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Afdb approves $500 mln loan payment to egypt intl cooperation minister


CAIRO Dec 13 The African Development Bank's board approved on Tuesday payment of a $500 million loan to Egypt, the second of three expected disbursals, Minister of International Cooperation Sahar Nasr told Reuters.

The loan, approved by the board in light of Egypt's economic reforms, is subject to parliamentary approval. Nasr did not specify when a vote might take place.

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Analysis brazil commodity exporters under friendly fire in currency war


In its latest bid to slow dollar inflows in a "global currency war," Brazil has dealt an unexpected blow to its own commodity exporters, choking off medium-term trade financing at a vulnerable time for the sector. Brazil - a source of much of the world's sugar, coffee, soy, beef and iron ore - has imposed a series of taxes on foreign capital over the past year to slow what President Dilma Rousseff called a "tsunami" of cheap money flowing from the rich world. But exporters say the central bank went a step too far on March 1, when it quietly implemented a 6 percent financial transactions tax on medium-term loans offered to exporters by banks, a critical tool used by major commodity producers across the globe to finance their operations. That 6 percent tax has shifted demand to one-year credit lines in dollars, known as ACCs, driving up the costs as trading houses and raw materials exporters rush to shift financing needs."Of the two types of export credit in Brazil, the government just killed one by taxing it to death and the cost of the other is going up," said a local executive at a multinational trader who asked not to be named. Brazil's largest commodities exporters are now lobbying the government to roll back the so-called IOF tax, which is applied to foreign credit and exchange operations. They say the loss of such dollar-linked loans beyond one year has crimped their access to cash and will eventually limit investments."We are going to have to find some solution," said Luiz Carlos Carvalho, president of Brazil's Agribusiness Association, which is pressing the government to remove or alter the tax. Prior to this month, big producers like Bunge (BG. N), Louis Dreyfus, ADM (ADM. N) were free to bring in the dollars when they needed to pay for seed, fertilizer, equipment, fuel or labor. Importers eventually paid off the foreign bank loans through intermediary collection agents after the goods were delivered. The so-called IOF tax ended this for terms beyond one year."Even exporters in minerals and technology had been putting up future foreign delivery contracts to secure financing in dollars with three to five years to pay back," said Renato Buranello, an attorney in trade finance at Brazilian law firm Demarest & Almeida.<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^GRAPHIC on Brazil's real: link.reuters.com/seg37s^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

BAD TIMING The squeeze comes at a delicate time for both exporters and major trade-finance banks like France's BNP Paribas (BNPP. PA), Credit Lyonnais (CRLPp. PA) and Societe Generale. In late 2011, European banks, a leading source of financing for raw materials trade across the globe, were paring back loans to assure they would meet capital requirements in the face of increasing writedowns in asset values. Meanwhile the Brazilian sugar industry, which accounts for half of global trade in the sweetener, is still recovering after the 2008 financial crisis tipped many mills into bankruptcy."We used to use this financing -- but no more," said Luiz de Mendonça, chief executive of ETH - one of Brazil's biggest cane ethanol producers. He said the value of this type of export financing meant $200 million-$300 million for his company alone."The loss of it will weaken an already fragile sector and could unleash more consolidation."Brazil's soybean and corn producers are in the worst drought in half of decade. Some will not meet delivery contracts.

Exports in general have been declining here due to weak demand in China, Europe and the United States - and Brazil is struggling with a dwindling trade surplus. The incoming dollars have strengthened the Brazilian real, punishing local manufacturers by making imports cheaper and Brazilian exports more expensive. ABUSES Brazil's central bank declined to comment on the extension of the IOF tax to export finance. A government source, however, said some companies were not using the credit lines to finance production and exports. Rather, they were using them to make bets in Brazil's currency and debt markets without paying taxes aimed at slowing speculative dollar inflows. In recent years foreign investors have flooded Brazil with capital hoping to take advantage of zero-bound interest rates in the U.S., Europe and Japan to bet on Brazilian bonds that paid near low double-digit returns and get the added boost of a strengthening currency. In 2011, the real firmed to its strongest in 11 years, due in part by exports of raw materials. The strong currency undermined Brazilian manufacturers, though, who had to fight a flood of cheap imports. To help them the central bank laid a tax on speculative dollar inflows. Some companies seeking to skirt these taxes began using export credit to chase high returns on the financial markets, rather than pay for land, shipping or grow more foodstuffs, said Ademiro Vian, assistant director of financing at the Brazilian Federation of Banks, or Febraban.

