want to be seen as good citizens of the IMF,” Goldman’s Ramos said. “It’s an investment that can empower them in the institution.”

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【足利事件】「誠に遺憾で申し訳ない」栃木県警本部長
2009.6.11 14:41

　足利事件で菅家利和さん（６２）が釈放されたことを受け、栃木県警の石川正一郎本部長は１１日、「真犯人と思われない方が、長期間にわたり刑に服されることになったことについては、誠に遺憾で申し訳ないと考える」との談話を文書で発表した。

　県警が菅家さんの逮捕や服役に関して謝罪したのは初めて。

　また、高田健治刑事部長が、文書を発表した経緯について説明。「刑の執行停止を厳粛に受け止め、菅家さんや関係者、県民の方々に早期に謝罪することが適切だと判断した」と述べた。菅家さんへの直接の謝罪について問われると、「現段階では菅家さんとは連絡をとっておらず、抗告審などの推移を踏まえ、適時適切に対応する」とした。

　菅家さんの逮捕に至った当時の捜査などについては「現在、事件の問題点を検討するチームを設けており、結果を公表したい」と話した。

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農村システム協の不正支出…天下りの幹部、お手盛り給与

　農林水産、経済産業、総務の３省が所管する社団法人「日本農村情報システム協会」（東京都豊島区）の不正支出問題。

　自己破産の方針を決めた協会は今後、通産省（現・経産省）ＯＢの副会長（７９）が代表を兼務する任意団体に不透明な業務委託を続けていたとして、６億円以上の委託費返還を求める方針だが、実はこの任意団体の恩恵を被っていたのは副会長一人ではない。破綻(はたん)の背景には、中央省庁ＯＢらが巨額の補助金という「甘い汁」を吸う構図が見え隠れする。

　◆二つの財布◆

　農水省などの指摘によると、協会は、同じビル内にある任意団体「情報システム技術会議」にコンサルタント業務などを委託、うち６億４６００万円は水増しなど不正支出だったという。

　副会長は２００５年に非常勤になるまで年１０００万円の給与を受け取る一方、約２０年前から今年３月まで技術会議の理事長職に就き、同会議からも年１２００万円を受け取っていた。

　“二つの財布”を持っていたのは副会長ばかりではない。

　農水省を退職後、複数の公益法人を「渡り」、０６年に協会に入った常務理事（６４）も、就任初年度は協会から８００万円の年収を得ながら、技術会議からも顧問名目で２５０万円を受領していた。長男と次男がそれぞれ協会に勤務していた時期もある。

　経産省出身で０７年７月に就任した理事（５９）も、協会からの９００万円の年収のほか、技術会議からも年４００万円の顧問料を受け取っていた。

　協会は０４年には基本財産４億４０００万円を使い果たし、監査の度に赤字隠しの工作を続ける状態だったが、「協会は毎月数百万、時には１０００万円単位でぽんぽんと振り込んでくれた」と技術会議関係者は話す。だが、協会側は「出張費などがかさんだ」との釈明を繰り返すばかりで、役員報酬を含め、詳細な使途についてはいまだに正式に明らかにしていない。

　◆暗黙の条件◆

　協会の主力業務は、農漁村へのケーブルテレビや防災無線の普及事業。国の補助金を利用して敷設したい市町村を顧客に、コンサルタント業務などを行ってきた。農水省幹部は「ある時期まで、補助事業の採択を希望する場合、協会にコンサルを依頼するのが暗黙の条件だった」と明かす。

　きっかけは、１９９１年３月の構造改善局長（当時）名の通達だ。農業構造改善事業の計画策定を巡り、同協会などの名前を挙げ、「適当と認められる者には委託することができる」という一節が入っていた。

　農水省は「協会に計画策定を委託することも可能ということを示しただけ」と釈明するが、「市町村側にすれば『補助金が欲しければ協会を使え』と受け止めたようだ」と認める。

