Feb. 21 (Bloomberg) -- President Barack Obama plans to cut the U.S. budget deficit to $533 billion by the end of his first term by increasing taxes on the wealthy and cutting spending for the war in Iraq, according to an administration official.
Obama wants to reduce the deficit because he’s concerned that over time, federal borrowing will make it harder for the U.S. economy to grow and create jobs, said the official, speaking on the condition of anonymity. The deficit Obama inherited on taking office last month was $1.3 trillion. The administration next week is to release an overview of its budget proposal for the 2010 fiscal year, which begins Oct. 1.
“Next week sets the table for the year,” and the president’s four-year term, Kenneth Baer, spokesman for the White House budget office, said yesterday, referring to the budget plan that will be released on Feb. 26.
To increase revenue, Obama will propose taxing the investment income of hedge-fund and private-equity partners at ordinary tax rates, which are now as high as 35 percent and may rise to 39.6 percent under the administration’s plan, the New York Times reported today. They are currently taxed at the capital-gains rate of as much as 15 percent.
Obama promised during the campaign that he would slash federal programs that weren’t working. “The president has said he can’t kick the can down the road anymore,” Baer said.
The $1.3 trillion deficit Obama inherited equals 9.2 percent of gross domestic product, said the administration official. The administration’s budget proposal cuts the deficit to 3 percent of GDP by 2013, at the end of Obama’s first term.
Iraq War
Most of the savings will be realized from winding down the war in Iraq as well as increased revenue from Americans making more than $250,000 a year, said the official. The Times said Obama will propose letting President George W. Bush’s tax cuts for the wealthy lapse in 2010.
Earlier today, Obama talked about the importance of reining in the ballooning federal deficit in his weekly address. He will hold a so-called fiscal-responsibility summit at the White House on Feb. 23, with about 130 people invited to attend, including about 50 members of the House and Senate from both parties, according to Baer.
Obama said the Treasury Department will begin ordering employers today to cut taxes taken from workers’ paychecks as part of his effort to pull the economy out of a recession.
The president said a “typical” family will start getting at least an extra $65 a month by April 1 as a result of the $787 billion stimulus package he signed into law this week. He said the measure is only a “first step.”
The president has also pledged $275 billion to help struggling homeowners avoid foreclosure and plans to announce measures to stabilize banks. Companies from General Motors Corp. to Alcoa Inc. are slashing jobs and cutting production as the recession threatens to become the worst slump in the postwar era.
Saturday, February 21, 2009
Taiwan’s Ma Seeks to Boost Exports, Green Energy, Biotechnology
Feb. 21 (Bloomberg) -- Taiwan President Ma Ying-jeou gave his government three months to draft a development plan to boost exports and local industry after the island this past week posted a record economic contraction.
“The president has called on the cabinet to come up with a strategy for both the short and long term,” presidential spokesman Wang Yu-chi said in a phone interview after Ma met with his economic advisory team today.
Ma is seeking to development key industries including tourism, medical services, green energy and biotechnology in a bid to offset Taiwan’s first recession since 2001. He also called for passage of a NT$500 billion ($14 billion) four-year special spending package aimed at stimulating the economy amid a prolonged slowdown, according to a presidential statement.
“Originally a turnaround was expected in the second or third quarter, now it will be delayed until the fourth quarter,” Ma said in a speech broadcast on local television ahead of the meeting today. “If not for the policies we’ve already enacted, the effects would be a lot worse.”
Shopping vouchers, tax cuts and bank deposit guarantees are among measures the government has taken to boost confidence and stimulate spending, while further work should be done to cut taxes and stimulate investment, he said in the statement.
“All governments have a social responsibility to lessen the blow of an economic recession,” said Tony Phoo, an economist at Standard Chartered Plc in Taipei said before the policy announcements. “It can help soften the impact, but it can’t solve it.”
China Trade
Ma, 58, returned his Kuomintang party to power nine months ago on a pledge to boost ties with China as a means to secure Taiwan’s economic future. He called today for closer trade with China and the signing of a Comprehensive Economic Cooperation Agreement with the mainland.
China and Taiwan split after the Kuomintang fled to the island in 1949 following its defeat at the hands of Mao Zedong’s Communist party in a civil war.
The statistics bureau on Feb. 18 said the economy shrank an unprecedented 8.36 percent in the fourth quarter as private investment and exports plunged. The bureau subsequently cut its forecast for 2009 gross domestic product to a decline of 2.97 percent from a November forecast for growth of 2.12 percent.
“Taiwan’s economic structure is not bad, we have much data to show this,” Ma said today. “At a time when all countries are putting forth plans, we must also be attentive and discuss which measures can be most effective.”
Taiwan’s exports, which are equivalent to approximately 65 percent of GDP, fell 20 percent in the fourth quarter and private investment slumped 32 percent. Government investment and expenditure were the only components to expand during the period.
The economic contraction prompted the Central Bank of the Republic of China (Taiwan) to reduce its interest rate by 25 basis points to a record-low 1.25 percent. That’s the seventh cut since June after the benchmark rate peaked at 3.625 percent.
“The president has called on the cabinet to come up with a strategy for both the short and long term,” presidential spokesman Wang Yu-chi said in a phone interview after Ma met with his economic advisory team today.
Ma is seeking to development key industries including tourism, medical services, green energy and biotechnology in a bid to offset Taiwan’s first recession since 2001. He also called for passage of a NT$500 billion ($14 billion) four-year special spending package aimed at stimulating the economy amid a prolonged slowdown, according to a presidential statement.
“Originally a turnaround was expected in the second or third quarter, now it will be delayed until the fourth quarter,” Ma said in a speech broadcast on local television ahead of the meeting today. “If not for the policies we’ve already enacted, the effects would be a lot worse.”
Shopping vouchers, tax cuts and bank deposit guarantees are among measures the government has taken to boost confidence and stimulate spending, while further work should be done to cut taxes and stimulate investment, he said in the statement.
“All governments have a social responsibility to lessen the blow of an economic recession,” said Tony Phoo, an economist at Standard Chartered Plc in Taipei said before the policy announcements. “It can help soften the impact, but it can’t solve it.”
China Trade
Ma, 58, returned his Kuomintang party to power nine months ago on a pledge to boost ties with China as a means to secure Taiwan’s economic future. He called today for closer trade with China and the signing of a Comprehensive Economic Cooperation Agreement with the mainland.
China and Taiwan split after the Kuomintang fled to the island in 1949 following its defeat at the hands of Mao Zedong’s Communist party in a civil war.
The statistics bureau on Feb. 18 said the economy shrank an unprecedented 8.36 percent in the fourth quarter as private investment and exports plunged. The bureau subsequently cut its forecast for 2009 gross domestic product to a decline of 2.97 percent from a November forecast for growth of 2.12 percent.
“Taiwan’s economic structure is not bad, we have much data to show this,” Ma said today. “At a time when all countries are putting forth plans, we must also be attentive and discuss which measures can be most effective.”
Taiwan’s exports, which are equivalent to approximately 65 percent of GDP, fell 20 percent in the fourth quarter and private investment slumped 32 percent. Government investment and expenditure were the only components to expand during the period.
The economic contraction prompted the Central Bank of the Republic of China (Taiwan) to reduce its interest rate by 25 basis points to a record-low 1.25 percent. That’s the seventh cut since June after the benchmark rate peaked at 3.625 percent.
Satyam to Seek Regulatory Approval Next Week for Stake Sale
Feb. 21 (Bloomberg) -- Satyam Computer Services Ltd., the Indian software provider at the center of the nation’s biggest corporate fraud inquiry, will seek approval from regulators next week for its plan to sell a stake to a strategic investor.
“The board today approved the process to be followed for inviting a strategic investor and decided to seek regulatory approvals early next week,” the Hyderabad-based company said in an e-mailed statement today. “Upon receiving these clearances, the board would announce the process to be observed.”
Satyam’s government-nominated board wants to secure the company’s viability by bringing in a strategic investor. The computer-services provider to Nissan Motor Co. and Cisco Systems Inc. has lost three-fourths of its market value since former chairman and founder Ramalinga Raju said Jan. 7 he’d falsified accounts and inflated assets by more than $1 billion and quit.
India’s Company Law Board on Feb. 19 approved Satyam’s plan to increase its capital in order to sell at least 26 percent to a strategic investor via preferential allotment of shares.
The company had won orders worth $250 million in the last seven weeks, including one $50 million contract, it said today.
“The board today approved the process to be followed for inviting a strategic investor and decided to seek regulatory approvals early next week,” the Hyderabad-based company said in an e-mailed statement today. “Upon receiving these clearances, the board would announce the process to be observed.”
Satyam’s government-nominated board wants to secure the company’s viability by bringing in a strategic investor. The computer-services provider to Nissan Motor Co. and Cisco Systems Inc. has lost three-fourths of its market value since former chairman and founder Ramalinga Raju said Jan. 7 he’d falsified accounts and inflated assets by more than $1 billion and quit.
India’s Company Law Board on Feb. 19 approved Satyam’s plan to increase its capital in order to sell at least 26 percent to a strategic investor via preferential allotment of shares.
The company had won orders worth $250 million in the last seven weeks, including one $50 million contract, it said today.
Minmetals May Use OZ Minerals as Base to Acquire More Resources
Feb. 22 (Bloomberg) -- China Minmetals Corp. may use its A$2.6 billion ($1.7 billion) takeover of OZ Minerals Ltd. as a base for further acquisitions, the Australian company’s chief executive officer told the Australian Broadcasting Corp.
The board of the world’s second-largest zinc mining company agreed to a cash takeover offer from state-owned Minmetals on Feb. 16. OZ Minerals shares traded at 65 cents at the close of Sydney trading on the Australian stock exchange on Feb. 20, less than the 82.5 cents a share Minmetals offered, on speculation the Australian government may block the deal.
“They want this as their offshore vehicle to grow their base metals business,” OZ Minerals CEO Andrew Michelmore told ABC when asked if his Melbourne-based company would be used as a base for more acquisitions in Australia. “I certainly think so, I think they are going to see this as a platform to really grow their business.”
China, the world’s top metals consumer, has acquired $22 billion of commodity assets this year after a 70 percent drop in metals and oil since July ended a six-year boom in raw materials.