"There's speculation going on. You don't need five years' worth of export financing in all ag-export sectors," Vian said. SUGAR But the big trading houses, particularly in the sugar and ethanol industry, are scrambling to shore up new financing."I have big exporters as clients that are at a loss over what to do," said Lucio Feijo Lopes, a local attorney in trade finance. "This marks a big change in how trade finance is structured. There will be an impact on exports."Grain producers and exporters say they will manage more easily with the lack of longer-term export financing, as the annual nature of their business allows them to rely more on the 360-day ACC export-exchange contracts for financing. But this short-term debt is not well suited to longer-term investment needs. Large sugar groups, of which Brazil has plenty, make investments that only pay off in exports over several years. Long forgotten medium-term export financing contracts that were created in the 1970s under the military dictatorship are being dusted off by the local banks to try to fill the void, but the so-called Export Credit Notes, or NCEs, are based on the real, which exposes the exporter to swings in the currency. Raw material producers, who are dependent on exports, hold longer-term debt in dollars as a natural hedge against currency risks. If the dollar, which is the currency in which the exports are paid, weakens against the real, so does the firm's debt. The government recently exempted exporters from a separate tax on currency futures that hampered hedging against exchange rate risks inherent in the export business. Exporters said it is a step in the right direction but will not offset the loss of medium-term dollar financing."If I hold real-linked debt and the dollar falls to 1-to-1 with the real, then my debt balloons against my revenue stream," the local executive at a multinational trader said. "Companies don't last long if they have debts in one currency and revenue in another. As a Brazilian exporter, I have to be in dollars."

Apaches egypt quandary symbolizes tough business call


Apache Corp (APA. N) faces a difficult choice in Egypt: whether to sell its substantial oil and natural gas operations in the country or wait out the recent bloodshed. The Texas-based energy company has said it is assessing the value of its Egyptian interests, which account for roughly a fifth of its global oil and gas production and 27 percent of its revenue last year. While production has not been affected so far by the violence, Apache's shares have fallen 5 percent since July 3, when former Egyptian President Mohamed Mursi was overthrown. Many analysts believe the turmoil contributed to the dip."The sooner they get the hell out of there, the better," Oppenheimer & Co analyst Fadel Gheit said. "Investors have plenty of risk in the stock market. They don't want civil war risk in their portfolios, too."But selling now would likely mean accepting a price undercut by political uncertainty. At the end of 2012, about 7 percent of Apache's oil and natural gas assets were in Egypt, worth roughly $854.1 million. Analysts said it was hard to put a current value on the operations because of the turmoil."Apache is not going to resort to a fire sale," said Gheit, "But it's a long-term challenge if they decide to stay and operate there."The quandary is not unique to Apache. More than 250 U.S. companies, ranging from Dow Chemical Co (DOW. N) to Citigroup Inc (C. N), operate in Egypt, where the army-backed government has instituted a month-long state of emergency. Apache and other Western companies are now weighing whether the risks of operating in Egypt outweigh the rewards.

Last week, General Motors (GM. N), Electrolux (ELUXb. ST) and BASF (BASFn. DE) temporarily closed facilities in Egypt, citing the unstable security situation. BG Group BG. L and BP (BP. L) pulled out non-essential expatriate staff last month. Kristian Ulrichsen, a fellow at the policy-focused Baker Institute in Houston, saw less risk in the short term for companies working in Egypt than later on, when the reverberations from the government crackdown are felt."The longer-term risks are a whole segment of the population being cut out of the political roadmap. That's something that will play out over years," he said, citing Algeria's bloody civil war in the 1990s as a worrying precedent. "I hope Egypt won't go down that route, but you can see the danger."Apache, which bought BP's oilfield stake in the western Egyptian desert for $650 million in 2010, has more than $1.3 billion in insurance policies covering its Egyptian operations in the event the government confiscates its assets, cancels contracts or nationalizes the oil industry.

"We're watching the situation closely," Apache spokesman Patrick Cassidy said. POTENTIAL VS REALITY The Texas-based company's 9.7 million acres in Egypt, of which it so far has only developed 18 percent, promise "considerable exploration and development opportunities," according to securities regulatory filings. A U.S. Energy Information Administration report last month singled out exploration by Apache as being responsible for many of the oil discoveries in Egypt during the past five years.

Apache declined to say how many employees it has in Egypt. Brokerage Raymond James estimates Apache has roughly 200 expatriates and as many as 10,000 local workers."The most important thing about Egypt is it generates a tremendous amount of cash flow," Apache Chief Executive Steve Farris said on a conference call with investors this month."And we just need to figure out a way to validate that value without giving up that value," he added. Analysts interpreted his comments to mean a sale of the assets was probable. A Chinese oil company could be a likely buyer of Apache's Egyptian assets given China's long-standing interest in Africa and need for oil, said Oppenheimer's Gheit. Proceeds from a sale would allow the company to buy back shares and trim its $12.3 billion debt load, he said. In a step largely seen as a positive for foreign oil companies, Egypt's oil ministry on Thursday named Tarek El Molla as the head of Egyptian General Petroleum Corp