　こうした「ひも付きの補助事業」の実態が国会などで批判され、農水省が９７年４月にこの通達を廃止するまでに、多い年で２億円近い補助金が協会に“還流”していたという。

　◆甘い指導◆

　００年４月、農水省は協会などに対し、業務外注の際には入札を行うよう指導。ところが、協会はその後も、技術会議に随意契約で発注していたが、農水省は「技術会議のことは把握できなかった」と話す。

　農水省では毎年、協会に職員を派遣し、決算などを精査していた。農水省は「不正を見抜けなかったのは経理が操作されていたため」と釈明する。だが、０５年度決算では、４億６０００万円近い基本財産がありながら、その運用益がわずか「２２６４円」。「通常ならあり得ない不自然な数字」（構造改善課）でありながら、矛盾を見過ごしていた。

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Latvia's currency crisis is a rerun of Argentina's

By Nouriel Roubini

Published: June 11 2009 03:00 | Last updated: June 11 2009 03:00

After a recent failed public debt auction, the authorities in Latvia are desperately trying to prevent a depreciation of the currency, the lat. The country's predicament is similar to the one that faced Argentina in 2000-01: a severe recession driven by global financial shocks, a sudden drying up of capital inflows and the need to reduce a large external deficit worsened by an unsustainable currency peg.

As in Argentina, the International Monetary Fund initially went along - somewhat uncomfortably - with the authorities' strong preference for not letting the currency depreciate, in spite of its significant overvaluation. But a real exchange rate depreciation is necessary to restore the country's competitiveness; in its absence, a painful adjustment of relative prices can occur only via deflation and a fall in nominal wages that will take too long and exacerbate the recession.

Draconian cuts in public spending will be required if Latvia is to improve the current account. But this is becoming politically unsustainable. And while fiscal consolidation is needed - as Argentina found in 2000-01 - it will make the recession more severe in the short run. So it is a self-defeating strategy as long as the currency remains overvalued.

Of course, as in Argentina, letting the currency depreciate would lead to massive negative balance-sheet effects. The large foreign liabilities of households, companies and banks are in foreign currency; the real value in local currency of such debts would increase sharply after a devaluation. Devaluation may therefore lead to default by many private sector agents - and as the country's banks are local subsidiaries of Swedish banks, a financial meltdown in Latvia could prove damaging for its neighbours.

Nonetheless, devaluation seems un-avoidable and the IMF programme - which ruled it out - is thus inherently flawed. The IMF or the European Union could increase financial support for Latvia but, as in Argentina, this would be throwing good money after bad. International resources are better used to mitigate the collateral damage of depreciation.

An introduction of the euro immediately after devaluation could help prevent the exchange rate from overshooting, although it would require the eurozone to admit a country that does not yet satisfy the formal criteria for membership. Euroisation after depreciation is a more credible strategy for Latvia than dollarisation would have been for Argentina, as Latvia was on its way to membership and its business cycle is highly correlated with that of the EU. Euroisation without depreciation will not work, as a real depreciation is necessary to restore competitiveness. Of course, any depreciation - with or without euroisation - will make many foreign currency debts unsustainable and will require a forced debt restructuring, as in the case of Argentina.

To minimise the risk of contagion, the best strategy may be: depreciate the currency, euroise after depreciation, restructure private foreign currency liabilities without a formal "default", and augment the IMF plan to limit the financial fallout. It is a risky strategy but - as in Buenos Aries nine years ago - when plan A does not work it is time to move to plan B sooner rather than later. Delaying plan B would only cause a bigger blowout when the unavoidable currency crisis eventually occurs. It is to be hoped the lessons of Argentina in 2001 have been learnt.

Latvia's authorities are trying desperately to prevent depreciation by intervening in the foreign exchange market. While the very thin interbank market slows down the rate at which domestic and foreign financial institutions can short the Latvian currency and put pressure on the central bank reserves, the country is bleeding forex reserves at an alarming rate. Only a miracle or some draconian and credible fiscal adjustment (that does not exacerbate the recession) could restore the peg's credibility and lead to a growth recovery.

At this point, a currency and financial crisis is pretty much unavoidable; the issue is how to minimise the domestic and international costs of the needed change in the policy regime. As the experience with Argentina suggests, procrastinating will make the unavoidable crash - and the regional contagion - even more -dramatic and costly.