Australia may hold an inquiry as early as next week to scrutinize potential acquisitions by Chinese state-owned companies led by Aluminum Corp. of China’s proposed $19.5 billion investment in Rio Tinto Group. Treasurer Wayne Swan last week moved to change the Foreign Acquisitions and Takeovers Act to allow for greater government oversight of such investments.
National Interest
Aluminum Corp., known as Chinalco, on Feb. 12 said it will buy $7.2 billion of Rio’s convertible bonds and acquire stakes in projects for $12.3 billion in Chile, Australia and the U.S. The transaction is China’s largest single overseas acquisition.
The bid needs approval from Australia’s foreign investment regulator and from Swan.
Any decision on Chinalco’s investment in Rio would be taken “on its merits, looking very closely at the national interest criteria that I must apply under the law,” Swan told Network 10 in an interview today. “We do look very carefully at proposals from foreign customers, if you like, where there is to some extent an amount of potential control impacted on a domestic producer.”
Swan can reject the Minmetals and Chinalco bids on national interest grounds. Former Treasurer Peter Costello invoked those powers in 2001 to block a bid by Royal Dutch Shell Plc for Woodside Petroleum Ltd.
Minmetals failed to reach an accord to buy Noranda Inc. in 2004 after some Canadian politicians raised objections.
Minmetals wants OZ Minerals to secure supplies of minerals by acquiring zinc, copper, gold and nickel mines in Australia, Laos and Indonesia. Beijing-based Minmetals, a Fortune Global 500 company, agreed to repay OZ Minerals’ A$1.2 billion debt should it get 100 percent ownership.
The board of the world’s second-largest zinc mining company agreed to a cash takeover offer from state-owned Minmetals on Feb. 16. OZ Minerals shares traded at 65 cents at the close of Sydney trading on the Australian stock exchange on Feb. 20, less than the 82.5 cents a share Minmetals offered, on speculation the Australian government may block the deal.
“They want this as their offshore vehicle to grow their base metals business,” OZ Minerals CEO Andrew Michelmore told ABC when asked if his Melbourne-based company would be used as a base for more acquisitions in Australia. “I certainly think so, I think they are going to see this as a platform to really grow their business.”
China, the world’s top metals consumer, has acquired $22 billion of commodity assets this year after a 70 percent drop in metals and oil since July ended a six-year boom in raw materials.
Australia may hold an inquiry as early as next week to scrutinize potential acquisitions by Chinese state-owned companies led by Aluminum Corp. of China’s proposed $19.5 billion investment in Rio Tinto Group. Treasurer Wayne Swan last week moved to change the Foreign Acquisitions and Takeovers Act to allow for greater government oversight of such investments.
National Interest
Aluminum Corp., known as Chinalco, on Feb. 12 said it will buy $7.2 billion of Rio’s convertible bonds and acquire stakes in projects for $12.3 billion in Chile, Australia and the U.S. The transaction is China’s largest single overseas acquisition.
The bid needs approval from Australia’s foreign investment regulator and from Swan.
Any decision on Chinalco’s investment in Rio would be taken “on its merits, looking very closely at the national interest criteria that I must apply under the law,” Swan told Network 10 in an interview today. “We do look very carefully at proposals from foreign customers, if you like, where there is to some extent an amount of potential control impacted on a domestic producer.”
Swan can reject the Minmetals and Chinalco bids on national interest grounds. Former Treasurer Peter Costello invoked those powers in 2001 to block a bid by Royal Dutch Shell Plc for Woodside Petroleum Ltd.
Minmetals failed to reach an accord to buy Noranda Inc. in 2004 after some Canadian politicians raised objections.
Minmetals wants OZ Minerals to secure supplies of minerals by acquiring zinc, copper, gold and nickel mines in Australia, Laos and Indonesia. Beijing-based Minmetals, a Fortune Global 500 company, agreed to repay OZ Minerals’ A$1.2 billion debt should it get 100 percent ownership.
Friday, February 20, 2009
U.S. Stocks Drop on Concern Banks Will Need to Be Nationalized
Feb. 20 (Bloomberg) -- U.S. stocks fell, capping the worst weekly drop in three months for the Standard & Poor’s 500 Index, as concern bank shareholders will be wiped out by government takeovers snuffed out a late-afternoon recovery.
Citigroup Inc. tumbled as much as 36 percent and the Dow Jones Industrial Average dropped below its lowest close since 1997 before paring losses as White House spokesman Robert Gibbs said the administration wants to maintain a “privately held banking system.” Bank of America Corp. also plunged as much as 36 percent before recouping most of the drop after Chief Executive Officer Kenneth Lewis said the bank can survive “on our own.”
The S&P 500 decreased 1.1 percent to 770.05. The Dow fell 100.28 points, or 1.3 percent, to 7,365.67 after earlier tumbling as much as 216 points. Europe’s benchmark index sank to a six- year low, while Japan’s Topix plunged to the lowest since 1984.
“There’s so much uncertainty and a decent chance of the worst case, nationalization, that it’s complete speculation to mess with Citigroup and Bank of America,” said Edwin Walczak, head of U.S. equities at the American unit of Vontobel Holding AG of Switzerland. “The price is telling you that.” Vontobel’s U.S. unit manages $6 billion.
The S&P 500 tumbled 6.9 percent over the past four days and is now just 2.3 percent above its 11-year low of 752.44 on Nov. 20. It is down almost 15 percent in 2009, its worst start to a year. The Dow average lost 6.2 percent in the week, its worst since last October, and closed at its lowest since October 2002.
Citigroup dropped 22 percent to an 18-year low of $1.95 after sinking to as low as $1.61. The bank is not engaged in any unusual discussions with the government, a person familiar with the matter said today.
Lewis ‘Confident’
Bank of America fell 3.6 percent to $3.79, its lowest closing price since 1984, and slumped to as low as $2.53. The bank has enough “capital, liquidity and earnings power to make it through this downturn on our own,” Lewis said in a memo today to employees.
“I am confident we will not need any further assistance in the future,” Lewis said in the memo. Spokesman Scott Silvestri confirmed the memo’s accuracy.
Benchmark indexes slid to their session lows after Senate Banking Committee Chairman Christopher Dodd told Bloomberg Television that it may be necessary to nationalize some banks for a short time.
‘It May Happen’
“I don’t welcome that at all, but I could see how it’s possible it may happen,” Dodd said in an interview with Bloomberg’s “Political Capital with Al Hunt.” “I’m concerned that we may end up having to do that, at least for a short time.”
Gibbs, the White House spokesman, helped spur a late-day rebound after saying President Barack Obama’s administration wants a “privately held banking system” and that reversing the economy’s slide “will take some time.”
JPMorgan Chase & Co., the second-largest U.S. bank, slipped 3.4 percent to $19.90. Meredith Whitney, the financial industry analyst who left Oppenheimer & Co. to start her own firm, said she doesn’t expect the banks she covers to continue paying dividends at their current levels.
“Most of the big banks would be lucky to break even or earn a little bit of money this year,” Whitney told CNBC.
Banks are leading the companies in the S&P 500 to their first cumulative quarterly loss. The 69 financial companies in the index that have reported fourth-quarter results lost a combined $41.6 billion, their third straight quarterly shortfall, according to data compiled by Bloomberg.
Earnings Slump
For the S&P 500 companies as a whole, the 400 that have released fourth-quarter results lost a combined $75.5 billion, according to Bloomberg data. Standard & Poor’s projects a per- share loss of $11.97, the first deficit in quarterly data going back to 1936.
General Electric Co. fell 6.8 percent to $9.38, its lowest close since 1995, and was the biggest drag on the S&P 500. Sanford C. Bernstein & Co. forecast an unprecedented profit drop at the industrial conglomerate’s finance unit. Bernstein analyst Steven Winoker cut his 2009 income estimate to $1.18 a share, below the $1.28 average of 14 analysts in a Bloomberg survey.
Lowe’s Cos. slid 6.6 percent to $15.86. The company reported fourth-quarter earnings per share of 11 cents, a penny below the consensus estimate of 12 cents, and forecast first-quarter earnings per share of 23 cents to 27 cents, also missing analysts’ estimates.
‘Beginning to Nibble’
“The economy’s going to be mired in a mess for quite some time,” Robert Doll, who oversees $280 billion as chief investment officer for global equities at BlackRock Inc., said on Bloomberg Radio. “But with stocks down nearly 50 percent from the high, we think beginning to nibble makes some sense.”
AT&T Inc. rose 1.7 percent to $23.58 and Verizon Communications Inc. added 2.9 percent to $28.81 for the biggest advances in the Dow average. The two largest U.S. phone companies were raised to “buy” from “neutral” at Goldman Sachs Group Inc., which cited the prospect of earnings growth in 2010.
Newmont Mining Corp., the largest U.S. gold producer, advanced 7.2 percent to $43.73 as bullion topped $1,000 an ounce for the first time in almost a year as investors sought haven investments.
Intuit Inc. rose 13 percent to $23.99. The world’s biggest maker of tax-preparation software said 2009 earnings will be at least $1.78 a share, three cents more than the average analyst estimate.
Dow Theory
This week’s closing lows for the Dow industrials and Dow Jones Transportation Average signal more losses to come for stocks, according to Dow Theory, which holds that shipping and travel stocks foreshadow the economy. The transportation gauge closed at five-year lows each of the last four days, led by tumbles in YRC Worldwide Inc. and JetBlue Airways Corp.
General Motors Corp. slid 12 percent to $1.77. Chrysler LLC may be sending a message to President Obama’s autos task force by saying the “best option” for survival is a merger with the largest U.S. automaker. GM abandoned merger talks in November and said it is focused on its own survival.
Century Aluminum Co. plunged 23 percent to $2.22. The second-largest U.S. producer of the metal reported fourth-quarter loss excluding some items of 54 cents a share, wider than the average 39-cent analyst estimate.
Chiquita Brands International Inc. dropped the most in the Russell 2000 Index, slumping 43 percent to $7.27. The seller of bananas and other produce in more than 70 countries posted a fourth-quarter loss from continuing operations of 74 cents a share. That’s more than triple the 20-cent average loss estimate from analysts in a Bloomberg survey.
The cost of living in the U.S. rose in January for the first time in six months as gasoline stopped sliding and retailers tried to push through start-of-year increases even as sales slumped. The consumer price index rose 0.3 percent, as forecast, after dropping 0.8 percent in December, Labor Department figures showed. Excluding food and fuel, the so-called core rate climbed 0.2 percent, more than anticipated, reflecting gains in autos, clothing, and medical care.
