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Argentina’s largest oil group poised to avert $6.2bn debt default

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Argentina’s largest oil company is poised to avoid defaulting on $6.2bn of debt after YPF reached an agreement with its most combative creditors on Sunday, according to two people close to the negotiations, in a last-minute reprieve for the country’s struggling energy sector.

Private creditors including Fidelity, Ashmore and BlackRock — which are still smarting from Argentina’s sovereign debt restructuring last year — had rejected YPF’s initial restructuring offers.

However, after a weekend of intense negotiations following YPF’s failure to secure sufficient acceptance of its restructuring offer by Friday’s deadline, a person close to the company confirmed on Sunday night that enough investors holding YPF’s bond maturing in 2021 had agreed to roll over a critical $413m interest payment due on March 23.

The deadline for the debt exchange — terms of which were improved for a fourth time on Sunday to get investors on side — has been extended to February 10.

“It’s over. There is a deal with the 2021 [bond]. That’s all that matters,” said a person close to the negotiations, meaning YPF has effectively staved off a default.

The tense showdown was triggered by central bank regulations aimed at shoring up scarce foreign exchange reserves that would have prevented YPF from making the March payment, which had to be in US dollars. It threatened to deal a crippling blow to the state-controlled energy group and derail prospects for the development of Argentina’s giant Vaca Muerta or “Dead Cow” shale field, with YPF leading development of the project.

“The central bank restrictions created an uncomfortable situation. We basically had to explain to the market that we are just another Argentine company subject to regulations, which forced us to refinance our debt,” said Alejandro Lew, YPF’s chief financial officer. He said he had held more than 50 one-on-one meetings with investors.

The restructuring will push more than $2bn in debt payments out to 2023 and replace old bonds with three new ones, including an export-backed note maturing in 2026 that offers more protection than unsecured debt. 

YPF’s debt burden is nearly four times its market capitalisation of about $1.6bn after its share price more than halved over the past year

Founded in 1922, the group’s finances have steadily declined in recent years. Even before the pandemic dealt a heavy blow, YPF in 2019 recorded losses of about $370m.

Gustavo Ber, a financial analyst in Buenos Aires, said the central bank regulations have hit all private sector companies and their ability to access financing, with implications for future levels of investment. 

“This restructuring is not only relevant for YPF, but also the economic and political signals sent out to investors in general,” he said, noting that other companies may now be encouraged to restructure their debt.

The restructuring discussions were complicated by the departure of chairman Guillermo Nielsen, also the architect of the country’s 2005 sovereign debt restructuring, who was ousted last month and replaced by Pablo González, a politician with little experience in the energy sector. González is close to Argentina’s powerful vice-president, Cristina Fernández de Kirchner, who repeatedly clashed with investors during her 2007-13 presidency.

The central bank’s foreign exchange restrictions have contributed to a sharp fall in the price of Argentina’s sovereign debt since it was successfully restructured last year, putting an end to the country’s ninth debt default since it declared independence in 1816. 



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South Africa’s economy is ‘dangerously overstretched’, officials warn

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South Africa is pushing ahead with plans to shore up its precarious public finances as officials warn the economy is “dangerously overstretched” despite the recent boom in commodity prices.

Finance minister Tito Mboweni hailed “significant improvement” as he delivered the annual budget on Wednesday and said that state debts that will hit 80 per cent of GDP this year will peak below 90 per cent by 2025, lower than initially feared.

But Mboweni warned that President Cyril Ramaphosa’s government was not “swimming in cash” despite a major recent tax windfall. The Treasury now expects to collect almost 100bn rand ($6.8bn) more tax than expected this year after a surge in earnings for miners. This compares with a projected overall tax shortfall of more than 200bn rand. Still, the finance minister made clear that spending cutbacks would be necessary.

“Continuing on the path of fiscal consolidation during the economic fallout was a difficult decision. However, on this, we are resolute,” Mboweni said. “We remain adamant that fiscal prudence is the best way forward. We cannot allow our economy to have feet of clay.”

The pandemic has hit South Africa hardest on the continent, with 1.5m cases recorded despite a tough lockdown. An intense second wave is receding and the first vaccinations of health workers started this month. More than 10bn rand will be allocated to vaccines over the next two years, Mboweni said.

‘We remain adamant that fiscal prudence is the best way forward’ – South African finance minister Tito Mboweni © Sumaya Hisham/Reuters

Even before the pandemic’s economic hit, a decade of stagnant growth, corruption and bailouts for indebted state companies such as the Eskom electricity monopoly rotted away what was once a prudent fiscus compared with its emerging market peers. 

