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Norwegian Cruise expects positive current quarter operating cash flow

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© Reuters. FILE PHOTO: U.S. Norwegian Cruise Line Holdings cruise ship Marina arrives at the Havana bay, Cuba March 9, 2017. REUTERS/Alexandre Meneghini

(Reuters) -Norwegian Cruise Line Holdings Ltd forecast operating cash flow to be positive for the current quarter on Tuesday, as the U.S. cruise operator benefits from higher on-board spending and prices with its full fleet back in service.

Shares of the company rose about 3% in early trade, as the company also said that booking trends remained strong despite a hit from Omicron variant of the coronavirus and the Russia-Ukraine conflict.

“We are seeing an explosive showing by consumers, particularly American consumers. Consumer spend is strong, snapping back and even exceeding where we left off in 2019,” Chief Executive Officer Frank Del Rio said on a post-earnings call.

Norwegian Cruise, which saw about 60 cancellations or modifications to sailing due to the Russia-Ukraine war, said its booking momentum was temporarily disrupted due to the crisis, but added that the impact was “short-lived.” It has also decided to remove all sailings to ports in Russia from its itineraries in 2023.

Over the past two years, cruise operators have been burning through their cash piles, as the pandemic brought the industry to a standstill. The company reported negative operating cash flow in the last few quarters, which turned slightly positive only in March.

Norwegian, which completed its phased restart of operations earlier this week with all of its ships returning to sail, said higher ticket prices and onboard revenue also helped the company see improved cash flow in the first quarter ended March 31.

However, the company still expects to post a net loss in the current quarter, as it accounted for higher costs including fuel expenses. Norwegian reported a fuel expense of $135.5 million for the first quarter.

The cruise operator also posted a bigger-than-expected loss of $1.82 per share for the reported quarter.

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Iraq balks at greater Chinese control of its oilfields

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© Reuters. FILE PHOTO: Iraqi Oil Minister Ihsan Abdul Jabbar walks during a Lukoil energy event, in Baghdad, Iraq November 11, 2021. REUTERS/Thaier Al-Sudani

By Sarah McFarlane and Aref Mohammed

LONDON/BASRA (Reuters) – Iraq’s oil ministry thwarted three prospective deals last year that would have handed Chinese firms more control over its oilfields and led to an exodus of international oil majors that Baghdad wants to invest in its creaking economy.

Since the start of 2021, plans by Russia’s Lukoil and U.S. oil major Exxon Mobil (NYSE:XOM) to sell stakes in major fields to Chinese state-backed firms have hit the buffers after interventions from Iraq’s oil ministry, according to Iraqi oil officials and industry executives.

Selling a stake to a state-run Chinese company was also one of several options being considered by Britain’s BP (NYSE:BP), but officials persuaded it to stay in Iraq for now, people familiar with the matter said.

China is Iraq’s top investor and Baghdad was the biggest beneficiary last year of Beijing’s Belt and Road initiative, receiving $10.5 billion in financing for infrastructure projects including a power plant and an airport.

But when it comes to further Chinese investment in major oilfields, Baghdad has drawn a line in the sand.

Iraq’s government and officials at state-run firms are concerned that further consolidation of fields in the hands of Chinese companies could accelerate an exodus of Western oil companies, a total of seven Iraqi oil officials and executives with companies operating in Iraq told Reuters in interviews.

Supported by state-run oil company officials, Iraq’s Oil Minister Ihsan Abdul Jabbar dissuaded Lukoil last year from selling a stake in one of the country’s largest fields, West Qurna 2, to Chinese state firm Sinopec (NYSE:SHI), three people familiar with the matter said.

Iraqi officials also intervened last year to stop Chinese state-backed firms buying Exxon’s stake in West Qurna 1 and to persuade BP to stay in Iraq rather than offloading its interest in the giant Rumaila oilfield to a Chinese company, people familiar with the matter said.

Combined, Rumaila and West Qurna produce about half of the crude coming out of Iraq, which sits on the fifth-largest oil reserves in the world.