Citigroup Inc. tumbled as much as 36 percent and the Dow Jones Industrial Average dropped below its lowest close since 1997 before paring losses as White House spokesman Robert Gibbs said the administration wants to maintain a “privately held banking system.” Bank of America Corp. also plunged as much as 36 percent before recouping most of the drop after Chief Executive Officer Kenneth Lewis said the bank can survive “on our own.”
The S&P 500 decreased 1.1 percent to 770.05. The Dow fell 100.28 points, or 1.3 percent, to 7,365.67 after earlier tumbling as much as 216 points. Europe’s benchmark index sank to a six- year low, while Japan’s Topix plunged to the lowest since 1984.
“There’s so much uncertainty and a decent chance of the worst case, nationalization, that it’s complete speculation to mess with Citigroup and Bank of America,” said Edwin Walczak, head of U.S. equities at the American unit of Vontobel Holding AG of Switzerland. “The price is telling you that.” Vontobel’s U.S. unit manages $6 billion.
The S&P 500 tumbled 6.9 percent over the past four days and is now just 2.3 percent above its 11-year low of 752.44 on Nov. 20. It is down almost 15 percent in 2009, its worst start to a year. The Dow average lost 6.2 percent in the week, its worst since last October, and closed at its lowest since October 2002.
Citigroup dropped 22 percent to an 18-year low of $1.95 after sinking to as low as $1.61. The bank is not engaged in any unusual discussions with the government, a person familiar with the matter said today.
Lewis ‘Confident’
Bank of America fell 3.6 percent to $3.79, its lowest closing price since 1984, and slumped to as low as $2.53. The bank has enough “capital, liquidity and earnings power to make it through this downturn on our own,” Lewis said in a memo today to employees.
“I am confident we will not need any further assistance in the future,” Lewis said in the memo. Spokesman Scott Silvestri confirmed the memo’s accuracy.
Benchmark indexes slid to their session lows after Senate Banking Committee Chairman Christopher Dodd told Bloomberg Television that it may be necessary to nationalize some banks for a short time.
‘It May Happen’
“I don’t welcome that at all, but I could see how it’s possible it may happen,” Dodd said in an interview with Bloomberg’s “Political Capital with Al Hunt.” “I’m concerned that we may end up having to do that, at least for a short time.”
Gibbs, the White House spokesman, helped spur a late-day rebound after saying President Barack Obama’s administration wants a “privately held banking system” and that reversing the economy’s slide “will take some time.”
JPMorgan Chase & Co., the second-largest U.S. bank, slipped 3.4 percent to $19.90. Meredith Whitney, the financial industry analyst who left Oppenheimer & Co. to start her own firm, said she doesn’t expect the banks she covers to continue paying dividends at their current levels.
“Most of the big banks would be lucky to break even or earn a little bit of money this year,” Whitney told CNBC.
Banks are leading the companies in the S&P 500 to their first cumulative quarterly loss. The 69 financial companies in the index that have reported fourth-quarter results lost a combined $41.6 billion, their third straight quarterly shortfall, according to data compiled by Bloomberg.
Earnings Slump
For the S&P 500 companies as a whole, the 400 that have released fourth-quarter results lost a combined $75.5 billion, according to Bloomberg data. Standard & Poor’s projects a per- share loss of $11.97, the first deficit in quarterly data going back to 1936.
General Electric Co. fell 6.8 percent to $9.38, its lowest close since 1995, and was the biggest drag on the S&P 500. Sanford C. Bernstein & Co. forecast an unprecedented profit drop at the industrial conglomerate’s finance unit. Bernstein analyst Steven Winoker cut his 2009 income estimate to $1.18 a share, below the $1.28 average of 14 analysts in a Bloomberg survey.
Lowe’s Cos. slid 6.6 percent to $15.86. The company reported fourth-quarter earnings per share of 11 cents, a penny below the consensus estimate of 12 cents, and forecast first-quarter earnings per share of 23 cents to 27 cents, also missing analysts’ estimates.
‘Beginning to Nibble’
“The economy’s going to be mired in a mess for quite some time,” Robert Doll, who oversees $280 billion as chief investment officer for global equities at BlackRock Inc., said on Bloomberg Radio. “But with stocks down nearly 50 percent from the high, we think beginning to nibble makes some sense.”
AT&T Inc. rose 1.7 percent to $23.58 and Verizon Communications Inc. added 2.9 percent to $28.81 for the biggest advances in the Dow average. The two largest U.S. phone companies were raised to “buy” from “neutral” at Goldman Sachs Group Inc., which cited the prospect of earnings growth in 2010.
Newmont Mining Corp., the largest U.S. gold producer, advanced 7.2 percent to $43.73 as bullion topped $1,000 an ounce for the first time in almost a year as investors sought haven investments.
Intuit Inc. rose 13 percent to $23.99. The world’s biggest maker of tax-preparation software said 2009 earnings will be at least $1.78 a share, three cents more than the average analyst estimate.
Dow Theory
This week’s closing lows for the Dow industrials and Dow Jones Transportation Average signal more losses to come for stocks, according to Dow Theory, which holds that shipping and travel stocks foreshadow the economy. The transportation gauge closed at five-year lows each of the last four days, led by tumbles in YRC Worldwide Inc. and JetBlue Airways Corp.
General Motors Corp. slid 12 percent to $1.77. Chrysler LLC may be sending a message to President Obama’s autos task force by saying the “best option” for survival is a merger with the largest U.S. automaker. GM abandoned merger talks in November and said it is focused on its own survival.
Century Aluminum Co. plunged 23 percent to $2.22. The second-largest U.S. producer of the metal reported fourth-quarter loss excluding some items of 54 cents a share, wider than the average 39-cent analyst estimate.
Chiquita Brands International Inc. dropped the most in the Russell 2000 Index, slumping 43 percent to $7.27. The seller of bananas and other produce in more than 70 countries posted a fourth-quarter loss from continuing operations of 74 cents a share. That’s more than triple the 20-cent average loss estimate from analysts in a Bloomberg survey.
The cost of living in the U.S. rose in January for the first time in six months as gasoline stopped sliding and retailers tried to push through start-of-year increases even as sales slumped. The consumer price index rose 0.3 percent, as forecast, after dropping 0.8 percent in December, Labor Department figures showed. Excluding food and fuel, the so-called core rate climbed 0.2 percent, more than anticipated, reflecting gains in autos, clothing, and medical care.
RBS Said to Seek Sale of Australian, Asian Divisions
Feb. 20 (Bloomberg) -- Royal Bank of Scotland Group Plc, the biggest government-controlled U.K. bank, is considering plans to sell all or part of its Australian division along with other assets in Asia, three people familiar with the plan said.
The lender may approach Commonwealth Bank of Australia, which bought HBOS Plc’s BankWest unit in the country last year, one of the people said, declining to be identified as details are private. RBS has hired Morgan Stanley to help it sell some of its Asian operations, the people said. Morgan Stanley also advised RBS on the sale of its Bank of China Ltd. stake.
RBS aborted an earlier attempt to sell its ABN Amro investment banking and corporate finance units in Australia after Sydney-based Commonwealth Bank abandoned negotiations in August, citing turmoil in the financial markets. The ABN Amro Australia unit had been valued at as much as A$1 billion ($640 million), one of the people said.
Edinburgh-based RBS was crippled by then Chief Executive Officer Fred Goodwin’s 14.3 billion-euro ($18 billion) takeover of ABN Amro’s investment banking and Asian assets, announced in March 2007, three months before the credit crisis began. Goodwin was ousted in October after the government agreed to take control of the bank. The lender posted a record 28 billion-pound ($40 billion) loss for 2008.
RBS spokesman Neil Moorhouse and London-based Morgan Stanley spokesman Michael Wang both declined to comment. An official at Commonwealth Bank in Sydney didn’t immediately respond to a message left on his cell phone after business hours.
RBS expanded through about $140 billion of takeovers in the past decade, according to data compiled by Bloomberg. The bank also acquired Cleveland-based Charter One in 2004 and a 5 percent stake in Bank of China the following year. The bank sold its 7.6 percent stake in Beijing-based Bank of China last month for $2.3 billion, loosening RBS’s foothold in the world’s most populous nation.
The bank’s shares fell 11 percent to 19.3 pence in London trading today. The stock has dropped 61 percent this year, paring RBS’s market value to about 7.6 billion pounds.
The lender may approach Commonwealth Bank of Australia, which bought HBOS Plc’s BankWest unit in the country last year, one of the people said, declining to be identified as details are private. RBS has hired Morgan Stanley to help it sell some of its Asian operations, the people said. Morgan Stanley also advised RBS on the sale of its Bank of China Ltd. stake.
RBS aborted an earlier attempt to sell its ABN Amro investment banking and corporate finance units in Australia after Sydney-based Commonwealth Bank abandoned negotiations in August, citing turmoil in the financial markets. The ABN Amro Australia unit had been valued at as much as A$1 billion ($640 million), one of the people said.
Edinburgh-based RBS was crippled by then Chief Executive Officer Fred Goodwin’s 14.3 billion-euro ($18 billion) takeover of ABN Amro’s investment banking and Asian assets, announced in March 2007, three months before the credit crisis began. Goodwin was ousted in October after the government agreed to take control of the bank. The lender posted a record 28 billion-pound ($40 billion) loss for 2008.
RBS spokesman Neil Moorhouse and London-based Morgan Stanley spokesman Michael Wang both declined to comment. An official at Commonwealth Bank in Sydney didn’t immediately respond to a message left on his cell phone after business hours.
RBS expanded through about $140 billion of takeovers in the past decade, according to data compiled by Bloomberg. The bank also acquired Cleveland-based Charter One in 2004 and a 5 percent stake in Bank of China the following year. The bank sold its 7.6 percent stake in Beijing-based Bank of China last month for $2.3 billion, loosening RBS’s foothold in the world’s most populous nation.
The bank’s shares fell 11 percent to 19.3 pence in London trading today. The stock has dropped 61 percent this year, paring RBS’s market value to about 7.6 billion pounds.
Thailand May Urge Banks to Lend Money to GM, Foreign Automakers
Feb. 21 (Bloomberg) -- Thai Prime Minister Abhisit Vejjajiva said his government may help foreign automakers including General Motors Corp. by nudging commercial banks that are reluctant to lend as a global recession deepens.
