B8|Wednesday,August21,2019 THEWALL STREETJOURNAL.
China’scentral bank set
newreferencelendingrates
lower in its latest pushto cut
borrowing costsfor struggling
small businesses,but econo-
mistssay the movecould be
toosmall to counter thecoun-
try’s economic slowdow n.
The People’s Bank of China
on Tuesdayset both Loan
Prime Rates, whichreplaced
benchmarklendingratesas
guides for bank loans and are
based on real-world bank
lending prices,belowbench-
mark rates.
The long-awaited reform
comes afterPremier LiKeq-
iang earlier thisyear ordered
thebiggest of China’sstate-
owned banksto allocate30%
of ne wloans to small busi-
nesses at lowrates .But unlike
cutting benchmarkrates, the
movewill ha ve marginal im-
pact on the economyasitonly
affect ssome newloans issued
by banks.
Thenew referencerates,
which will be updated
monthly, areexpectedto bet-
ter reflect changes in market
rates and allow lendersto re-
spond quicklyto the central
bank’seasing policies.Byc om-
parison, the PBOC last ad-
justed benchmarkrates in
2015 .Toarriveatthe LPRs,
the central bank will use the
averag epriceof18banks’
loans offeredto their best cli-
ents, which are in turn based
on their cost of borrowing
from thecentral bank’sme-
dium-term lending facility.
Previously, banks used the
PBOC’sbenchmark lending
rate to pricethe one-year LPR,
which has been hovering
around 4.30% sincethe central
bank cut the benchmark loan
rate to 4.35% in October 2015.
Theone-yearLoan Prime
Rate wasset at 4.25% onTuesday, PBOC datashowed,
0.95 pe rcentag epoint above
the la test medium-term lend-
ing rate.The central bank also
set anewly introducedfive-
year LPR at 4.85%, alittle
lowerthan thecorresponding
benchmark loanrate of 4.9%.
“I’d sayit’sstill aratecut
in terms of lendingratesbut
the extent of rate re duction is
definitelyvery small,”said Fan
Lei, an economist at Sealand
Securities.Mr. Fanhad ex-
pectedacut of upto aquarter
of apercentag epoint Tuesday,
whichwould have loweredthe
one-year LPRto about 4%.
While severalcentral banks
in major economies have cut
intere st rates amidaglobal
economic slowdow n, China has
largely refrained from such a
move. Beijingworries itwould
send toostrong an easing sig-
nal andcould inflatepropertybubbles and driveupdebt lev-
els,which authorities have
tried to keep in check.Beijing
has instead used piecemeal
measuresto shoreupeco-
nomic growth,which slowed
to an almost three-decade low
in the second quarter.
In abriefing Tuesday, PBOC
Vice Gov.Liu Guoqiang said
the reform will improvethe
effectivenessofthe central
bank’smonetarypolicysot hat
borrowers canbenefit from
easing measures.
—GraceZhu,ChaoDeng,
ShenHongandLiyanQiBeijing Moves to
Slash Business
Borrowing Costs
4.25%
The new one-year Loan Prime
Rate as of TuesdaySome critics have said the
terms aretoo generous,and
have argued that Guyana
shouldrenegotiate them.
One challengefor Hesswill
be keeping up with the spend-
ing that Guyana’sabundance
will require. Th efirst two of
what arelikely to be numerous
offshore production facilities
areexpectedto cost morethan
$11 billion over the next 10
years, according to GlobalData.
The company has heldexcess
cash in recent yearstoa ssure
that it will be preparedto pay
thosecosts.Hessisu sing cash-generat-
ing assets in the Gulf of Mex-
icoand the Gulf ofThailandto
fund gr owth opportunities in
Guyana and North Dakota.
Hess’s production is setto be
at th eupper end of itsguid-
ance at th eend of thisyear
and spending belowit, a
spokeswoman said.
Some investors see buying
shares in Hess as a proxy bet
on th efutureofGuyana’soil
industry. SupportforHess’s
Guyana prospectshelped the
companyfend offaserious
challengeinlate2017and2018 by activist hedgefund El-
liottManagement Corp.The
two partiesavoidedafight af-
terMr. Hessagreedto buy
back $1 billion in shares.
Shareholder excitement
over Guyanawas a key factor
in helping Chief Executive
John Hessremain at thecom-
panyheh as runfor morethan
two decades,according to
morethan adozeninvestors
TheWall Street Journal spoke
with at the time.Aspokes-
woman for Elliott declinedto
comment.
Some othercompanies that
have potentially lucrative op-
portunities outside of shale
have also donewell. NobleEn-
ergy Inc., which operates giant
natural-gas producing assets
off thecoast of Israel, has seen
itsshares rise about 18% this
year,slightly betterthan the
increase in the S&P 500.Ani n-
dexofU .S.oil andgasproduc-
ershas fallen by 16% in that
time,accordingto FactSet.
“The utopia isto find an as-
set thatreally separatesyou
from therest of the pack,”said
Norm MacDonald,vicepresi-
dent and portfolio manager at
InvescoLtd., which has assets
under management of about
$1.2 trillion. Hessand Noble
have both done that, he said.12 million barrelsaday,con
sistent shale profits have yet
to materialize. Fr om 2014to
2018,the 43 biggest stand-
alon eU.S.oil companies lost
morethan $90 billion,
prompting an investor exodus
from oil andgas.
Hesslost morethan $11 bil-
lion in that time.
Agroup led by Exxon an-
nouncedasizable discoveryin
Guyana in 2015.Sincethen,
the partners, which include
Hess and China’s Cnooc Ltd.,
have made 12 additional dis-
cove ries,together holding 6
billion barrels of oil andgas.
Theinitialtwo projects—
Liza1and Liza2—areex-
pectedto generate about $22
billio ninexcesscash forthe
companies aftertax,according
to analyticsfirm GlobalData,
thanks in part to generous
royalty terms the producers
struck with thegovernment.ContinuedfrompageB1Big Project
Propels
Hess Stock
ASurpriseOil Leader
Hesshassurgedthisyearduetoinvest orexcitementoverits
stakeinG uyanaoilprojectsthatareoperatedbyExxon.Year-to-dateshareperformanceSource:FactSetSPDRS&POil&
GasExploration&
ProductionETF60–2002040%2019HessThe companyholds a30% stakeinanoffshoreoil field thatappears poisedto become one of the most lucrativemegaprojects inyears.JOANATORO FOR THEWALL STREET JOURNALBUSINESS &FINANCE
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