Iraq’s oil ministry did not respond to requests for comment about the deals or the minister’s role in any interventions.

The government worried that China’s dominance could make Iraq less attractive for investment from elsewhere, two government officials said.

China’s strengthening relationship with Iran has helped its position in Iraq due to Tehran’s political and military influence there, but the oil ministry is wary of ceding more control over the country’s key resources, some officials said.

“We don’t want the Iraqi energy sector to be labelled as a China-led energy sector and this attitude is agreed by government and the oil ministry,” another Iraqi official said.

RISKY STRATEGY

The interventions over BP, Exxon and Lukoil’s positions in Iraq come after British oil major Shell (LON:RDSa) decided in 2018 to withdraw from Iraq’s vast Majnoon oilfield.

The interventions also mark a shift in stance after Chinese companies won most energy deals and contracts awarded over the past four years. Iraqi oil officials said Chinese firms have accepted lower profit margins than most rivals.

“All the rules regarding tenders were formulated jointly by the Chinese and Iraqi sides and were conducted under transparent and fair principles,” said state-owned China National Offshore Oil Corporation (CNOOC (NYSE:CEO)) in an emailed statement.

Pushing back against further Chinese investment is a risky strategy, though, as there’s no guarantee others will step up and the government needs billions of dollars to rebuild the economy after the Islamic State insurgency was defeated in 2017.

Over the past decade, oil revenue accounted for 99% of Iraq’s exports, 85% of the country’s budget and 42% of its gross domestic product, according to the World Bank.

While oil majors jostled to get access to Iraq’s vast oilfields after the U.S.-led invasion in 2003, they are increasingly focused on the energy transition and more profitable plays elsewhere. They also want better terms to develop fields, oil executives said.

China is among the biggest buyers of Iraq’s crude and Chinese state firms have built up a dominant position in its oil industry.

But when Lukoil notified the government last summer that it was considering selling some of its stake in West Qurna 2 to Sinopec, the oil minister intervened, people familiar with the matter said.

It has not previously been reported that Sinopec was the potential buyer of Lukoil’s stake. The Chinese company did not respond to a request for comment.

To encourage Lukoil to stay, Iraq offered a sweetener, a person with direct knowledge said.

A few months after Lukoil signalled it was considering a sale, Baghdad finally approved its plan to develop a field known as Block 10, where the Russian company had discovered an oil reservoir in 2017. Afterwards, Lukoil dropped the idea of selling its stake in West Qurna 2, the source said.

Lukoil did not respond to a request for comment.

BP AND EXXON

Over the past few years BP has also spoken to the government about its options – including leaving Iraq altogether – before settling on spinning off its stake in Rumaila into a standalone company last year, two people familiar with the matter said.

Oil minister Abdul Jabbar led efforts to convince BP not to leave as the government was concerned its partner in the field, China National Petroleum Corporation (CNPC), would buy BP’s stake, the people said. Baghdad was also keen to keep such a high-profile international oil major in the country, they said.

BP declined to comment.

When Exxon flagged its intention to leave Iraq in January 2021, meanwhile, U.S. officials told Exxon they were unhappy with the prospect of the biggest U.S. oil major pulling out – for reasons that echoed Iraqi concerns.

State department officials said Exxon’s departure could create a vacuum for Chinese companies to fill, a person familiar with the conversations said. U.S. officials then asked Exxon what it would take to stay in Iraq, the person said, declining to give further details.

A State Department spokesperson said: “We regularly engage with our Iraqi counterparts on fostering an environment conducive to private sector investment.”

Exxon had signed an agreement for the sale of its interest in West Qurna 1 to CNOOC and PetroChina, the listed arm of CNPC, people familiar with the matter said.

Neither CNOOC nor CNPC responded to requests for comment about the deals.

Exxon’s stake was valued at $350 million to $375 million, said people familiar with the matter. Iraq has veto power over oilfield deals, however, and did not approve the transaction.