“What might be helpful is some kind of credit facilities which would be done through a commercial bank system,” Abhisit said in an interview late yesterday in Jakarta, where he is on a two-day visit. “The government is not in a position to provide” cheap loans, he said.
GM is seeking as much as $16.6 billion in new loans from the U.S. and another $6 billion from Canada, Germany, the U.K., Sweden and Thailand to sustain operations. Earlier this month Thailand recapitalized a state agency that shares credit risk with commercial banks in an effort to spur 100 billion baht ($2.8 billion) in lending to small businesses.
GM’s Thailand unit needs the money to move forward with a 15-billion-baht diesel-engine plant announced last year. The plant and another pickup truck line are “no longer feasible” without government help and are “suspended indefinitely,” the company said on Feb. 18.
“The reason we’ve worked with the government is that commercial banks on their own are pretty cautious these days,” Steve Carlisle, the company’s head of Southeast Asia operations, said in a telephone interview yesterday. “We all need to get together and make a good assessment of what the future holds and what’s the right thing to do in supporting industry.”
Manage Cash
Detroit-based GM has received $13.4 billion in loans since December. Conditions attached to the funds have constrained the company’s ability to manage cash globally as it had done in the past, forcing its foreign units to restructure or seek help from their host governments, GM said in a Feb. 18 filing.
“The discussion is not quite as far along in Thailand as it is in other places,” Carlisle said. “What we are encouraging is demand stimulus on one hand and on the other hand some assistance with loans to fund future product programs.”
The company will make a decision on whether to proceed with its diesel-engine plant by the end of the third quarter, Carlisle said. The factory’s opening has been pushed back to May 2011.
“If we can’t fund it then we’re going to have to look into other alternatives,” Carlisle said.
Thai Unit
GM’s Thai unit cut 790 jobs this year and slashed production by 56 percent to just under 50,000 units. The company may see sales drop “a bit more” than the 15 percent decline estimated for Thailand’s auto industry, Carlisle said.
Thailand’s government plans to meet with automakers to design a rescue package for the industry, Abhisit said. The private sector has proposed excise tax cuts that would reduce vehicle prices by as much as 50,000 baht and help for consumers to access car loans, Carlisle said.
“I don’t think an excise tax reduction is going to have a dramatic impact on demand,” said John Bonnell, director of forecasting for JD Power & Associates’ Asia-Pacific operations. “It may stimulate demand somewhat, but any way we look at it, it will be a tough year.”
Vehicle sales amounted to about 8 percent of Thailand’s exports last year, according to the Finance Ministry. Thailand is the world’s fourth-largest maker of light commercial vehicles.
“What might be helpful is some kind of credit facilities which would be done through a commercial bank system,” Abhisit said in an interview late yesterday in Jakarta, where he is on a two-day visit. “The government is not in a position to provide” cheap loans, he said.
GM is seeking as much as $16.6 billion in new loans from the U.S. and another $6 billion from Canada, Germany, the U.K., Sweden and Thailand to sustain operations. Earlier this month Thailand recapitalized a state agency that shares credit risk with commercial banks in an effort to spur 100 billion baht ($2.8 billion) in lending to small businesses.
GM’s Thailand unit needs the money to move forward with a 15-billion-baht diesel-engine plant announced last year. The plant and another pickup truck line are “no longer feasible” without government help and are “suspended indefinitely,” the company said on Feb. 18.
“The reason we’ve worked with the government is that commercial banks on their own are pretty cautious these days,” Steve Carlisle, the company’s head of Southeast Asia operations, said in a telephone interview yesterday. “We all need to get together and make a good assessment of what the future holds and what’s the right thing to do in supporting industry.”
Manage Cash
Detroit-based GM has received $13.4 billion in loans since December. Conditions attached to the funds have constrained the company’s ability to manage cash globally as it had done in the past, forcing its foreign units to restructure or seek help from their host governments, GM said in a Feb. 18 filing.
“The discussion is not quite as far along in Thailand as it is in other places,” Carlisle said. “What we are encouraging is demand stimulus on one hand and on the other hand some assistance with loans to fund future product programs.”
The company will make a decision on whether to proceed with its diesel-engine plant by the end of the third quarter, Carlisle said. The factory’s opening has been pushed back to May 2011.
“If we can’t fund it then we’re going to have to look into other alternatives,” Carlisle said.
Thai Unit
GM’s Thai unit cut 790 jobs this year and slashed production by 56 percent to just under 50,000 units. The company may see sales drop “a bit more” than the 15 percent decline estimated for Thailand’s auto industry, Carlisle said.
Thailand’s government plans to meet with automakers to design a rescue package for the industry, Abhisit said. The private sector has proposed excise tax cuts that would reduce vehicle prices by as much as 50,000 baht and help for consumers to access car loans, Carlisle said.
“I don’t think an excise tax reduction is going to have a dramatic impact on demand,” said John Bonnell, director of forecasting for JD Power & Associates’ Asia-Pacific operations. “It may stimulate demand somewhat, but any way we look at it, it will be a tough year.”
Vehicle sales amounted to about 8 percent of Thailand’s exports last year, according to the Finance Ministry. Thailand is the world’s fourth-largest maker of light commercial vehicles.
Asian Stocks Post Biggest Weekly Drop Since October on Economy
Feb. 21 (Bloomberg) -- Asian stocks posted the biggest weekly decline since October as the weakening global economy assailed corporate profits.
Mitsubishi UFJ Financial Group Inc., Japan’s largest listed bank, plunged 9.1 percent after the nation’s economy contracted at the fastest pace since 1974. Woori Finance Holdings Co., controlling South Korea’s second-largest bank, slumped 17 percent after rising bad loans forced it to apply for state funds. Elpida Memory Inc., Japan’s largest memory chipmaker, tumbled 27 percent after Standard & Poor’s slashed the company’s debt rating, citing its liquidity risk.
“There’s no magic potion we can all drink and cure the ills that the global economy has at the moment,” said Tim Schroeder, who helps manage about $2.6 billion at Pengana Capital Ltd. in Melbourne. “The evidence shows any pickup is going to be muted, and that profitability is not going to recover meaningfully for some time.”
The MSCI Asia Pacific Index plunged 7.0 percent this week to 76.03, the steepest slide since the period ending Oct. 24. The gauge has plunged 15 percent in 2009 and is less than 2 percent from a six-year low.
Japan’s Topix Index dropped 3.3 percent as it tumbled to the lowest since January 1984. All of the region’s benchmark equity indexes slumped, except in Pakistan. South Korea led the region’s declines as financial and heavy industry companies sent the Kospi Index to an 11 percent slide.
Falling Estimates
MSCI’s Asian index slumped by a record 43 percent last year as the credit crunch tipped the world’s largest economies into recession, forcing companies to cut jobs amid falling profits. Earnings estimates for companies in the gauge have been slashed 44 percent since the beginning of 2009, bringing them to the lowest level since Bloomberg began compiling the data in 2005.
Mitsubishi UFJ lost 9.1 percent to 429 yen. Pioneer Corp., Japan’s No. 3 audio-visual equipment maker, dropped 25 percent to 106 yen after announcing 10,000 job cuts as the global recession forced the company to exit the television business. Brewer Sapporo Holdings Ltd. retreated 20 percent to 334 yen after Warren Lichtenstein’s Steel Partners gave up a bid to acquire a one-third stake.
The Japanese economy contracted at a 12.7 percent annual rate in the final three months of 2008, the most since the 1974 oil shock, according to figures from the Cabinet Office. A plunge in exports accounted for most of the decline.
South Korean Banks
Woori Finance dropped 17 percent to 6,070 won. The bank said it plans to raise more than 2 trillion won ($1.4 billion) from a state-backed recapitalization fund as the nation’s slowing economy pushes bad loans higher. Rival Hana Financial Group Inc. declined 18 percent to 16,700 won. Shinhan Financial Group Ltd. tumbled 14 percent to 22,900 won.
The cost for South Korean banks to borrow dollars in the swap market rose to a record, increasing the burden on banks with as much as $160 billion of external debt maturing over the next two years.
Elpida lost 27 percent to 512 yen after S&P lowered the company to B+ from BB-, citing the continual drain on cash as losses on memory chips erode the company’s financial position. Hynix Semiconductor Inc., the world’s second-largest computer- memory chipmaker, fell 15 percent to 7,880 won in Seoul. The stock was slashed to “underweight” from “neutral” by J.J. Park at JPMorgan on the view that demand for memory won’t recover in the second half of this year, pushing prices lower even as companies cut supply.
Danamon Rallies
PT Bank Danamon Indonesia, backed by Temasek Holdings Pte and Deutsche Bank AG, rallied 19 percent to 2,650 rupiah. The lender plans to raise 4 trillion rupiah ($332 million) selling shares in a rights offer, a move that Macquarie Group Ltd. said will help fuel medium-term growth.
OZ Minerals Ltd., the world’s second-largest zinc mining company, surged 18 percent to 65 cents in Sydney after being suspended since November following a A$2.6 billion ($1.7 billion) takeover bid from China Minmetals Corp.
Mitsubishi UFJ Financial Group Inc., Japan’s largest listed bank, plunged 9.1 percent after the nation’s economy contracted at the fastest pace since 1974. Woori Finance Holdings Co., controlling South Korea’s second-largest bank, slumped 17 percent after rising bad loans forced it to apply for state funds. Elpida Memory Inc., Japan’s largest memory chipmaker, tumbled 27 percent after Standard & Poor’s slashed the company’s debt rating, citing its liquidity risk.
“There’s no magic potion we can all drink and cure the ills that the global economy has at the moment,” said Tim Schroeder, who helps manage about $2.6 billion at Pengana Capital Ltd. in Melbourne. “The evidence shows any pickup is going to be muted, and that profitability is not going to recover meaningfully for some time.”
The MSCI Asia Pacific Index plunged 7.0 percent this week to 76.03, the steepest slide since the period ending Oct. 24. The gauge has plunged 15 percent in 2009 and is less than 2 percent from a six-year low.
Japan’s Topix Index dropped 3.3 percent as it tumbled to the lowest since January 1984. All of the region’s benchmark equity indexes slumped, except in Pakistan. South Korea led the region’s declines as financial and heavy industry companies sent the Kospi Index to an 11 percent slide.