Government spending has grown four per cent a year since 2008, versus 1.5 per cent annual growth in real GDP. The country’s credit rating was cut to junk status last year. Despite this year’s cash boost, the state expects to borrow well over 500bn rand per year over the next few years. The cost to service state debts is set to rise from 232bn rand this year to 338bn rand by 2023, or about 20 cents of every rand in tax.

The fiscal belt-tightening will have implications for South Africa’s spending on health and social services. On Wednesday Mboweni announced below-inflation increases in the social grants that form a safety net for millions of South Africans. “We are actually seeing, for the first time that I can recall, cuts in the social welfare budget,” said Geordin Hill-Lewis, Mboweni’s shadow in the opposition Democratic Alliance.

The finance minister is also facing a battle with union allies of the ruling African National Congress over a plan to cap growth in public sector wages. South Africa lost 1.4m jobs over the past year, according to statistics released this week. The jobless rate — including those discouraged from looking for work — was nearly 43 per cent in the closing months of 2020.

The South African treasury expects the economy to rebound 3.3 per cent this year, after a 7.2 per cent drop last year, and to expand 2.2 per cent and 1.6 per cent next year and in 2023 — growth rates that are widely seen as too low in the long run to sustain healthy public finances.

“The key challenges for South Africa do however persist, clever funding decisions aside,” Razia Khan, chief Middle East and Africa economist for Standard Chartered, said. “Weak structural growth and the Eskom debt overhang must still be addressed.” 



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Turkey’s Uighurs fear betrayal over Chinese vaccines and trade

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For five days this month, Jevlan Shirmemmet and other Uighur activists protested outside the Chinese embassy in Ankara, where they demanded to know the whereabouts of missing family members in China’s Xinjiang province. But on the sixth day, Turkish police stepped in.

They prevented the activists from gathering outside the diplomatic mission, positioned themselves outside their hotel and accompanied them wherever they went.

The stand-off reflects the difficult balancing act that Turkey, which is home to tens of thousands of exiled Uighurs, must perform with Beijing, not least because it wants closer ties and investment and is reliant on China for supplies of coronavirus vaccines.

President Recep Tayyip Erdogan, who casts himself as a champion of oppressed Muslims around the world, has in the past been a vocal critic of China’s actions in Xinjiang, the north-western region where the Chinese Communist party has interned more than 1m Uighurs, Kazakhs and other Muslims.

“On the one hand, Turkey wants to stand up for us, we know that, we feel it,” said Shirmemmet, 29, whose mother has been detained in Xinjiang since early 2018. “But they aren’t able to. We feel like their hands are tied.”

Jevlan Shirmemmet’s mother has been detained in the Chinese province of Xinjiang since early 2018
Jevlan Shirmemmet protesting in Ankara. His mother has been detained in the Chinese province of Xinjiang since early 2018 © Jevlan Shirmemmet

Analysts say that the plight of China’s Uighurs poses a problem for Erdogan, who is seeking alternative global partners at a time when relations with the west are deeply strained. “They are Muslims, they are Turks, and Turkish voters are sensitive about the issue,” said A Merthan Dundar, director of the Asia-Pacific Research Centre at Ankara University. “The government cannot establish very close relations with China. But it doesn’t want to cut all ties.”

In years past, Erdogan was one of the most outspoken global Muslim leaders concerning the plight of Uighurs, who are seen in Turkey as part of a broader global family of Turkic peoples whose rights Ankara has a responsibility to defend.

But opposition parties have accused Erdogan’s government of toning down its criticism to avoid upsetting Beijing. “Europe and America have spoken out against the oppression of our Uighur brothers in China . . . But there is still not a sound from Ankara,” Meral Aksener, leader of the opposition IYI party, said last month. Turkish officials insist that they continue to raise their concerns with Beijing behind closed doors.

Some figures in Erdogan’s government have advocated for stronger ties with Beijing in order to lure Chinese capital at a time when foreign direct investment from western countries has dwindled.

Investment so far has been limited, with the value of Chinese investment in Turkey standing at $1.2bn in 2019 in terms of equity capital, according to central bank data, compared with more than $100bn from Europe.