Exxon filed for arbitration with the International Chamber of Commerce against Basra Oil Co., arguing that it had followed the terms of its contract for West Qurna 1 and had a good deal on the table, people familiar with the matter said.

The oil ministry then took the unusual step of trying to broker a deal on Exxon’s behalf. The ministry offered Exxon’s stake to other Western companies including Chevron Corp. (NYSE:CVX)

No one was interested. Rather than let the stake go to the Chinese companies, Baghdad said the state-run Iraq National Oil Company (INOC) would take it instead, though INOC is still in the process of being revived after being defunct for many years.

“(Exxon) will continue to work closely and constructively to reach an equitable resolution,” said a spokeswoman.

SERVICE CONTRACTS

Iraq’s oil industry is mostly based on technical service contracts between the state-backed Basra Oil Co. and foreign companies that are repaid costs plus a fee per barrel to develop fields, while Iraq retains ownership of the reserves.

Oil majors typically prefer deals that allow a share in profits rather than a set fee.

The priority for Chinese firms, however, is achieving secure oil supplies to feed China’s growing economy, rather than returns for investors, said a Chinese oil executive with direct knowledge of CNPC’s global investments.

There are some signs, however, that Iraq is attempting to make its terms more appealing.

France’s TotalEnergies signed a $27 billion deal in September that included payment of 40% of revenue from one field. The deal has stalled, however, due to disputes over terms and it still needs approval from some Iraqi government agencies, Reuters reported in February.

TotalEnergies said it was fully committed to the project.

One oil company executive said they were sceptical Iraq would introduce more attractive terms. But unless they improve significantly, analysts say it is hard to imagine Iraq will be able to stem the exodus as the energy transition accelerates.

“Many of the energy majors are looking at the carbon emissions, their ability to generate cash flows if commodity prices are low, and they’re looking at improving returns,” said Ian Thom, research director at consultancy Wood Mackenzie. “As the priorities of the energy companies are changing, the relative attractiveness of Iraq is changing.”

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Walmart stores expected to post high shopper traffic amid deepening inflation pain

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© Reuters. FILE PHOTO: A worker and a shopper are seen wearing masks at a Walmart store, in North Brunswick, New Jersey, U.S. July 20, 2020. REUTERS/Eduardo Munoz

2/3

By Arriana McLymore and Aishwarya Venugopal

NEW YORK, NY (Reuters) – Walmart (NYSE:WMT) Inc is expected to show a steady rise in gross margins and revenue when it reports first-quarter results on Tuesday as price conscious shoppers, feeling the strain of persistent inflation, increase visits to the low-cost retailer.

Walmart has averaged a 4.9% increase in monthly visits since the start of 2022 compared to the same period in 2021, Placer.ai data showed, despite supply chain challenges and pricier fuel that have led shoppers to make fewer grocery store trips.

Analysts have also been upbeat about Walmart’s ability to diversify its revenue base through advertising and to keep prices low when compared with rivals that are struggling.

“What we found is pricing is still lowest at Walmart and they’ve done a very good job of keeping prices low to maintain and widen the price gaps with the competition and providing the best value for the consumer, even in an inflationary environment,” Telsey Advisory group analyst Joseph Feldman said.

Guggenheim analysts said Walmart is a “top pick” during inflationary times, in a note on Monday.

“We believe Walmart will continue to deliver impressive top- and bottom-line performance amidst the evolving pandemic environment regardless of tougher consumer spending patterns.”

Investors are already piling in. Walmart’s stock is up about 2% on the year to Friday, in contrast to the S&P 500‘s nearly 16% decline.

Grocery prices shot up 10.8% in April, the largest year-over-year jump since 1980, while the cost of a gallon of gas fell 6.1% but was still up nearly 44% from a year ago.

Walmart Chief Financial Officer Brett Biggs in March said that consumers were keeping their eyes on inflation and that rising fuel prices would cause consolidation in shopping trips.