The writer is a professor of economics at New York University's Stern School of Business and chairman of RGE Monitor

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Relief in Latvia spreads across the water

By Robert Anderson

Published: June 11 2009 03:00 | Last updated: June 11 2009 03:00

As fears of an imminent Latvian devaluation receded yesterday, relief was felt across the Baltic sea in Sweden, biggest investor in this country of 2.3m people.

Latvia's deepest recession since the aftermath of communist rule has dominated trading in Swedish financial markets. The krona and shares in Swedish banks have been on a two-week rollercoaster, driven by the twists and turns of Latvia's struggle to keep its International Monetary Fund programme on track and fears that it might abandon its currency peg.

"Just speaking about devaluation creates nervousness in itself," says Louise Lundberg of Standard & Poor's, which has put Latvia's rating on credit watch.

Twists in Swedish sentiment have put the lat under pressure, though to a much lesser extent than the krona because the market is illiquid and tightly policed by the central bank. "The Swedish financial market has become a proxy speculation for Latvia," says Kristaps Strazds, head of trading at SEB in Riga.

Nervousness over the lat was sparked last month when Sweden's central bank announced that it would bolster its foreign exchange reserves by borrowing Skr100bn ($13bn, €9bn, £8bn). That sparked worries in the markets as it was widely seen as designed to give the central bank more firepower to help Swedish banks if Latvia devalued.

This assessment appeared to be confirmed by comments from a former central bank chief - and current adviser to Latvia - that it was only a matter of time before Riga devalued.

Yesterday, the central bank gave renewed life to these rumours by borrowing €3bn ($4.2bn, £2.6bn) from the European Central Bank under a little-known swap agreement. The move appeared designed to speed up the strengthening of reserves as concern over Latvia rose.

The announcement had an immediate effect on the krona. It weakened in early trading, though it recovered its momentum later after Brussels signalled that the European Union would stand behind Latvia.

Market worries have not only focused on the risk of devaluation in Latvia, but also the knock-on effect for neighbouring Lithuania and Estonia, the damage that would do to Swedish banks, and whether the Swedish government would have to step in to provide support.

Swedish banks are particularly exposed to the risk of a devaluation because much of their lending in the Baltic states has been in foreign currencies.

Devaluations would increase the debt burden of mortgage holders and companies, triggering more defaults, deepening the recession and putting pressure on the untested insolvency system.

Even though the risk of a Latvian devaluation is receding, the recession in the Baltic will increase loan losses. "Just because Latvia doesn't devalue doesn't mean Sweden won't end up footing the bill," says Gunnar Tersman, Baltic analyst at Handelsbanken in Stockholm. "The timing is just different: if you devalue it's right in your face; if you don't, it creeps up on you all the same."

Swedbank and SEB, the most exposed lenders, have turned to their shareholders to strengthen their capital in recent months, but Swedbank may need an injection of state equity in the event of a devaluation, say -analysts, because other sources of funding might be cut off.

The Swedish Financial Supervisory Authority said the four big Swedish banks could absorb more than Skr150bn in losses over three years in the Baltic states without falling below required capital levels. "However, in extreme -scenarios the market will most likely require a higher level of capital," it said -yesterday.

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米国債など「13兆円」不正持ち出し、邦人？２人を拘束　伊警察

　【ジュネーブ＝藤田剛】イタリアの報道によると、同国警察は総額1340億ドル（約13兆円）の米国債などの有価証券を不正に持ち出そうとした日本人とみられる２人をスイスとの国境で拘束した。２重底になっているカバンに大量の有価証券を隠し持っていることが発覚し、押収された。

　日本政府も拘束の事実は確認しているが、日本人との情報が本当かどうかは不明としている。氏名や持ち出しの理由なども分かっていない。

　イタリア警察は有価証券の金額があまりにも巨額なため、偽造の可能性を含めて捜査を進めているもよう。有価証券が本物の場合、総額の約40％の罰金が科せられる可能性があるという。(14:18)

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Iraqi teen tackles maths puzzle, but not the first: university

May 28, 2009

STOCKHOLM (AFP) — A 16-year-old Iraqi immigrant, who figured out a solution to a complex maths puzzle, was not the first person to come up with a successful formula, Sweden's Uppsala University said in a statement Thursday.

