TheChek News Flow

ATHENS—Greece’s parliament is expected to vote late Sunday on a raft of fresh taxes and austerity reforms that the country must legislate to unlock further rescue loans, ahead of a crucial eurozone finance ministers meeting on Tuesday.

The bill includes the last portion of an austerity package worth €5.4 billion ($6.06 billion), or 3% of the country’s gross domestic product, which Greece has agreed on with its international creditors to implement by 2018 in exchange for fresh bailout funds under the terms of its third bailout deal.

Parliamentary approval could pave the way for a green light from eurozone finance ministers on Tuesday for the next disbursement of funds to Greece. But that could be complicated by disagreements between the International Monetary Fund and eurozone governments over Greece’s debt relief.

In contrast with the European institutions overseeing the bailout—the European Commission and the European Central Bank—the International Monetary Fund says Athens won’t be able to reach its bailout targets and generate a 3.5% budget surplus when stripping out interest payments in 2018, based on the austerity measures.

The IMF has said it would only sign up to the Greek bailout if Germany agrees to debt relief. But German officials are seeking to delay any debt restructuring until the end of the current Greek bailout program in 2018, so that Germany’s parliament, the Bundestag, would pass such measures only after Germany’s 2017 elections.

To meet its targets, Athens was asked to set up a “contingency mechanism” of additional austerity measures worth some 2% of GDP.

The measures being voted on Sunday include new taxes on fuel, tobacco, alcohol, Internet, pay TV, hotel stays, cars, changes in property tax, as well as a rise in the basic value-added tax rate, applied to most goods and services, from 23% to 24%.

It also includes the framework that would free up the sale of nonperforming loans owned by Greek banks, as well as the establishment of a new privatization fund that would manage its assets to execute its investment policy and reduce its debt.

The Greek parliament is also expected to vote on the fiscal brake mechanism that would automatically cut state spending if Greece misses its budget targets.

The measures are expected to pass, with backing from the 153 lawmakers from the ruling left-wing Syriza party and its junior coalition partner, the right-wing Independent Greeks.

How much the next bailout tranche would be is still to be determined, but European Union officials indicate it could be €10 billion.

A deal that either bridges the IMF-German gap or that leaves the IMF outside the bailout is needed by June—or July at the latest—so that Greece can be kept afloat with rescue loans.

David Cameron has tried to switch the focus of Britain’s EU referendum debate away from Turkey, saying the country would probably not be ready to join the bloc “until the year 3000” on its current rate of progress.

The Vote Leave campaign has published campaign posters that say “Turkey (population 76m) is joining the EU”, alongside a picture of a British passport, suggesting a new wave of migration.

The Turkish strategy is central to the Brexit campaign’s attempt to raise public concern about immigration, as betting markets suggest a Remain vote is looking more likely.

Britain has long supported Turkish accession to the EU, but Mr Cameron told the ITV on Sunday that it would be “literally decades before this even had a prospect of happening”.

Mr Cameron also criticised Penny Mordaunt, a pro-Brexit defence minister, who incorrectly said on Sunday that Britain did not have a veto over Turkish accession.

“The Leave campaign are making a very misleading claim,” Mr Cameron said. “Britain and every other country in the EU has a veto on another country joining. That’s a fact. This really calls into question their judgment.”

Turkey, which took its first step towards joining the former European Economic Community in 1963, has made slow progress ever since. It falls far short of EU standards in areas such as free speech and media.

Vote Leave conceded that while Britain would have a veto on Turkish accession it has said it would not use it, pointing out that Mr Cameron said on several visits to Ankara that he backed Turkey’s EU membership bid.

The pro-Brexit campaign needs a game-changer as the fight over Britain’s EU membership enters its final month; the FT’s poll of polls gives Remain 47 per cent and Leave 40 per cent.

Betting markets are becoming more confident that Britain will stay in the EU. Paddy Power’s odds on a Remain vote have shrunk to 2/9 from 1/3 three weeks ago, implying an 82 per cent chance of Britain staying a member.

Mr Cameron, writing in the Sun on Sunday, tried to press home his perceived advantage on the economy by claiming that a Brexit vote could put up grocery bills.

“A weaker currency means more expensive imports; that means more expensive food and it drives higher business costs,” he wrote.

Meanwhile, Simon Stevens, head of cash-strapped NHS England, claimed a Leave vote would be “very dangerous” because an economic downturn would leave the health service in an even more parlous financial situation.

Mr Stevens and Mr Cameron have formed a united front to counter a powerful Leave campaign argument that if Britain left the EU, it could switch cash sent to Brussels into the health service.