A woman in eastern Turkey receives the CoronaVac vaccine. Turkey has ordered 100m doses of the Chinese-made jab
A woman in eastern Turkey receives the CoronaVac vaccine. Turkey has ordered 100m doses of the Chinese-made jab © Chris McGrath/Getty

Ankara is eager for more. The country’s sovereign wealth fund has been courting Chinese investment, and plans to open an office in China in the first half of this year. Ankara also has a swap agreement with China’s central bank that helped to boost the appearance of Turkey’s depleted foreign currency reserves by an estimated $2bn. 

The pandemic has added an extra complexity to the relationship. While Turkey has struggled to procure European-made vaccines, it has a deal in place for 100m doses of the CoronaVac jab made by Chinese drugmaker Sinovac Biotech. Delays to the shipments in December coincided with a decision by China’s parliament to ratify an extradition treaty between the two countries. Turkey has yet to ratify it.

Yildirim Kaya, a member of parliament from the opposition Republican People’s party, said that the ratification of the treaty by Beijing had created “a great deal of panic among Uighur Turks who have escaped from China to Turkey”. In a set of questions posed to the Turkish health minister, he demanded to know if Ankara had faced pressure to ratify the deal to speed up the delivery of the vaccines. Turkish foreign minister Mevlut Cavusoglu reacted angrily to such suggestions. “We don’t use Uighurs for political purposes,” he said. “We defend their human rights.”

Analysts are also sceptical that China would use the vaccine, of which Turkey has already administered 6.2m doses, as such crude leverage. Ceren Ergenc, an associate professor of China studies at Xi’an Jiaotong-Liverpool University in Suzhou, believes it is more likely that Ankara was doing Beijing a favour by signing a deal for a vaccine that had yet to be approved in China — and that still has question marks over its efficacy.

“It happened at a moment when China needed not necessarily the money but the prestige in the international system about the credibility of its vaccines,” she said. “There’s a kind of indebtedness or reciprocity — Turkey still needs financial support from China so it did this act of buying the Chinese vaccine that had at the time not yet undergone all phases of testing.”

In response to questions from the Financial Times, the Chinese embassy in Ankara said the recent protests had sought to “smear” China and that their actions had threatened the safety of the diplomatic mission. It strongly rejected the notion that it had used Turkey’s need for vaccine doses as political leverage as “absolutely unfounded conjecture and malicious misinterpretation”.

Still, the episode has left many members of the Uighur diaspora feeling deeply nervous about their place in Turkey. “China sees us as criminals,” said Mirzehmet Ilyasoglu, who joined this month’s Ankara protests to demand information about his missing brother, brother-in-law and four friends. “We hope that this [extradition] agreement won’t come before parliament, but if it is signed then our concern will grow.”



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The accidental hotelier: how I quit economics in London for a new life on a Greek island

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The decision to become hoteliers was made sitting on a pavement with my mum and sister, shielding our eyes from the Greek sun. There, in front of the neoclassical palazzo we had just visited, the hotel idea somehow presented itself as a solution. For a year, we had been trying to find a small holiday apartment for ourselves. We had fallen in love with the island, and my sister had a little money she wanted to invest.

The estate agent had only mentioned this particular property in a fit of exasperation. We kept asking about this or that house, and he said “the only one for sale in that area is this”: a monumental building from Syros’s shipping heyday, with Doric columns and spiral marble staircases, five metre-high ceilings, four floors, gardens, 20 rooms. Once the headquarters of the Cycladic tax authorities, it was now abandoned. We asked to see it, just for fun, and he humoured us. 

The cost of the property was seven times our budget, and roughly four times our combined savings and assets. This, without taking into account the necessary restoration. We had no wealthy relatives (or, indeed, any relatives) to fall back on. It was 2017 — Greece was still mired in a financial crisis, the banking system was crippled. We had no experience of property investment, restoration or the hospitality industry. That afternoon on the sunny kerbside, we exchanged high fives.

The remarkable thing about Hermoupolis, Syros’s capital, is that it exists in the first place. Until the early 19th century, the island’s largest settlement was the medieval Catholic village of Ano Syros: quiet, whitewashed Cycladic houses perched on a steep hill. The turning point was when the Greek war of independence broke out and Syros declared itself neutral, suddenly attracting waves of refugees from conflict areas in Asia Minor and from other islands. There seemed to have been a miraculously high concentration of entrepreneurs among them: they took no more than a few decades to create the city of Hermoupolis and turn it into the industrial and mercantile heart of the eastern Mediterranean, the cultural centre of Greece, and its main port.