Swedish media, including the website of the Dagens Nyheter daily, reported Thursday that Mohamed Altoumaimi had found a formula to explain and simplify the so-called Bernoulli numbers, a sequence of calculations named after the 17th century Swiss mathematician Jacob Bernoulli.

The Falu Kuriren newspaper, which ran the original story, said Altoumaimi was the first person to crack the puzzle and had enlisted the help of a senior lecturer at Uppsala University to check his formula.

But a statement published on the university's website said the reports were inaccurate.

"Senior lecturer Jan-Aake Lindhal verified the formula, but added that although correct, it was well known and readily available in several databases," the statement said.

The Falu Kuriren also reported Altoumaimi had been offered a place at Uppsala once he finishes high school, but the institution denied this was the case.

"The student... has not been admitted to Uppsala University," the statement said.

Altoumaimi, who came to Sweden six years ago, is currently at high school in Falun, central Sweden and plans to take summer classes in advanced mathematics and physics this year.

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Guantánamo panel urges US to take Chinese Uighurs

By Demetri Sevastopulo in Washington

Published: May 20 2009 00:28 | Last updated: May 20 2009 00:28

The task force on Guantánamo Bay detainees set up by Barack Obama has recommended the administration go ahead and release into the US two Chinese Uighurs held at the prison, the Financial Times has learned.

The White House’s hesitation on its original decision to release the two comes as Republicans increase their attacks on Mr Obama’s plans to close Guantánamo, which would involve transferring a total of some 240 detainees to the US.

Republicans won a political victory on Tuesday after Democrats withdrew $80m (£53m) in funding for the closure of the camp until the administration had come up with an adequate plan to transferring detainees. The plight of the Uighurs illustrates the difficulty Mr Obama faces in trying to carry through his promise to close the prison.

Two government officials told the FT that the task force had advocated releasing two of the 17 Uighurs – Muslims from Xinjiang province – held at Guantánamo as part of the effort to fulfil the president’s pledge to close the US detention facility on Cuba within a year.

The White House was now wavering from its original intention to implement the recommendation under pressure from Congress. One official said the administration had originally overruled the homeland security department and Federal Bureau of Investigation, who had “screamed bloody murder.”

Dean Boyd, a justice department spokesman, said: “We have no announcements on whether any final decision has been made with respect to the disposition of the Uighurs or other detainees at Guantánamo, or on the claim of interagency ­disagreements.”

Lindsey Graham, a South Carolina Republican senator, and Joseph Lieberman, an independent senator from Connecticut, also introduced legislation that would block the release of the Uighurs into the US.

“Former enemy combatants should not be released into the general population of the US,” said Mr Graham. “Any decision to do this will put Americans at unnecessary risk.”

Mr Graham told the FT there was “huge” support for the legislation. Asked whether any lawmakers were arguing on behalf of releasing the Uighurs in the US, he said: “The Uighur caucus is pretty small.”

Some Democrats have also questioned whether the US should take the Uighurs, who were captured in Pakistan after fleeing Afghanistan in the wake of the 2001 invasion.

The Pentagon, which no longer deems the Uighurs as “enemy combatants”, has cleared most of them for release. The US has refused to return them to China – where they are considered part of a terrorist separatist movement – out of concern that they might be tortured or killed.

The administration of George W. Bush spent several years trying to persuade other countries to take the Uighurs, but only succeeded in getting Albania to take five of the 22 detainees. Many critics have argued that the US would have more success obtaining help from other countries by taking some Uighurs itself. Germany and Sweden, which have large Uighur communities, have previously refused to accept any of them.

Tom Malinowski, Washington advocacy director at Human Rights Watch, said the administration understood that the US needed to take some of the detainees in order to encourage Europe to help, but that the congressional rhetoric would complicate those efforts.

“You can’t argue these people are too dangerous to be released in the United States and then ask Germany to take them, that doesn’t work.”