The Vote Leave battle bus is emblazoned with claims that leaving the EU could help save the NHS, one of the main ways in which the campaign is illustrating its demand that Britain should “take back control” of its destiny.

Mr Cameron said the EU referendum was “more important” than a general election because the repercussions would be felt by future generations, while a government could be voted out after five years.

The prime minister also toughened his criticism of Donald Trump, saying that the US presidential hopeful’s suggestion that Muslims be banned from entering the US was “dangerous”.

But he also said he would meet Mr Trump if he came to Britain: “American presidential candidates have a habit of coming through Europe and the UK and if that happens I would be very happy to.”

European utilities slash asset valuations

European utilities wrote off a record amount of value from their assets last year, new figures show, bringing the total cost of impairments to more than €100bn in the past six years.

Data compiled by analysts at Jefferies show that 12 of Europe’s biggest energy companies had to reduce the value of their assets — many of them power stations — by just over €30bn in 2015.

This brings the total value of writedowns in the sector to €104bn since the beginning of 2010 — the cost of building the new UK nuclear power station at Hinkley Point nearly five times over.

The impairments swept across the sector as the tumbling price of wholesale power, coupled with an increase in renewables, left coal- and gas-fired power plants worth much less than previously calculated.

Some other companies that invested heavily in renewables then saw the subsidies they expected to receive suddenly cut by domestic governments, especially in Italy and Spain.

In Germany, many companies have been hit by the government’s rapid shift away from nuclear power in the wake of the Fukushima accident in Japan.

Critics also say many companies overspent on mergers and acquisitions in that time, lifting the value of the assets on their books.

Analysts at Jefferies called the value destruction in the past few years “biblical”.

Peter Atherton, who compiled the figures, said: “Utilities went through a golden period from 2002-2010, when rising power prices meant that earnings roughly doubled across the sector.

“They spent most of the proceeds of that buying each other up, inflating asset prices, and what we are seeing now is the deflation of that bubble.”

Since the beginning of the decade, more than 50 gigawatts of gas-fired capacity in Europe — equivalent to 50 nuclear plants — have been closed or mothballed by 10 of the continent’s biggest utilities.

In the UK, Rugeley B last week announced it would become in June the third coal-fired power plant to close in 2016, as low power prices and stricter emissions standards make it increasingly uneconomic to run such assets.

Engie, the company that runs Rugeley, has had to make sharper writedowns than any of its European rivals, partly because it owns thermal power plants around the world.

The company, formerly known as GDF Suez, wrote off the value of its assets by €8.7bn last year as it aims to refocus away from Europe.

Other companies that have had to make similar impairments include Eon and RWE, the German utilities, and EDF of France. Several of these companies, including Engie and EDF, have recently announced cuts to their dividends as they try to protect the value they have.

Jefferies’ research suggests there may be further writedowns to come, but more to goodwill than to the value of physical assets.

Goodwill appears on the balance sheet when a company makes a purchase, and is the premium the purchaser paid above the actual market value of the company or asset that has been acquired.

Jefferies’ figures show eight of the largest European utilities have reduced the goodwill on their balance sheets by €24bn over the past six years. But they also show they still carry €80bn, partly as a result of the M&A spree before the recent downturn.

One company — RWE — was carrying €12bn of goodwill by the end of last year. By the end of last week’s trading, this represented 170 per cent of the company’s market capitalisation of €7.1bn.

Mr Atherton called that figure “extraordinary”. RWE did not respond to a request to comment.

Weekly Update

Dow-0.20% S&P+0.28% Nasdaq+1.10% Russell+0.89% Brazil-4.02% Nikkei+1.97% Hang Seng +0.67% CSI +0.11% Shanghai -0.06% EuroStoxx+0.19% FTSE +0.29% CAC +0.78% Dax +0.55% Ibex +0.57% MIB +0.47% SMI +1.41%

Macro :

- Barron’s Roundup: Wien’s Weak Market; Red Hat, PepsiCo May Rise

- Japan’s Aso Told Lew That Japan Will Raise Sales Tax as Planned

- G-7 Reaffirms FX Agreements, Won’t Target Exchange Rates: Japan

- Brexit May Cut House Prices by a Fifth, Osborne Says: Telegraph

- Swiss Referendum May Cause CHF1.3b Budget Hole: FinMin in Blick

Keep an eye on :