Swimming at Hermoupolis, Syros © Alamy

Vast fortunes were made in shipping, shipbuilding and textiles. Hermoupolis acquired the cultural and societal trimmings of a place of consequence: Greece’s first public high school, a university, banks, stock exchanges, a theatre modelled on La Scala, art galleries, charitable institutions, courts of law, foreign consulates. Town planning was approached methodically and sought to combine Greek classicism with romanticism. Almost overnight, an architecturally homogenous capital was built that today seems too ambitious for an island of less than 40 square miles: a town of marble pavements, palatial buildings and large, neoclassical public squares.

Back to late 2017: we confirmed to a sceptical seller and our bemused estate agent that we would be buying the property. The money we had set aside for the holiday apartment became a measly deposit, giving us six months to cough up the rest or lose it all. I gave up my London flat and job as an economist and moved to Syros, with a small degree of personal financial security intact in the form of a freelance contract as an economic journalist.

Hermoupolis was a cultural and economic centre but has avoided the mass tourism of neighbouring Mykonos

My sister resolved to spend another exhausting year up in the Swedish Arctic — she had been working gruelling shifts as a locum doctor there for the past 18 months — and it was her pay that was going to finance the bulk of the restoration. We applied for EU regional development funds, and I spent most of my time assiduously petitioning all four of the remaining Greek commercial banks. In May 2018, within weeks of the deadline, we obtained a mortgage. High fives, again. We thought the difficult part was over.

Not many have heard of Syros. Hermoupolis eventually declined in importance once the Corinth canal was built and Athens’s port, Piraeus, took over most of the trade and shipbuilding activity. Geography itself was against our little upstart: there are only a handful of island capitals of countries that are on a continental landmass (the most striking example, in Equatorial Guinea, is currently in the process of being moved to the mainland). Failures on a grand scale followed Hermoupolis’s initial success. Shipbuilding dwindled and companies such as the Greek Steamship Company, the first such enterprise in Greece, went under; the few that survived mostly did so by moving to London or New York. More often than not, the great optimists of history are figures of tragedy.

Hotel Aristide’s lobby . . . 
. . . and art in one of the bedrooms © inbulb.com

The other reason for Syros’s relative anonymity is that the island never invested in mass tourism. Thanks to the many public institutions and various remnants of the old industries, there were employment opportunities outside the tourist sector. There’s also a degree of what might seem snobbery to some, foresight to others: Syros locals had watched the quaint fishing villages of nearby Mykonos become international party hubs, and turned up their noses at that prospect.

The renovation started in mid-2018. We obtained planning permission surprisingly quickly, although I struggled with the vagaries and inconsistencies of Greek law. From the start, matters and finances weren’t helped by the fact that the project morphed yet again, from “let’s make a hotel” to “let’s make our dream hotel”. Where someone with experience might just say “that’s the way to do it”, we thought about everything for ages, did a lot of research, and often stumbled on some novel and costly solution.

The hotel before its restoration

I learnt that every profession I came across, every area of expertise, is relevant to a hotelier. Firemen, sound engineers, graphic designers, sommeliers, skippers, pharmacists, gardeners — all are potentially useful partners or advisers. We used to joke that the only person I would fail to find a task for was a nuclear scientist. I learnt that a large restoration project involves tens of thousands of decisions; something like 500 separate decisions just for the windows and doors. By the end of the first six months, I had such a bad case of decision fatigue I couldn’t even look at restaurant menus.

And I learnt not to take local gossip seriously. Several workers claimed there was an ancient smugglers’ tunnel going from our house to a secluded cove; two men even insisted they had been inside the tunnel. The problem was that not one of them could remember the point of entry. So I, being a 10-year-old boy scout and not a grown woman, duly had holes drilled in every plausible place. The garden, the basement, the cistern. I can report zero smugglers’ tunnels, but many bricks bearing the inscription “British made” — apparently, Hermoupolis was wealthy enough back in the day to import bricks from the UK.

Map of Greece

Naturally, my life changed compared to London. When I first moved to Syros, I had imagined my days something like this: I would wake up early and go for a swim at the beach just beneath the hotel. It’s the place that first made me fall in love with Hermoupolis. The backdrop of the neoclassical architecture is glorious, and in combination with the perfectly clear water and the quiet time of day, it’s balm for the soul. Then I would go check on the construction site, and later on work on my novel. It seemed the ideal life.