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ECB offers Sweden €3bn loan

By Ralph Atkins in Frankfurt, Joshua Chaffin in Brussels,and Robert Anderson in Stockholm

Published: June 11 2009 03:00 | Last updated: June 11 2009 03:00

The European Central Bank has acted to head off a financial crisis in the Baltics, providing Sweden's central bank with a €3bn loan in a confidenceboosting move amid growing fears over Latvia's economy.

The ECB move signalled the central bank's willingness to shore up official European help for countries such as Latvia, whose prime minister, Valdis Dombrovskis, voiced optimism that the country would soon receive another tranche of multinational aid.

The ECB's loan to the Riksbank - a rare example of aid for a country outside the eurozone - will be used to augment the Swedish central bank's foreign reserves, increasing its capacity to help Sweden's private sector banks, which dominate the Baltic region's financial sector.

Since the global financial crisis erupted, the ECB has been wary about extending help beyond the borders of the eurozone. Yesterday's move suggested it was prepared to do that.

Jean-Claude Trichet, ECB president, has been careful not to rule out stepping up help to the Baltic region, although such a move could prove controversial within the bank.

The €3bn ($4.2bn, £2.6bn) being lent to the Riksbank is part of a previously undisclosed "swap" agreement, which was struck in December 2007 and allows the Swedish central bank to borrow up to €10bn in exchange for Swedish kronor for up to three months.

Last week Mr Trichet revealed it had an agreement allowing the Latvian central bank to obtain liquidity from the ECB, but only against euro-denominated collateral.

The ECB will worry about the financial risks and potential costs involved in stepping up to help the Baltic countries, as well as the dangers of setting a precedent that might prove awkward in a future crisis in eastern Europe or elsewhere.

The Latvian lat has stabilised this week, boosting sentiment towards other eastern European currencies, after Riga said it had found another 500m lats (€711m, $993m, £610m) in budget savings.

This has raised hopes that the International Monetary Fund will soon approve the next €1.4bn tranche of aid under Latvia's stabilisation plan.

"This gives us certainty about the next tranche," said Kristins Strazds, head of trading at SEB bank in Riga. "This should end the devaluation rumours in the short term."

However, Joaquín Almunia, European economic affairs commissioner, stressed in Brussels the need for Latvia to sustain its budget cuts over the long term.

"We are convinced that there are no other alternatives - that all other possible alternatives are more painful or worse for the Latvian citizens, for the Latvian economy and also for the EU economy," Mr Almunia said, noting the importance of keep the lat's peg to the euro, given the country's high level of foreign debt.

Mr Almunia was speaking after a meeting with Mr Dombrovskis, who was confident that Latvia's parliament would next week approve the emergency budget cuts.

Earlier, Mr Dombrovskis told the Financial Times that the situation was beginning to stabilise.

"It's important . . . that people know that we will continue to receive this international loan package," he said.

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ADIC launches four funds

By Andrew England in Abu Dhabi

Published: June 9 2009 15:02 | Last updated: June 9 2009 15:02

The Abu Dhabi Investment Company, one of the oil-rich emirate’s oldest state investment vehicles, said on Tuesday that it was launching four equity funds focused on the region that would be open to international institutional investors.

The launch of the funds is part of a two-year restructuring exercise at the company, which has been rebranded “Invest AD” and has historically acted as an investment arm of the government. But it is now aiming to attract foreign investment to the region by offering a range of financial services to international institutional investors.

“The region is seen as a source of capital ... from our perspective we also think the region should be seen as a destination of capital,” said Nazem al-Kudsi, the company’s chief executive. “We know the region very well, we have the expertise and we feel strongly about corporate governance and we have access.”

Two of the four open-ended funds – a United Arab Emirates fund and an Emerging Africa fund – have already been launched with seed money. The other two – a Gulf Cooperation Council equities fund and a Middle East and North Africa fund - are expected to be launched in the next few weeks.

The region’s bourses have followed a similar trajectory to global markets, suffering heavy losses last year before picking up in recent months.