- AIR FP : Iran Air Seeks to Finalize Airbus, ATR Deals in 45 Days: Fars

- AIXA GY : Aixtron Said in Talks to Sell Itself to Chinese Investor Group

- ALV GY : Allianz Italia Eyes Italy Investments: CEO Tells Milano Finanza

- BARC LN : PIC Considering Group to Buy Barclays Africa Operations: FT

- BAYN GY : Monsanto May Resist Any Offer Below $150/Shr: Jefferies

- BPER IM : BPER, UBI in Talks With Veneto Banca for Possible Merger: Sole

- FCA IM : German Transport Authority Finds Fiat Emissions Cheating: Bild

- GBF GY : Bilfinger May Announce Unit Sale in Days, Welt Says

- BT/A LN : BT to Search for New Chairman, Rake Set to Leave in 2017: Times

- GBL BB : Groupe Bruxelles Lambert Raises Ontex Holding to 15.01%

- ILD FP : Iliad, Sky May Consider Creating Fourth Italian Operator: FT

- ISAT LN : Inmarsat May Have to Exit FTSE 100 After Plunge: Telegraph

- INXN US : InterXion Rises; Digital Realty May Pursue Co.: DealReporter

- BAER VX : Julius Baer CEO Says Kairos IPO When Mkt Conditions Right: Sole

- NHH SM : NH Hotel Ready to Pay Dividend in 2017, CEO Tells Expansion

- NOKIA FH : Nokia to Cut 1,000 Jobs in Finland: DPA

- PBR US : Board says the appointment of the new CEO by the controlling shareholder will be analyzed at extraordinary board meeting on Monday; current CEO Bendine has not tendered his resignation

- PAH3 GY : Porsche SE Denies Spiegel Report of VW Supervisory Board Dispute

- RAND NA : Randstad to Acquire Obiettivo Lavoro in Italy for EU102.5m

- RCS IM : Mediobanca, UnipolSai, Pirelli Sign Pact in Joint RCS Bid

- RNO FP : Groupe, Renault in Talks With Proton on Strategic Pact: Edge

- SAB LN : SABMiller’s CEE Assets Said to Draw Interest From Advent, KKR

- SKY LN : Sky Said to Be in Early Talks About Backing O2 Bids: Telegraph

- S32 LN : South32 Nickel Wage Talks Wrapping up With Deal Elusive: Union

- TIT IM : Telecom Italia Ready to Sell 100% of Sparkle for Metroweb: Sole

- TEF SM : Sky Said to Be in Early Talks About Backing O2 Bids: Telegraph

- VOW3 GY : VW Truck Unit Starts Diesel-Recall Solution for Caddy 1.6 TDI

Buyers from mainland Europe have largely withdrawn from the market in expensive London homes as they await the outcome of the UK’s June referendum on EU membership.

Just 9 per cent of people buying “prime” central London houses and apartments in the first quarter of this year came from other EU countries, compared with 29 per cent a year earlier and a five-year average of 20 per cent.

This is despite a 10 per cent fall in sterling against the euro that has made UK homes significantly cheaper for European buyers.

EU purchasers also bought fewer homes in other parts of London, according to data from Hamptons International, an estate agency.

French and Italians are usually the most enthusiastic buyers, agents said.

“The EU has always been the biggest source of international buyers in London, so seeing that falling off — particularly at this time — suggests a bit more caution,” said Fionnuala Earley, director of research at Hamptons International.

“Why make a decision now when the thing you might be nervous about will happen in a few weeks’ time? There are questions over what may happen to the currency and the economy.”

London residents and homeowners from elsewhere in Europe may also be concerned about their right to stay if the UK votes to leave the EU. Lawyers and community groups have reported a rush to apply for British citizenship before the vote.

Ms Earley said the prime central London market was especially affected, partly because it is more dependent on overseas buyers and partly because prices there are falling, creating an added incentive for buyers to wait. This includes areas such as Chelsea, Belgravia and Kensington, where there is a large French community.

London homes priced from £2m to £5m now cost 9.7 per cent less than at their 2014 peak, while those over £5m cost 8 per cent less, according to LonRes, a data provider.

However, some appear to view the currency drop as a buying opportunity.

Charles McDowell, an agent for prime central London homes, said he had agreed three deals in the past week with European buyers, one for an £18m home.

“They said that they are bringing money to the UK now as they think there is a high probability we will stay in the EU, and therefore sterling will strengthen against other currencies, making property more expensive,” Mr McDowell said.

The proportion of EU homeowners selling their prime central London properties has also dropped this year, suggesting a general mood of nervousness about making decisions ahead of the vote, Hamptons said.

That has also been shared by commercial property investors, who sharply decreased their investment in the sector in the first quarter.

Fitch, the rating agency, has predicted that a vote to leave the EU could bring down house prices across the country by as much as 25 per cent and the chancellor said on Friday they would fall by at least 10 per cent.