Falling Estimates
MSCI’s Asian index slumped by a record 43 percent last year as the credit crunch tipped the world’s largest economies into recession, forcing companies to cut jobs amid falling profits. Earnings estimates for companies in the gauge have been slashed 44 percent since the beginning of 2009, bringing them to the lowest level since Bloomberg began compiling the data in 2005.
Mitsubishi UFJ lost 9.1 percent to 429 yen. Pioneer Corp., Japan’s No. 3 audio-visual equipment maker, dropped 25 percent to 106 yen after announcing 10,000 job cuts as the global recession forced the company to exit the television business. Brewer Sapporo Holdings Ltd. retreated 20 percent to 334 yen after Warren Lichtenstein’s Steel Partners gave up a bid to acquire a one-third stake.
The Japanese economy contracted at a 12.7 percent annual rate in the final three months of 2008, the most since the 1974 oil shock, according to figures from the Cabinet Office. A plunge in exports accounted for most of the decline.
South Korean Banks
Woori Finance dropped 17 percent to 6,070 won. The bank said it plans to raise more than 2 trillion won ($1.4 billion) from a state-backed recapitalization fund as the nation’s slowing economy pushes bad loans higher. Rival Hana Financial Group Inc. declined 18 percent to 16,700 won. Shinhan Financial Group Ltd. tumbled 14 percent to 22,900 won.
The cost for South Korean banks to borrow dollars in the swap market rose to a record, increasing the burden on banks with as much as $160 billion of external debt maturing over the next two years.
Elpida lost 27 percent to 512 yen after S&P lowered the company to B+ from BB-, citing the continual drain on cash as losses on memory chips erode the company’s financial position. Hynix Semiconductor Inc., the world’s second-largest computer- memory chipmaker, fell 15 percent to 7,880 won in Seoul. The stock was slashed to “underweight” from “neutral” by J.J. Park at JPMorgan on the view that demand for memory won’t recover in the second half of this year, pushing prices lower even as companies cut supply.
Danamon Rallies
PT Bank Danamon Indonesia, backed by Temasek Holdings Pte and Deutsche Bank AG, rallied 19 percent to 2,650 rupiah. The lender plans to raise 4 trillion rupiah ($332 million) selling shares in a rights offer, a move that Macquarie Group Ltd. said will help fuel medium-term growth.
OZ Minerals Ltd., the world’s second-largest zinc mining company, surged 18 percent to 65 cents in Sydney after being suspended since November following a A$2.6 billion ($1.7 billion) takeover bid from China Minmetals Corp.
Thursday, February 19, 2009
Obama Says U.S., Canada Must Avoid Erecting Barriers to Trade
Feb. 19 (Bloomberg) -- President Barack Obama said the U.S. and Canada must avoid erecting trade barriers or impeding cross- border commerce amid a worldwide recession.
Obama also said he raised with Canadian Prime Minister Stephen Harper the idea of putting labor and environmental provisions within the main body of the North American Free Trade Agreement without unraveling the accord.
“Now is a time when we’ve got to be very careful about any signals of protectionism,” Obama said at a joint news conference with Harper in Ottawa.
Canada and the U.S. have the world’s largest commercial relationship, with almost $600 billion in trade annually. Each nation is the other’s largest trading partner.
Canada’s exports to the U.S. have more than tripled since 1989, the first year the two countries implemented an accord that became the North American Free Trade Agreement, or Nafta, when Mexico joined in 1994.
Obama’s stance on trade became a sensitive issue after he said during the U.S. presidential campaign that the U.S. should threaten to pull out of Nafta unless Canada and Mexico agree to strengthen labor and environmental protections. He has backed away from that position since winning the election.
In recent weeks, Canadian officials expressed concern about the prospect of a trade spat after the U.S. Congress inserted a “buy American” requirement into a $787 billion economic stimulus bill. The provision was modified in the final legislation.
“It was very important to make sure that any provisions that were there, were consonant with our obligations under WTO and Nafta and I think that was achieved,” Obama said.
Obama also said he raised with Canadian Prime Minister Stephen Harper the idea of putting labor and environmental provisions within the main body of the North American Free Trade Agreement without unraveling the accord.
“Now is a time when we’ve got to be very careful about any signals of protectionism,” Obama said at a joint news conference with Harper in Ottawa.
Canada and the U.S. have the world’s largest commercial relationship, with almost $600 billion in trade annually. Each nation is the other’s largest trading partner.
Canada’s exports to the U.S. have more than tripled since 1989, the first year the two countries implemented an accord that became the North American Free Trade Agreement, or Nafta, when Mexico joined in 1994.
Obama’s stance on trade became a sensitive issue after he said during the U.S. presidential campaign that the U.S. should threaten to pull out of Nafta unless Canada and Mexico agree to strengthen labor and environmental protections. He has backed away from that position since winning the election.
In recent weeks, Canadian officials expressed concern about the prospect of a trade spat after the U.S. Congress inserted a “buy American” requirement into a $787 billion economic stimulus bill. The provision was modified in the final legislation.
“It was very important to make sure that any provisions that were there, were consonant with our obligations under WTO and Nafta and I think that was achieved,” Obama said.
Satyam Allowed to Sell Strategic Stake Via Open Bids
Feb. 19 (Bloomberg) -- Satyam Computer Services Ltd., the Indian software-services provider at the center of the nation’s largest corporate fraud inquiry, can sell a stake to a strategic investor via an open bidding process, the Company Law Board said.
Satyam can make a preferential allotment of shares to the buyer, the law panel said today in a ruling on an application from the Hyderabad-based company. The software provider has also been allowed to increase its authorized share capital to 2.8 billion rupees, from 1.6 billion rupees, by issuing 600 million shares of 2 rupees face value each.
Satyam’s government-appointed board has received bids from several suitors including Larsen & Toubro Ltd. and on Jan. 27 named Goldman Sachs Group Inc. and Avendus Capital Ltd. to help it identify strategic investors. The software provider’s shares have tumbled 74 percent since its founder and former chairman Ramalinga Raju said Jan. 7 he had falsified earnings and inflated assets by $1 billion.
“An auction may help Satyam maximize its value,” Harit Shah, an analyst at Mumbai-based Angel Broking Ltd., said by telephone. “What needs to be seen is the long-term game plan of the new strategic investor.” Shah does not have an investment rating on the stock.
Satyam told the corporate law authority it would like to sell a minimum 26 percent stake as no strategic investor would be interested in acquiring less, the board’s chairman S. Balasubramanian observed in his order.
‘Strategic Investor Necessary’
“Further induction of long-term funds through induction of a strategic investor is necessary” for the company’s survival, he said.
Satyam’s state-appointed chairman Kiran Karnik and chief executive officer A. S. Murty have tried to keep customers from joining State Farm Mutual Automobile Insurance Co., the largest home and auto insurer in the U.S., in canceling their contracts. The two leaders, whose appointment earlier this month ended a four-week leadership vacuum following Raju’s arrest and the sacking of the company’s interim board on Jan. 9, have also had their task cut out in ensuring adequate funds to run the business.
Y. M. Deosthalee, chief financial officer of Mumbai-based Larsen declined to comment on the law panel’s ruling today. India’s largest engineering company, which tripled its stake in Satyam to 12 percent last month, will await decisions from India’s capital markets regulator and the provider’s board before deciding its next step, Deosthalee said on Feb. 5.
Satyam shares fell 4.8 percent prior to the announcement to close at 46.2 rupees in Mumbai trading, the most since Feb. 5. The benchmark Sensitive Index rose 0.3 percent.
“The board will decide the modalities” of the stake sale, which would be done through an open and transparent process, Company Affairs Minister Prem Chand Gupta told reporters today.
Satyam’s board of directors is due to meet next on Feb. 21.
Satyam can make a preferential allotment of shares to the buyer, the law panel said today in a ruling on an application from the Hyderabad-based company. The software provider has also been allowed to increase its authorized share capital to 2.8 billion rupees, from 1.6 billion rupees, by issuing 600 million shares of 2 rupees face value each.
Satyam’s government-appointed board has received bids from several suitors including Larsen & Toubro Ltd. and on Jan. 27 named Goldman Sachs Group Inc. and Avendus Capital Ltd. to help it identify strategic investors. The software provider’s shares have tumbled 74 percent since its founder and former chairman Ramalinga Raju said Jan. 7 he had falsified earnings and inflated assets by $1 billion.
“An auction may help Satyam maximize its value,” Harit Shah, an analyst at Mumbai-based Angel Broking Ltd., said by telephone. “What needs to be seen is the long-term game plan of the new strategic investor.” Shah does not have an investment rating on the stock.
Satyam told the corporate law authority it would like to sell a minimum 26 percent stake as no strategic investor would be interested in acquiring less, the board’s chairman S. Balasubramanian observed in his order.
‘Strategic Investor Necessary’
“Further induction of long-term funds through induction of a strategic investor is necessary” for the company’s survival, he said.
Satyam’s state-appointed chairman Kiran Karnik and chief executive officer A. S. Murty have tried to keep customers from joining State Farm Mutual Automobile Insurance Co., the largest home and auto insurer in the U.S., in canceling their contracts. The two leaders, whose appointment earlier this month ended a four-week leadership vacuum following Raju’s arrest and the sacking of the company’s interim board on Jan. 9, have also had their task cut out in ensuring adequate funds to run the business.
Y. M. Deosthalee, chief financial officer of Mumbai-based Larsen declined to comment on the law panel’s ruling today. India’s largest engineering company, which tripled its stake in Satyam to 12 percent last month, will await decisions from India’s capital markets regulator and the provider’s board before deciding its next step, Deosthalee said on Feb. 5.
Satyam shares fell 4.8 percent prior to the announcement to close at 46.2 rupees in Mumbai trading, the most since Feb. 5. The benchmark Sensitive Index rose 0.3 percent.
“The board will decide the modalities” of the stake sale, which would be done through an open and transparent process, Company Affairs Minister Prem Chand Gupta told reporters today.
Satyam’s board of directors is due to meet next on Feb. 21.
Singapore Air May Delay Plane Deliveries as Travel Demand Falls
Feb. 20 (Bloomberg) -- Singapore Airlines Ltd., the world’s largest airline by market value, may need to postpone deliveries of new aircraft for the first time in five years as the global recession hurts travel demand.
“They may have no choice but to delay deliveries,” said Ryu Je-Hyun, a Hong Kong-based analyst at Mirae Asset Securities Co. “If they ground planes, they still have to pay depreciation costs and if they take delivery, they have to pay the remaining cost for the aircraft.”