ADIC is one of a growing number of state investment vehicles acting on behalf of Abu Dhabi, which is the capital of the United Arab Emirates. Set up in 1977 it does not declare the size of its assets under management, but bankers estimate it invests about $10bn.

Although its primary focus is on the Middle East and North Africa, Mr Kudsi said the company would consider opportunities outside the region. Last week, the company announced that it had entered into an agreement to acquire a stake in Gornaya Karusel resort being built for the 2014 Winter Olympics in Sochi, Russia. It has not disclosed details about the size or value of the stake.

The company also has a joint venture with UBS to raise $600m for an infrastructure fund. Last month it said it had commitments of up to $250m with its first close.

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Saad sees its lines of credit shut off

By Andrew England in Abu Dhabi, Simeon Kerr in Dubai, and,Neil Hume and Patrick Jenkins in London

Published: June 11 2009 03:00 | Last updated: June 11 2009 03:00

Western banks have begun to close down credit lines to Maan Abdul Sahed AlSanea and his investment entity, Saad Group.

People familiar with Mr Sanea's investment business said that some of the several dozen international banks that had lending relationships with the Kuwaiti-born former fighter pilot had started liquidating shareholdings.

The moves came after news of an edict from the United Arab Emirates central bank, restricting lenders' business with Saad or related companies, including Ahmad Hamad Algosaibi & Brothers. One banker who had seen the memo said the central bank had instructed local banks not to grant new facilities to the Saudi groups until further notice.

Apparently taking their cue from that directive, Citigroup yesterday placed 30m shares, or a 4 per cent stake, in 3i Infrastructure, owned by Mr Sanea at 85p, according to traders. The previous day, the bank placed 16.1m shares in Berkeley at 701p, the homebuilder. Credit Suisse placed another 4.4m Berkeley shares at 715p, according to Bloomberg. This week, Saad Group sold half its stake in Berkeley.

Saad's only comment was: "We are continuing to make progress with the restructuring plan announced last week and will update you further in due course."

It has emerged that the Saudi central bank had frozen the personal accounts of Mr Sanea, who is also a major shareholder in HSBC. The action was taken shortly after the International Bank Corporation (TIBC), a wholly-owned entity of Ahmad Hamad Algosaibi & Brothers, had defaulted.

Saad Group has since appointed Lawrence Graham LLP and BDO Corporate Finance as advisers as it seeks to restructure its debt.

Algosaibi has not made public comments, but it is understood that TIBC defaulted because its parent was carrying out a group-wide debt restructuring.

In a second circular, the United Arab Emirates' central bank has told banks they may offset any credit facilities with two troubled Saudi groups against deposits held by the companies, bankers said yesterday.

The action relates to Saad Trading & Contracting Co. and its owner, Maan al Sanea, as well as Algosaibi Trading Services and Ahmad Hamad Algosaibi & Brothers, two bankers who have seen the circulars said.

A circular said that banks could offset their exposure against available assets held by the groups, subject to legal requirements, according to one of the bankers who has seen the document.

The rare move is a sign of concerns about the potential ramifications for the region's financial sector.

Another senior banker said the UAE's central bank planned to meet with bankers today to gauge the extent of the exposure of banks based in the Gulf's main business hub have to the groups.

The Algosaibi group was one of the Gulf's most respected family companies and able to borrow almost on reputation alone. Saad Group, which had been rated by both Moody's and Standard & Poor's, has interest across the region and internationally, with a high exposure to property and the financial sector. It had assets of $30.6bn by the end of 2008.

"The Saad Group understands that the Central Bank of the UAE has reminded its banks of their obligations to abide by the terms of their documented rights and liabilities with regard to the Saad Group," Saad Group said in a statement e-mailed to the Financial Times. "The group appreciates such reminders as they assist the process of responsible banking, which is a characteristic of the UAE."

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Brazil readies oil reserves law

By Jonathan Wheatley in São Paulo

Published: June 11 2009 03:00 | Last updated: June 11 2009 03:00

The Brazilian government is preparing legislation that will set new regulations for the country's enormous off-shore “pre-salt” oil reserves, discovered in 2007.