What happened is that years went by when I didn’t swim once. Partly it was the lack of time — the hotel needed constant attention — but also the stress got to me in a way that seemed anathema to swimming in that peaceful spot. I felt like a bomb floating in the water.

The only way I was able to relax was by walking. The north of the island is a nature reserve, and instead of being littered with half-finished concrete bungalows, as happens so often on Mediterranean islands (and as is the case for the southern half of Syros), it is pristine and open. The walking trails take you along the coast, the inner valleys, or to the many sandy beaches that can only be reached on foot and where you can find yourself alone, even in August.

The landscape is rugged and dramatic, the cliffs covered in spiky shrubs and the odd long-suffering tree, sculpted by the wind. It was a surprise to me that, unlike the Europe I was used to, Syros is most colourful in winter: there are flowers everywhere, enormous butterflies, and the round, spiky shrubs create an undulating pattern of shades of green. There’s fresh grass, and something implausibly fleshy for the climate that looks like clover. For two to three months, this mostly rather dry island becomes a little bit Irish.

I miss my London friends, I miss the theatre. Sometimes I miss things like Korean restaurants, or anonymity. But it hasn’t been the culture shock that might have been expected. The island is full of interesting people, its history has seen to that. There is a stable population of about 25,000, there are festivals throughout the year — international film, jazz, street art, animation and many more. There is a university and so there are student bars, and art galleries. A Syros local is almost as likely to quote Foucault at you as to do some clichéd Greek islander thing.

There is a strong tradition of music on the island

The preferred art form on the island is undoubtedly music. In my early days on the island I was repeatedly taken aback to come across our accountant playing the accordion in a taverna, our estate agent killing it on the violin in some square, or civil servants singing on the mini-La Scala stage. Syros, it turned out, loves music.

It could also be that my affinity for the place runs deeper than arts and culture, and has something to do with the psychological make-up of the island. The three of us were refugees, too, once (from Romania and Yemen to Sweden); maybe there’s some element of recognition at play.

There are not many construction site anecdotes: mostly, works went well. Contractors were generally reliable, workers competent. Sourcing was not unduly complicated. It’s just the financing that was a nightmare throughout. Again, partly it was our fault: it’s too depressing to look at the numbers, but I suspect we went between two and a half and three times over budget. There were times when we didn’t see a way out of the financial hole we had dug ourselves in.

Flowers bloom profusely in Syros’s winter

And then, the pandemic hit. Because we were a new hotel and had no operating track record, we didn’t qualify for any of the financial assistance offered by the government. We opened anyway, in late July, with just the five rooms we had managed to finish, and while opening was wise in terms of obtaining the first reviews and valuable experience, financially it was yet more hole-digging. The previous year I had signed a publishing contract for my novel, and on some particularly desperate days I found myself at the absurd junction of hoping that the novelist folly would help pay for the hotelier folly. On a less amusing note, my sister’s one-year exile in the north of Sweden is on its fourth year. The last times we talked about her having to extend her stay and keep working at that insane pace, she cried. She’s still up there.

Paradoxically, I am much more relaxed now, even though we are still in the midst of a pandemic. At least the hotel is finished, and we are happy with the result. We did everything we could do. Should the pandemic rage on, the attendant tragedies will dwarf any business concerns anyway.

It’s been a dramatic four years. We are in a debt of gratitude to our friends, who have been supportive, and even helped out financially at crucial moments. To our serene and patient estate agent who stuck with the mad foreigners through the renovation, and without whose help we would have had to give up. I also like to think that the island’s patron deity, Hermes, smiled on us, that this was a project to appeal to the god of travel, mischief and commerce. He always struck me as an approachable, down-to-earth figure, far less inclined to take offence than other members of his divine family. All in all, we have been lucky.

Oana Aristide is the author of “Under the Blue”, to be published by Serpent’s Tail on March 11

Details

Direct flights from Athens (skyexpress.gr) to Syros take 35 minutes, or there are frequent ferries that take about two hours. Alternatively, neighbouring Mykonos is served by numerous international flights; from there, Syros is 30 minutes by ferry. For more on the writer’s hotel, see hotelaristide.com

Greece’s borders are currently open to residents of the EU and certain other countries, including Australia and Japan, but subject to testing and potential quarantine; for details see travel.gov.gr

Listen to our podcast Culture Call, where FT editors and special guests discuss life and art in the time of coronavirus. Subscribe on AppleSpotify, or wherever you listen



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