Chief Executive Officer Chew Choon Seng will begin taking out 17 percent of the airline’s fleet starting in April on sinking travel demand that’s already pushed British Airways Plc and Japan Airlines Corp. to losses. Singapore Air, first to operate the superjumbo Airbus SAS A380, will slash capacity 11 percent after quarterly profit fell the most in at least five years.
The airline has 51 planes on order from Airbus and 21 on order from Boeing Co., according to its website. Airlines worldwide are taking planes out of service, deferring deliveries of new aircraft and eliminating jobs to lower costs as travel demand crumbles.
“We have not yet deferred any aircraft deliveries yet, but are examining options to do so,” said Stephen Forshaw, the Singapore Air spokesman. “Our deliveries of new aircraft are not just about growth, but also to adhere to our long-standing policy of fleet renewal,” he said.
Declining Traffic
Asia-Pacific passenger traffic sank 9.7 percent in December, while freight volumes tumbled 26 percent, the International Air Transport Association said on Jan. 29. The traffic declines for both passengers and freight were the biggest of any region, the trade group added. The industry may lose as much $2.5 billion this year, with carriers in the Asia-Pacific region accounting for almost half of the deficit, according to the IATA.
Kingfisher Airlines Ltd., owned by India’s biggest brewer, this month deferred its first delivery of the A380 to 2014 from 2012. Air France-KLM Group, Europe’s largest carrier, said Feb. 16 it’s postponing deliveries of six Airbus and Boeing planes to reduce spending. China Eastern Airlines Corp., the nation’s third-largest carrier, may cancel orders for as many as 15 planes.
“Things are certainly looking bad now and delaying orders is an option Singapore Air may take,” said Jim Eckes, managing director of industry adviser Indoswiss Aviation. “Carriers worldwide are already sending signals to the manufacturers that they won’t take deliveries for the next two to three years.”
Planes in Desert
The number of planes removed from service has more than doubled in the 12 months to Jan. 31, a more drastic shift than after the Sept. 11, 2001, terrorist attacks or the outbreak of severe acute respiratory syndrome in 2003, according to data compiled by Bloomberg. Planes taken out of service are typically parked in deserts for storage.
“Singapore Air will still take delivery of fuel-efficient planes such as the A380,” said Rohan Suppiah, an analyst at Kim Eng Securities Co. “They may push back some of the A330s.”
The carrier this year took delivery of the first of 19 A330- 300 aircraft it has on order, with another three due to arrive by the end of March. The plane can carry as many as 335 people and costs $201 million at list prices, according the Airbus web site.
The carrier said Feb. 16 it will take planes out of service and will consider job cuts only “as a last resort.” The airline held talks with labor unions on measures to reduce costs, including voluntary leave without pay, early retirement and shorter work months, the carrier said in a statement. The carrier last week reported a 43 percent slide in net income. The airline’s shares have fallen 10 percent this year.
Airlines worldwide are more likely now to defer deliveries of new aircraft than three months ago as demand for air travel slumps, a Jan. 20 survey by UBS AG said. Almost a third of the respondents said they were more likely to postpone the delivery of planes on order, compared with 8 percent three months ago.
“They may have no choice but to delay deliveries,” said Ryu Je-Hyun, a Hong Kong-based analyst at Mirae Asset Securities Co. “If they ground planes, they still have to pay depreciation costs and if they take delivery, they have to pay the remaining cost for the aircraft.”
Chief Executive Officer Chew Choon Seng will begin taking out 17 percent of the airline’s fleet starting in April on sinking travel demand that’s already pushed British Airways Plc and Japan Airlines Corp. to losses. Singapore Air, first to operate the superjumbo Airbus SAS A380, will slash capacity 11 percent after quarterly profit fell the most in at least five years.
The airline has 51 planes on order from Airbus and 21 on order from Boeing Co., according to its website. Airlines worldwide are taking planes out of service, deferring deliveries of new aircraft and eliminating jobs to lower costs as travel demand crumbles.
“We have not yet deferred any aircraft deliveries yet, but are examining options to do so,” said Stephen Forshaw, the Singapore Air spokesman. “Our deliveries of new aircraft are not just about growth, but also to adhere to our long-standing policy of fleet renewal,” he said.
Declining Traffic
Asia-Pacific passenger traffic sank 9.7 percent in December, while freight volumes tumbled 26 percent, the International Air Transport Association said on Jan. 29. The traffic declines for both passengers and freight were the biggest of any region, the trade group added. The industry may lose as much $2.5 billion this year, with carriers in the Asia-Pacific region accounting for almost half of the deficit, according to the IATA.
Kingfisher Airlines Ltd., owned by India’s biggest brewer, this month deferred its first delivery of the A380 to 2014 from 2012. Air France-KLM Group, Europe’s largest carrier, said Feb. 16 it’s postponing deliveries of six Airbus and Boeing planes to reduce spending. China Eastern Airlines Corp., the nation’s third-largest carrier, may cancel orders for as many as 15 planes.
“Things are certainly looking bad now and delaying orders is an option Singapore Air may take,” said Jim Eckes, managing director of industry adviser Indoswiss Aviation. “Carriers worldwide are already sending signals to the manufacturers that they won’t take deliveries for the next two to three years.”
Planes in Desert
The number of planes removed from service has more than doubled in the 12 months to Jan. 31, a more drastic shift than after the Sept. 11, 2001, terrorist attacks or the outbreak of severe acute respiratory syndrome in 2003, according to data compiled by Bloomberg. Planes taken out of service are typically parked in deserts for storage.
“Singapore Air will still take delivery of fuel-efficient planes such as the A380,” said Rohan Suppiah, an analyst at Kim Eng Securities Co. “They may push back some of the A330s.”
The carrier this year took delivery of the first of 19 A330- 300 aircraft it has on order, with another three due to arrive by the end of March. The plane can carry as many as 335 people and costs $201 million at list prices, according the Airbus web site.
The carrier said Feb. 16 it will take planes out of service and will consider job cuts only “as a last resort.” The airline held talks with labor unions on measures to reduce costs, including voluntary leave without pay, early retirement and shorter work months, the carrier said in a statement. The carrier last week reported a 43 percent slide in net income. The airline’s shares have fallen 10 percent this year.
Airlines worldwide are more likely now to defer deliveries of new aircraft than three months ago as demand for air travel slumps, a Jan. 20 survey by UBS AG said. Almost a third of the respondents said they were more likely to postpone the delivery of planes on order, compared with 8 percent three months ago.
China Pressures HSBC, Citigroup to Join Lending Spree
Feb. 20 (Bloomberg) -- China is prodding banks including Citigroup Inc. and HSBC Holdings Plc to support the weakening economy by accelerating lending, after the threat of defaults caused them to rein in credit last month.
Foreign banks should “increase their contribution” to China’s economy and lend more to small firms, the Shanghai branch of China’s banking regulator said yesterday. An earlier report showed advances by foreign lenders in the city dropped in January. Shanghai accounts for 61 percent of overseas bank lending in China, the watchdog said.
The demand for more funds comes as HSBC, Standard Chartered Plc, Bank of East Asia Ltd. and Citigroup -- the four largest foreign lenders by branches in China -- contend with credit losses and weakening economies at home. With Chinese banks first in line to lend to state-backed infrastructure projects, foreign rivals who chose to heed the call may have to shoulder more risk, said analyst Yang Qingli.
“Nobody can afford to stay on the sidelines anymore, even if it comes at the cost of lending to riskier companies,” said Yang, Beijing-based head of research at brokerage BOCOM International Ltd. “That’s what’s left for foreign banks now.”
Overseas banks cut local-currency advances in Shanghai by 1.78 billion yuan ($263 million) in January, even as local lenders extended a record 95 billion yuan of new loans, according to the city’s central bank branch. A year earlier, foreign banks boosted lending by 12.3 billion yuan.
Banks Retrenching
The bad-loan ratio at foreign banks increased to 0.83 percent in December, the highest since mid-2006, from 0.5 percent three months earlier, according to the regulator.
Chinese banks led by Industrial & Commercial Bank of China Ltd. have rushed to follow the government’s call for more credit, doling out 1.62 trillion yuan in loans in January -- more than double the previous monthly record. The loans binge has fueled concern that delinquent debt will pile up, just as China finishes a $650 billion cleanup of its banking system.
China’s economy grew 6.8 percent in the fourth quarter, the slowest pace in seven years, as exports collapsed.
Many of the global banks that moved into China after the nation fully opened its banking industry in December 2006 are now retrenching to nurse balance sheets savaged by writedowns. Citigroup, which got a $52 billion U.S. bailout, has earmarked units in Japan for sale. Royal Bank of Scotland Group Plc, rescued by the U.K. government, has pledged to increase lending at home and scale back business abroad.
‘Follow or Lose’
HSBC, the biggest European bank, may need as much as $35 billion in fresh capital as more U.S. loans turn sour, Morgan Stanley analysts estimate. Bank of East Asia, based in Hong Kong, this week posted its first loss in more than four decades.
Banks ignore China’s call for more loans at their own peril, said BOCOM’s Yang. “You either follow or you lose business, meaning the government probably won’t approve any new branches or new products,” she said.
Stephen Thomas, a Shanghai-based spokesman for Citigroup, said, “Citi China remains committed to supporting the banking requirements of our clients throughout 2009 and beyond.” Eva Chow, a spokeswoman at Standard Chartered in Shanghai, declined to comment, as did Bank of East Asia’s Xia Feng and HSBC’s Gareth Hewett.
Overseas banks are at a disadvantage as they don’t have the size locally or the political connections to lend to the road and rail projects at the heart of China’s $585 billion stimulus plan, said analysts including Lu Zhengwei.
Pet Projects
“Chinese and foreign banks have a similar assessment that the current credit risk is very high,” said Lu, an economist at Industrial Bank Co. “But Chinese banks can get those safer government-led projects and foreign banks just can’t.”
Bank of China Ltd. gave a 60 billion yuan credit line to Aviation Industry Corp. of China Ltd. on Feb. 6 after the State Council approved a support package for the aerospace industry. The lender in December agreed to extend 300 billion yuan to the government of Tianjin city.
China Construction Bank Corp. in December promised to offer 380 billion yuan of loans to Guangdong province for its energy, transportation and infrastructure needs. ICBC lent 69.3 billion yuan to power grids, roads, hydroelectric power projects and public works in January, about 27 percent of its total.
