In today’s Issue:
- Submarine lending is a risky business
- Shakespeare’s reckoning for the Sukuks
- Saving the world from climate change is a costly affair
For years now, climate change has been a central part of the investment equation. No punt could be made without assessing the carbon considerations first.
At least, that’s the impression you’d get watching the CPD (Continuing Professional Development) videos we have to rack up here at Fortune & Freedom HQ…
There have been a few iterations of emissions aware investing. ESG, carbon offsetting and divestment, to name a few.
Each was as fashionable as the next. Until it went out of fashion as quickly as my sister in-law’s wardrobe.
That’s not to say you couldn’t profit. The booms in things like hydrogen, solar, wind and batteries were real. They just fizzled and died, taking investors’ money with them.
The next clean energy boom is about to take off. So says the man who helped investors profit from each of the others I just listed. To find out more, please call our customer service team at 0330 808 7916 to see how you can claim James’ research in a no-obligation 30-day trail. Or click here to request a callback within the next 24 hours – if that suits you better.
What I want to warn you about today is something a little different. It’s all got to do with the Maldives. An archipelagic nation of half a million people.
For decades, scientists have been warning that the islands will disappear under the oceans as soon as… 2018. This’ll make climate refugees of the population. Those that survive the lack of drinking water which precedes them getting their feet wet.
The trouble is, the opposite keeps happening. The islands keep growing. The population keeps booming. The tourists keep coming. The airports keep getting built. Hotels keep investing in resorts.
In most fields of science, this would be enough to force you to update your hypothesis. But not in climate science. You just delay the reckoning by a few years.
You probably know all this. But some of us do need reminding.
Anyway, here’s where the story gets mighty interesting…
Submarine lending is a risky business
The Financial Times and Bloomberg are reporting about the Maldives’ actual demise. They really are deeply underwater. But in the other sense – the financial one.
Some idiot had the clever idea to lend vast sums of money to the disappearing islands. So much that they are now struggling to pay it back.
The story is even more amusing when you discover who lent the vertically challenged islands money: India and China – the two countries actively trying to sink the Maldives under a cloud of carbon emissions and wall of salt water.
I don’t know who to laugh at. The borrowers who borrowed money from the nations trying to sink them. Or the lenders lending money to the nation they’re trying to sink.
I suppose scamming lenders out of half a billion dollars shortly before you go under is a clever ploy. There is literally nothing left for the lenders to claim as collateral when you default by sinking.
But it’s as if the Chinese and Indian lenders aren’t buying into the climate science at all… A bit like all those politicians buying oceanfront property.
Anyway, the inflation and supply chain nightmare of the past few years hit the Maldives harder than most. Tourism is back these days, but import costs are still dangerously high.
The nation’s bonds are now priced at 70 cents on the dollar, implying a chance of default before they mature in 2026. They might even default on a payment due next month.
At risk is a $500 million tranche of bonds they issued – $1,000 per Maldivian. Although an amount per tourist is probably more relevant.
If there is a default, the impact on future borrowing could be quite dangerous. The country relies on imports for basic goods. Which means it needs foreign currency reserves to buy what its population needs to survive. If they can’t, the country really could be abandoned by its population.
And that brings us to the point I’m trying to make. Financial ruin from pursuing climate action can precede the consequences of climate change.
But before we get to that, there’s another irony worth mentioning…
Shakespeare’s reckoning for the sukuks
The Maldives’ debt is not technically in the form of bonds, but sukuks – a form of sharia-compliant debt.
Paying interest isn’t politically correct under Islam. You have to “share in profits” instead. Which must be a tough commandment to fudge when you’re lending to a government.
But some clever theologian lawyer must’ve figured out how to do it. And decided to call the creation a sukuk.
Unfortunately, the theologian lawyers forgot to make clear what the consequences of a default would be. There’s a great deal of debate about what’d happen to all the parties in the transaction.
There’s even some talk of bondholders trying to claim ownership of the main local hospital as collateral. It’s like a modern-day version of Shakespear’s The Merchant of Venice, which featured a pound of flesh as collateral. Good luck getting your hands on it…
I suppose this is what you deserve when you try and wriggle your way around religious decrees for profit.
Amusing as the theological mess may be, keep in mind that the UK has issued its own Sharia compliant bonds. And the Maldives’ sukuks’ fate could define how our own bonds are priced.
It’s not like Sir Keir Starmer is going to be felled by the fate of Sharia compliant Maldivian debt. But Liz Truss will at least have something to laugh about if things get interesting.
The Maldives seem keen to double down on the overall absurdity. To try and ensure it has enough cash to meet future bond payments, the President’s office announced it is considering investing the country’s currency reserves in “green bonds”.
Some people never learn. Not until the people take to the streets, like they did in Sri Lanka.
What does all this have to do with us?
I think it offers a window into our own future. Like Sri Lanka, the Maldives is another example of climate alarmist driven financial mismanagement. But it’s far from the only example.
The financial reckoning will precede the climate reckoning
In net zero, governments are embarking on the costliest project in the history of humanity. And from a position of dangerously high debt to begin with.
Making our energy system more complex, more fragile, more expensive and less efficient will undermine all other human activity.
It’s a dangerous combination.
Humanity hasn’t tried to declare war on the sea for more than 2000 years, when a Roman Emperor had a go. He was as successful as the Australians were when they declared war on emus in 1932.
No doubt future generations will look back at us in the same way.
In the meantime, we’ll end up like the Maldives: underwater on our sukuks long before the sea level sinks us.
The UK, as a global financial center, stands to lose more than most from the reckoning that’ll eventually unravel this madness.
It’s time to go on the defensive. Our investment director John Butler shows you how, here.
Until next time,
Nick Hubble
Editor, Fortune & Freedom
