Brookings Papers on Economic Activity

Financial stability risks from energy derivatives markets

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Saturday, November 26, 2022
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= Financial stability risks from energy derivatives markets =

Key Points: 
  • = Financial stability risks from energy derivatives markets =
    Published as part of the Financial Stability Review, November 2022.
  • Energy sector firms use energy derivatives under different strategies, depending on their main area of activity, business model and exposure to risk in physical markets.
  • The significant volatility and a surge in prices seen in energy markets since March 2022 have resulted in large margin calls, generating liquidity risks for derivatives users.
  • European energy prices and stylised representation of players active in the physical energy market

    Sources: Bloomberg Finance L.P. and ECB staff calculations.

  • The extreme price movements over recent months highlight the importance of energy derivatives markets for hedging risks in the energy sector, as well as some of the pressures that can arise in these markets.
  • This special feature provides an overview of the European energy derivatives market, with a focus on natural gas and power.
  • It analyses the impact of extreme energy prices on the structure of energy markets, the liquidity stress faced by entities with the largest exposures to market risk and the risks that their vulnerabilities may pose to their counterparties in derivatives and credit markets.
  • Energy sector companies are key users of energy derivatives, and the number of firms active in the market has increased in 2022.
  • Of the 1,700 firms active in the euro area energy derivatives market between September 2021 and October 2022, a quarter belong to the energy production chain, meaning they are extracting oil and gas or distributing energy.
  • On average, the number of firms active in energy derivatives increased by 30% between January and September 2022.
  • Most positions belong to a few large utilities or energy companies which use derivatives to hedge their operations against market risk.
  • [5] Such a high concentration of positions might raise financial stability concerns, as it increases the risk of disorderly market functioning.
  • [6] In general, energy derivatives require relatively high margining, reflecting the generally large volatility of energy prices.
  • Overview of direct and indirect risks from increased volatility in energy markets and gross exposures in energy derivatives per market segment

    Sources: EMIR data and authors calculations.

  • Commodity swaps traded in OTC markets can partially mitigate energy firms liquidity needs as margins are lower for bilaterally cleared trades.
  • A more significant shift by utilities and energy firms towards the OTC space would imply greater risks for counterparties and the financial system.
  • Some firms trading energy derivatives are relying on bank credit to deal with the consequences of rising energy costs.
  • Overall, this evidence might signal energy firms needs to finance inflated working capital, precautionary inventories and high liquidity demand on energy spot and derivatives markets ( Chart A.7, panel a).
  • A quarter of energy firms deal with the same set of banks for obtaining credit and client-clearing services for derivatives.

Household spending and fiscal support during the pandemic – the role of public perceptions

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Friday, November 11, 2022
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This posed a dramatic challenge to fiscal authorities, which needed to design and channel fiscal measures that were targeted, effective and efficiently allocated.

Key Points: 
  • This posed a dramatic challenge to fiscal authorities, which needed to design and channel fiscal measures that were targeted, effective and efficiently allocated.
  • For example, support measures ranged from traditional social security provisions, delivered through existing social welfare programmes, to more time-specific and pandemic-specific direct financial support and subsidies, including in-kind support (e.g.
  • Understanding households perceptions about these support measures is important for the optimal design, communication and subsequent evaluation of such policies.
  • Types of pandemic-related government support in 2020
    (percentages of respondents indicating that they received support, by type)

    Source: CES data collected in December 2020.

  • Please indicate whether your household has received such support in any of the following forms since January 2020.
  • [6] To gauge these perceptions, we asked CES respondents to directly assess the adequacy of fiscal support measures for the financial well-being of their household.
  • One finding we obtain is that respondents who received support generally perceive fiscal interventions to be more adequate (Chart 2).
  • A key question is whether changes in perceptions about the adequacy of government support policies could have a causal impact on actual spending decisions of consumers.
  • This is important, as a rise in expected taxes associated with government support measures could attenuate the stimulatory effects of fiscal policy.
  • This points to the powerful role of perceptions, as they operate over and above any immediate effects that government transfers can have on spending.
  • This, in turn, can help stimulate consumer spending and enhance the benefits of fiscal policy in terms of stabilising the economy.
  • Importantly, such perceptions influence the behaviour of households in general and not just those who actually receive support.

HUTCHMED Announces US$100 Million Equity Investment by Baring Private Equity Asia

Retrieved on: 
Thursday, April 8, 2021
Finance, Money, Baring Private Equity Asia, Investment, Corporate finance, Equity securities, Brookings Papers on Economic Activity

Mr. Jean Eric Salata, Chief Executive Officer and Founding Partner of BPEA, said, With this strategic investment, BPEA is demonstrating our long-term commitment to HUTCHMED, an emerging biopharma leader in Asia.

Key Points: 
  • Mr. Jean Eric Salata, Chief Executive Officer and Founding Partner of BPEA, said, With this strategic investment, BPEA is demonstrating our long-term commitment to HUTCHMED, an emerging biopharma leader in Asia.
  • The healthcare sector in China is a core area of investment focus for BPEA.
  • HUTCHMED has agreed to issue 16,393,445 ordinary shares, par value US$0.10 each (the Shares), pursuant to the private placement.
  • Baring Private Equity Asia (BPEA) is one of the largest and most established private alternative investment firms in Asia, with US$23 billion of assets under management.

Virtusa Highlights Merits of Significant Premium Transaction with Baring Private Equity Asia

Retrieved on: 
Tuesday, September 15, 2020
Professional services, Data management, Technology, Finance, Software, Banking, Finance, Money, Economy, Corporate finance, Virtusa, Equity securities, BPEA, Baring, Private equity, Brookings Papers on Economic Activity

Your Board and management team have been solely focused on maximizing value for all of Virtusas shareholders, and the recently announced sale to Baring Private Equity Asia (BPEA), which will deliver a significant premium and $51.35 per share in cash to you, is a testament to that unwavering commitment.

Key Points: 
  • Your Board and management team have been solely focused on maximizing value for all of Virtusas shareholders, and the recently announced sale to Baring Private Equity Asia (BPEA), which will deliver a significant premium and $51.35 per share in cash to you, is a testament to that unwavering commitment.
  • As you may know, on September 10, 2020, Virtusa and Baring Private Equity Asia (BPEA) announced that funds affiliated with BPEA will acquire all outstanding shares of common stock of Virtusa for $51.35 per share in an all-cash transaction valued at approximately $2.0 billion.
  • Do not allow NMC to distract from this significant and positive outcome for all Virtusa shareholders.
  • Steadfast execution against these three imperatives is what ultimately resulted in the significant premium transaction with BPEA.

Baring Private Equity Asia to Acquire Virtusa for $51.35 Per Share in All-Cash Transaction Valued at $2.0 Billion

Retrieved on: 
Thursday, September 10, 2020
Professional services, Data management, Technology, Finance, Software, Networks, Finance, Money, Economy, Virtusa, Alternative investment management companies, Private equity firm, Private equity, Brookings Papers on Economic Activity, BPEA, Virtusa

Founded in 1997, BPEA is one of the largest independent private equity firms in Asia with approximately $20 billion of assets under management.

Key Points: 
  • Founded in 1997, BPEA is one of the largest independent private equity firms in Asia with approximately $20 billion of assets under management.
  • BPEA brings directly relevant and value-enhancing experience in the IT services space through six prior investments dating back to 1998.
  • On July 20, 2020, the Virtusa Board of Directors received an unsolicited proposal from an interested party to acquire Virtusa.
  • Baring Private Equity Asia (BPEA) is one of the largest and most established private alternative investment firms in Asia, with assets under management of approximately US$20 billion.