Decades of state-directed lending pushed the non-performing loan ratio at Chinese banks to almost 30 percent in 2000. The measure stood at 2.45 percent at the end of last year. Fitch Ratings said last month Chinese banks may be underestimating their bad-loan ratios, partly because of weak risk management.
Foreign banks should “increase their contribution” to China’s economy and lend more to small firms, the Shanghai branch of China’s banking regulator said yesterday. An earlier report showed advances by foreign lenders in the city dropped in January. Shanghai accounts for 61 percent of overseas bank lending in China, the watchdog said.
The demand for more funds comes as HSBC, Standard Chartered Plc, Bank of East Asia Ltd. and Citigroup -- the four largest foreign lenders by branches in China -- contend with credit losses and weakening economies at home. With Chinese banks first in line to lend to state-backed infrastructure projects, foreign rivals who chose to heed the call may have to shoulder more risk, said analyst Yang Qingli.
“Nobody can afford to stay on the sidelines anymore, even if it comes at the cost of lending to riskier companies,” said Yang, Beijing-based head of research at brokerage BOCOM International Ltd. “That’s what’s left for foreign banks now.”
Overseas banks cut local-currency advances in Shanghai by 1.78 billion yuan ($263 million) in January, even as local lenders extended a record 95 billion yuan of new loans, according to the city’s central bank branch. A year earlier, foreign banks boosted lending by 12.3 billion yuan.
Banks Retrenching
The bad-loan ratio at foreign banks increased to 0.83 percent in December, the highest since mid-2006, from 0.5 percent three months earlier, according to the regulator.
Chinese banks led by Industrial & Commercial Bank of China Ltd. have rushed to follow the government’s call for more credit, doling out 1.62 trillion yuan in loans in January -- more than double the previous monthly record. The loans binge has fueled concern that delinquent debt will pile up, just as China finishes a $650 billion cleanup of its banking system.
China’s economy grew 6.8 percent in the fourth quarter, the slowest pace in seven years, as exports collapsed.
Many of the global banks that moved into China after the nation fully opened its banking industry in December 2006 are now retrenching to nurse balance sheets savaged by writedowns. Citigroup, which got a $52 billion U.S. bailout, has earmarked units in Japan for sale. Royal Bank of Scotland Group Plc, rescued by the U.K. government, has pledged to increase lending at home and scale back business abroad.
‘Follow or Lose’
HSBC, the biggest European bank, may need as much as $35 billion in fresh capital as more U.S. loans turn sour, Morgan Stanley analysts estimate. Bank of East Asia, based in Hong Kong, this week posted its first loss in more than four decades.
Banks ignore China’s call for more loans at their own peril, said BOCOM’s Yang. “You either follow or you lose business, meaning the government probably won’t approve any new branches or new products,” she said.
Stephen Thomas, a Shanghai-based spokesman for Citigroup, said, “Citi China remains committed to supporting the banking requirements of our clients throughout 2009 and beyond.” Eva Chow, a spokeswoman at Standard Chartered in Shanghai, declined to comment, as did Bank of East Asia’s Xia Feng and HSBC’s Gareth Hewett.
Overseas banks are at a disadvantage as they don’t have the size locally or the political connections to lend to the road and rail projects at the heart of China’s $585 billion stimulus plan, said analysts including Lu Zhengwei.
Pet Projects
“Chinese and foreign banks have a similar assessment that the current credit risk is very high,” said Lu, an economist at Industrial Bank Co. “But Chinese banks can get those safer government-led projects and foreign banks just can’t.”
Bank of China Ltd. gave a 60 billion yuan credit line to Aviation Industry Corp. of China Ltd. on Feb. 6 after the State Council approved a support package for the aerospace industry. The lender in December agreed to extend 300 billion yuan to the government of Tianjin city.
China Construction Bank Corp. in December promised to offer 380 billion yuan of loans to Guangdong province for its energy, transportation and infrastructure needs. ICBC lent 69.3 billion yuan to power grids, roads, hydroelectric power projects and public works in January, about 27 percent of its total.
Decades of state-directed lending pushed the non-performing loan ratio at Chinese banks to almost 30 percent in 2000. The measure stood at 2.45 percent at the end of last year. Fitch Ratings said last month Chinese banks may be underestimating their bad-loan ratios, partly because of weak risk management.
Wednesday, February 18, 2009
Indian Profit Estimates to Drop Another 25%, Credit Suisse Says
Feb. 19 (Bloomberg) -- Indian earnings estimates for the next fiscal year may be cut another 25 percent, led by revisions for banks, as the economy weakens, Credit Suisse Group said.
Analysts will probably double the one-quarter reduction in forecasts since November for the year starting April 1, as profit growth at banks, brokerages and developers falters, Credit Suisse analysts Nilesh Jasani and Arya Sen wrote in a report. Predictions for companies on the Bombay Stock Exchange Sensitive Index this fiscal year have been lowered by 15 percent.
The Sensex has dropped 6.6 percent this year, extending 2008’s record 52 percent slump, as the global recession and financial crisis weighed on the outlook for corporate earnings. Investors should avoid financial companies, making up 32 percent of profits after tax in India, because current predictions for their earnings are too optimistic, Credit Suisse said.
“We remain underweight on the sector and expect it to be the main contributor to depressed 2010 earnings,” the analysts said. “For financials’ profits to grow at over 30 percent year- on-year, while the rest of the corporate world is witnessing a contraction of the same magnitude, is unsustainable.”
Financial companies’ earnings, which grew about 30 percent in the third quarter from a year earlier, will falter as the central bank cuts interest rates, demand for loans slows and provisions increase, the report said.
The benchmark index yesterday fell 0.2 percent to 9,015.18, a three-week low. The measure is valued at about 9.3 times reported earnings, down from a high of as much as 28 times in January last year. The gauge is trading at 10.4 times next year’s profit estimates.
Election Outcome
Valuations are unlikely to get cheaper and the index will fluctuate at around Credit Suisse’s target of 9,000 on speculation of a “sharp” rebound in earnings in 2011, the analysts said. The outcome of India’s elections this year will also determine the performance of the market, they added.
“Essentially, we deem a sharp decline in 2010 earnings-per- share forecast as inevitable but not an attendant fall in equity indices,” the report said.
State Bank of India, the nation’s largest, said on Jan. 24 profit for the three months ended Dec. 31 rose 37 percent from a year earlier as companies borrowed more and investments in bonds gained. HDFC Bank Ltd., the third-largest by market value, last month posted a 45 percent increase in its third-quarter profit.
Credit Suisse has an “underperform” recommendation on State Bank of India and a “neutral” rating on HDFC. They also advised investors to be “underweight” in brokerages and property companies.
Analysts will probably double the one-quarter reduction in forecasts since November for the year starting April 1, as profit growth at banks, brokerages and developers falters, Credit Suisse analysts Nilesh Jasani and Arya Sen wrote in a report. Predictions for companies on the Bombay Stock Exchange Sensitive Index this fiscal year have been lowered by 15 percent.
The Sensex has dropped 6.6 percent this year, extending 2008’s record 52 percent slump, as the global recession and financial crisis weighed on the outlook for corporate earnings. Investors should avoid financial companies, making up 32 percent of profits after tax in India, because current predictions for their earnings are too optimistic, Credit Suisse said.
“We remain underweight on the sector and expect it to be the main contributor to depressed 2010 earnings,” the analysts said. “For financials’ profits to grow at over 30 percent year- on-year, while the rest of the corporate world is witnessing a contraction of the same magnitude, is unsustainable.”
Financial companies’ earnings, which grew about 30 percent in the third quarter from a year earlier, will falter as the central bank cuts interest rates, demand for loans slows and provisions increase, the report said.
The benchmark index yesterday fell 0.2 percent to 9,015.18, a three-week low. The measure is valued at about 9.3 times reported earnings, down from a high of as much as 28 times in January last year. The gauge is trading at 10.4 times next year’s profit estimates.
Election Outcome
Valuations are unlikely to get cheaper and the index will fluctuate at around Credit Suisse’s target of 9,000 on speculation of a “sharp” rebound in earnings in 2011, the analysts said. The outcome of India’s elections this year will also determine the performance of the market, they added.
“Essentially, we deem a sharp decline in 2010 earnings-per- share forecast as inevitable but not an attendant fall in equity indices,” the report said.
State Bank of India, the nation’s largest, said on Jan. 24 profit for the three months ended Dec. 31 rose 37 percent from a year earlier as companies borrowed more and investments in bonds gained. HDFC Bank Ltd., the third-largest by market value, last month posted a 45 percent increase in its third-quarter profit.
Credit Suisse has an “underperform” recommendation on State Bank of India and a “neutral” rating on HDFC. They also advised investors to be “underweight” in brokerages and property companies.
Karachi’s Exchange to Ease Stock Trading Limits After Freeze
Feb. 19 (Bloomberg) -- The Karachi Stock Exchange, Asia’s cheapest equity market, plans to ease trading limits this year to avoid a repeat of curbs that froze equity markets for four months and drove out overseas investors.
Pakistan’s biggest exchange may triple the current 5 percent limit that a stock can decline each day and introduce so-called circuit breakers that limit how much the entire market can fall, Adnan Afridi, managing director, said in an interview in Karachi.
“Our circuit breakers are a bit narrow by international standards,” Afridi said late yesterday. “We are looking at a combination of having wider circuit breakers, maybe 10 or 15 percent, and then having market halts, of say, 3 to 5 percent.”
Pakistan is seeking to boost investment in shares after its benchmark index declined 58 percent in 2008, the most in 18 years, because of political instability and an economic slowdown. Freeing up trading limits would attract more investors, said Tariq Iqbal Khan, chairman of Pakistan’s biggest money manager.
“If a stock has to fall 15 percent, it will either fall in one day or three days, the stocks have to come down to natural price,” said Khan, who manages the equivalent of $940 million in equities at National Investment Trust Ltd. in Karachi. “Nobody wants to trade in a value he feels is not realistic.”
The proposed market halts could stop trading for 30 minutes if the index rises or declines by a certain proportion, Afridi said. “We are studying different models,” he said.
Asia’s Lowest
The KSE100 Index is trading at 4.47 times next year’s estimated earnings, the lowest among 14 Asia-Pacific equity indexes, according to data compiled by Bloomberg. The Karachi share market has declined 36 percent since the exchange lifted trading curbs on Dec. 15 that prevented the measure from falling below its Aug. 27 level.