“You’ll tend to see fewer trips. You’ll tend to see bigger baskets, which again, bigger baskets is really our sweet spot,” Biggs said at a Bank of America (NYSE:BAC) Conference.

Refinitiv estimates the Bentonville, Arkansas-based retailer will eke out gross margins of 24.55% in the quarter, up from 24.43% in the previous quarter, with revenue rising 0.4% to $138.883 billion. Earnings per share are estimated to be $1.48, down from $1.69 last year.

“Walmart stands to benefit from increasing trip consolidation, a healthy price gap to national chains, and accelerating inflation trends,” Gordon Haskett analyst Chuck Grom said.

The company has set its sights on growing its $12.99-a-month Walmart Plus membership to challenge Amazon (NASDAQ:AMZN)’s Prime, priced at $14.99 monthly. Walmart Plus, which launched in September 2020, offers delivery services and gas discounts but is still struggling to make ground against Amazon.

A recent report by eMarketer citing Bizrate showed that only 15% of U.S. adults used Walmart’s Plus service compared to 62% for Amazon’s Prime.

(This story corrects last name of Walmart CFO to “Biggs” from “Briggs” in paragraph 9 and 10)

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India’s Life Insurance Corp set for lacklustre market debut, analysts say

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© Reuters. FILE PHOTO: Life Insurance Corporation of India (LIC) logo is seen displayed on a smartphone in this illustration taken February 20, 2022. REUTERS/Dado Ruvic/Illustration

By Nupur Anand and Chris Thomas

MUMBAI (Reuters) – Life Insurance Corp is likely to see a lacklustre debut when it lists on Indian stock exchanges on Tuesday despite the $2.7 billion initial public offering being oversubscribed, analysts said.

India priced LIC’s record-breaking IPO last week at 949 Indian rupees ($12.20), the top of the indicated range. The government has raised around $2.7 billion from selling a 3.5% stake in LIC, the country’s top insurer, which is state owned.

But volatility in global markets and selling pressure in the domestic stock market are likely to cast a shadow on LIC’s listing, with the shares likely to start trading near the IPO price or at a slight discount.

“Unofficial grey premium is trading down into negative territory mainly on the back of depressed global markets which are in the bearish zone … We expect a soft listing at +/- 5% of the offer price,” said Prashanth Tapse, research analyst at domestic brokerage Mehta Equities.

New Delhi had planned to list LIC in March this year but had to defer it as market conditions were not favourable in the wake of the Ukraine conflict.

The offering is seen as being important to India meeting its ambitious target for selling off state assets. The debut performance will also set the mood for forthcoming issues after retail investors were badly burnt by India’s recent large IPOs.

The price range for the issue was set between 902 and 949 rupees per share. LIC offered a discount to employees and retail investors of 45 rupees per share, while policyholders were given a discount of 60 rupees per share.

In the grey market, LIC shares were trading at a discount of nearly 15 rupees compared with a premium of nearly 100 rupees earlier this month.

“Even if the shares list flat on Tuesday, retail investors will still be able to make gains due to the discount that was offered so I don’t see it as a bad bet as valuations are also attractive,” Narendra Solanki, fundamental research head at domestic brokerage Anand Rathi.

The 66-year-old company dominates India’s insurance sector, with more than 280 million policies.

IPO MARKET SLOWDOWN

The Indian IPO market, which saw dizzying growth in 2021, has had a significant slowdown this year. This shows the impact of geopolitical tensions, stock market volatility, a price correction in over-valued stocks from recent IPOs, plus concerns about rising commodity and energy prices, and slower economic growth, EY said in a report on Monday.

In the first quarter of 2022, proceeds raised through India’s primary markets were at $995 million via the three largest IPOs compared with $2.57 billion same period last year, EY said.

If market conditions improve there could be a robust pipeline of IPOs this year as more than 20 companies have filed draft prospectuses in first quarter of this year, Sandip Khetan, Partner and Financial Accounting Advisory Services Leader, EY India said.

($1 = 77.7840 Indian rupees)

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