International oil companies have been anxiously awaiting the regulations as they cover some of the world's few big unexploited oil reserves, which industry leaders say will be as significant as the North Sea discoveries of the 1970s.

But the proposed legislation has caused alarm among many in the industry, who fear it may be open to political interference and give unfair advantage to Petrobras, Brazil’s government-controlled but publicly traded oil company.

In a recent interview with the Financial Times, Edson Lobão, mines and energy minister, said international oil companies should “prepare their treasury reserves” as the government would introduce regulations in time to auction new concessions in the pre-salt fields next year.

The statement surprised many in the industry, who had expected the process to take longer.

The ministry confirmed on Wednesday local press reports, saying three bills were being prepared to go before Congress. They would create a new, 100 per cent state-controlled oil company to take ownership of the fields and award concessions; production sharing agreements in the fields, in which oil companies would give part of the oil they produced to the government, replacing the existing concession system in which companies take ownership of whatever oil they discover; and a fund to channel proceeds from the fields to social spending.

Several concessions in the fields were sold before their potential became clear. Almost all are controlled by Petrobras, in partnership with foreign companies.

Those concessions will not be affected by the new rules and are likely to keep Petrobras and its partners busy for several years.

But because about 60 per cent of Petrobras’s capital is held by private investors, the government has been keen to create a new company to secure ownership of the remaining pre-salt fields for the Brazilian state. Government officials estimate that pre-salt concessions already granted could contain more than 50bn barrels of oil; the remaining area is likely to be much larger.

The proposed new structure is based on that in Norway, where Petoro, entirely controlled by the state, oversees the industry in which StatoilHydro, controlled by the state but with private investors, plays a dominant role.

Brazil’s ministry said the new regulations would follow the Norwegian model, including measures that allow the new state company to grant concessions without putting them out to tender – a move widely seen as protecting Petrobras from being squeezed out by wealthier foreign competitors.

“This is worrying,” said Eric Smith of the Tulane Energy Institute in New Orleans. “There is likely to be a lot less transparency in Brazil than there is in Norway. This could allow for political interference and favours.”

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Peru to suspend land laws after violence

By Naomi Mapstone in Lima

Published: June 11 2009 03:00 | Last updated: June 11 2009 03:00

Peru’s Congress is moving to suspend the passage of laws at the heart of a lands right dispute with Amazonian indigenous tribes that sparked the worst violence the country has seen since the Maoist Shining Path insurgency.

The official death toll of 30 protesters and 24 police officers is contested by indigenous leaders, who accuse the armed forces of hiding bodies. The government denies the charge.

Mercedes Aroaz, trade and tourism minister, said a 90-day suspension of decree 1090, which would give the government the power to sell deforested land to private entities, would improve the chances of negotiating a solution. “If a suspension is temporary and gives the opportunity for dialogue and establishing consultation mechanisms, then we agree,” she said.

But the suspension falls well short of the protesters’ demands to repeal the legislation. They say decrees, being passed in part to comply with a trade agreement with the US, weaken their rights to land they have inhabited for hundreds of years. They fear decree 1090 would create a loophole whereby illegal deforestation would pave the way for the sale of land to oil, gas or mining interests, and decree 1064 would end the need for companies to consult indigenous communities before starting work.

An army curfew in the northern Amazonian town of Bagua has restored order, after the clash between more than 600 police officers and 2,000 protesters blocking a central highway escalated into riots, looting and the kidnapping of 38 police, nine of whom died.

Tensions remain high, however, with a national strike on Thursday and calls by indigenous leaders for the resignation of Yehude Simon, prime minister, and Mercedes Cabanillas, interior minister. Carmen Vildoso, minister for women and social development, resigned her cabinet post in protest at the government's handling of the violence.

Alan Garcia, the president, called the protesters “ignorant”, suggesting they were being manipulated by leftist forces outside Peru, interpreted to mean Hugo Chávez, of Venezuela, or Evo Morales, of Bolivia. After Alberto Pizango, an indigenous leader whom the government charged with sedition, was granted asylum in Lima's Nicaraguan embassy, Daniel Ortega, Nicaragua's leftist president, was added to the list.