The curbs were imposed after the exchange’s market value almost halved from the peak on April 4 amid a political crisis leading up to the resignation of President Pervez Musharraf and the breakup of the coalition government.
Investors stoned the exchange in July after a first attempt to impose limits failed to halt the slump that threatened to undo a 11-fold rally since 2001.
Overseas investors dumped $510 million of Pakistani stocks in the past 12 months, almost five times as much as in the same period a year ago, according to the National Clearing Co.
“Significant inflows are not expected in 2009,” Afridi said. “Our credibility has been affected more so by the length of time the floor was in place rather than the decision itself.”
Pakistan’s biggest exchange may triple the current 5 percent limit that a stock can decline each day and introduce so-called circuit breakers that limit how much the entire market can fall, Adnan Afridi, managing director, said in an interview in Karachi.
“Our circuit breakers are a bit narrow by international standards,” Afridi said late yesterday. “We are looking at a combination of having wider circuit breakers, maybe 10 or 15 percent, and then having market halts, of say, 3 to 5 percent.”
Pakistan is seeking to boost investment in shares after its benchmark index declined 58 percent in 2008, the most in 18 years, because of political instability and an economic slowdown. Freeing up trading limits would attract more investors, said Tariq Iqbal Khan, chairman of Pakistan’s biggest money manager.
“If a stock has to fall 15 percent, it will either fall in one day or three days, the stocks have to come down to natural price,” said Khan, who manages the equivalent of $940 million in equities at National Investment Trust Ltd. in Karachi. “Nobody wants to trade in a value he feels is not realistic.”
The proposed market halts could stop trading for 30 minutes if the index rises or declines by a certain proportion, Afridi said. “We are studying different models,” he said.
Asia’s Lowest
The KSE100 Index is trading at 4.47 times next year’s estimated earnings, the lowest among 14 Asia-Pacific equity indexes, according to data compiled by Bloomberg. The Karachi share market has declined 36 percent since the exchange lifted trading curbs on Dec. 15 that prevented the measure from falling below its Aug. 27 level.
The curbs were imposed after the exchange’s market value almost halved from the peak on April 4 amid a political crisis leading up to the resignation of President Pervez Musharraf and the breakup of the coalition government.
Investors stoned the exchange in July after a first attempt to impose limits failed to halt the slump that threatened to undo a 11-fold rally since 2001.
Overseas investors dumped $510 million of Pakistani stocks in the past 12 months, almost five times as much as in the same period a year ago, according to the National Clearing Co.
“Significant inflows are not expected in 2009,” Afridi said. “Our credibility has been affected more so by the length of time the floor was in place rather than the decision itself.”
BOJ May Unveil Debt Program, Extend Commercial Paper Purchase
Feb. 19 (Bloomberg) -- The Bank of Japan will today unveil details of a plan to buy corporate debt and may extend lending programs in place to prevent a shortage of credit from deepening the nation’s recession.
Governor Masaaki Shirakawa and his colleagues have said they want to lower companies’ borrowing costs rather than trim the key interest rate, which is already close to zero. Policy makers will probably keep the overnight lending rate at 0.1 percent today, according to 27 of 28 economists surveyed by Bloomberg News.
The world’s second-largest economy shrank at the steepest pace since the 1974 oil shock last quarter as a global slowdown triggered record declines in exports and output. The resignation of Finance Minister Shoichi Nakagawa this week amid lawmakers’ accusations he was drunk at a Group of Seven briefing in Rome is hampering government efforts to implement a stimulus package to spur growth.
“We can’t count on the government and politicians, who are too incompetent to support the economy,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The BOJ will need to come up with more remedies instead.”
Policy makers may say today the central bank will buy as much as 1 trillion yen ($10.8 billion) in corporate bonds with a rating of at least A1, economists surveyed said. They may also extend a commercial paper purchase program, which is due to end on March 31, as well as an unlimited collateral-backed lending facility for banks slated to end in April.
Twice as Fast
Gross domestic product shrank an annualized 12.7 percent last quarter, more than twice as fast as declines in the U.S. and Europe, a report showed on Feb. 16. The same day, Nakagawa came under fire in parliament for dozing off and slurring his speech at a Group of Seven press conference. His subsequent resignation dealt a blow to Prime Minister Taro Aso, who is struggling to get approval for a 10 trillion yen stimulus package because of political gridlock.
The downturn is set to intensify. The economy may suffer a bigger contraction in the current quarter, Kazuo Momma, the central bank’s chief economist, said this month. Economic and Fiscal Policy Minister Kaoru Yosano, who’s taken over Nakagawa’s job, this week said Japan is going through “the worst postwar economic crisis.”
“Even though they have a sense of crisis, the Bank of Japan’s policy actions have been pretty minor so far,” said Yuji Shimanaka, chief economist at Mitsubishi UFJ Research and Consulting in Tokyo. “It should buy government bonds more aggressively and trim the key rate to zero immediately.”
Credit Squeeze
The central bank last month started to buy commercial paper from lenders and pledged to purchase corporate bonds to ease the credit squeeze. The bank will also resume buying stocks owned by lenders, a step it implemented between 2002 and 2004, from Feb. 23. Economists say policy makers may also decide to buy more financing bills, or short-term government securities.
As its next steps, the bank may consider adding stocks as eligible collateral and increase monthly government bond purchases from 1.4 trillion yen, economists said. It’s unlikely the central bank will cut the key rate to zero even if the downturn worsens, other economists said.
“The central bank won’t cut the key rate further unless Governor Shirakawa abandons his commitment to protecting the financial market mechanism,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. Shirakawa has said keeping rates too low would make money-market trading unprofitable and discourage investors.
Excess Reserves
The bank’s low-rate policy is already impairing money- market transactions. Foreign banks increased the amount of excess reserves they hold at the central bank by 32 percent in January from February as they seek safer returns amid financial- market turmoil, BOJ data show. The bank pays interest of 0.1 percent on excess reserves, the same level as the key rate.
“However hard the BOJ provides money to the market, it is held by lenders and returned to the BOJ,” said Tokuyoshi Takano, manager of the financial derivatives section at Mitsui Sumitomo Insurance Co. in Tokyo.
The central bank will probably announce its policy decisions and release its assessment of the economy by early afternoon in Tokyo. Shirakawa will speak at a press conference at 3:30 p.m.
Governor Masaaki Shirakawa and his colleagues have said they want to lower companies’ borrowing costs rather than trim the key interest rate, which is already close to zero. Policy makers will probably keep the overnight lending rate at 0.1 percent today, according to 27 of 28 economists surveyed by Bloomberg News.
The world’s second-largest economy shrank at the steepest pace since the 1974 oil shock last quarter as a global slowdown triggered record declines in exports and output. The resignation of Finance Minister Shoichi Nakagawa this week amid lawmakers’ accusations he was drunk at a Group of Seven briefing in Rome is hampering government efforts to implement a stimulus package to spur growth.
“We can’t count on the government and politicians, who are too incompetent to support the economy,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The BOJ will need to come up with more remedies instead.”
Policy makers may say today the central bank will buy as much as 1 trillion yen ($10.8 billion) in corporate bonds with a rating of at least A1, economists surveyed said. They may also extend a commercial paper purchase program, which is due to end on March 31, as well as an unlimited collateral-backed lending facility for banks slated to end in April.
Twice as Fast
Gross domestic product shrank an annualized 12.7 percent last quarter, more than twice as fast as declines in the U.S. and Europe, a report showed on Feb. 16. The same day, Nakagawa came under fire in parliament for dozing off and slurring his speech at a Group of Seven press conference. His subsequent resignation dealt a blow to Prime Minister Taro Aso, who is struggling to get approval for a 10 trillion yen stimulus package because of political gridlock.
The downturn is set to intensify. The economy may suffer a bigger contraction in the current quarter, Kazuo Momma, the central bank’s chief economist, said this month. Economic and Fiscal Policy Minister Kaoru Yosano, who’s taken over Nakagawa’s job, this week said Japan is going through “the worst postwar economic crisis.”
“Even though they have a sense of crisis, the Bank of Japan’s policy actions have been pretty minor so far,” said Yuji Shimanaka, chief economist at Mitsubishi UFJ Research and Consulting in Tokyo. “It should buy government bonds more aggressively and trim the key rate to zero immediately.”
Credit Squeeze
The central bank last month started to buy commercial paper from lenders and pledged to purchase corporate bonds to ease the credit squeeze. The bank will also resume buying stocks owned by lenders, a step it implemented between 2002 and 2004, from Feb. 23. Economists say policy makers may also decide to buy more financing bills, or short-term government securities.
As its next steps, the bank may consider adding stocks as eligible collateral and increase monthly government bond purchases from 1.4 trillion yen, economists said. It’s unlikely the central bank will cut the key rate to zero even if the downturn worsens, other economists said.
“The central bank won’t cut the key rate further unless Governor Shirakawa abandons his commitment to protecting the financial market mechanism,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. Shirakawa has said keeping rates too low would make money-market trading unprofitable and discourage investors.
Excess Reserves
The bank’s low-rate policy is already impairing money- market transactions. Foreign banks increased the amount of excess reserves they hold at the central bank by 32 percent in January from February as they seek safer returns amid financial- market turmoil, BOJ data show. The bank pays interest of 0.1 percent on excess reserves, the same level as the key rate.
“However hard the BOJ provides money to the market, it is held by lenders and returned to the BOJ,” said Tokuyoshi Takano, manager of the financial derivatives section at Mitsui Sumitomo Insurance Co. in Tokyo.
The central bank will probably announce its policy decisions and release its assessment of the economy by early afternoon in Tokyo. Shirakawa will speak at a press conference at 3:30 p.m.
Most Asian Stocks Fall, led by Technology Shares; Iluka Surges
Feb. 19 (Bloomberg) -- Most Asian stocks fell, led by technology companies after Hewlett-Packard Co. cut its profit forecast. Japanese exporters and Australian commodity producers advanced.
Samsung Electronics Co., the world’s largest memory-chip maker, dropped 1.1 percent as Hewlett-Packard’s chief executive officer said the industry won’t improve this year. Honda Motor Co., which gets half its revenue in North America, added 1.3 percent in Tokyo as the yen traded near its weakest this year against the dollar. Iluka Resources Ltd., the world’s biggest zircon producer, jumped 10 percent in Sydney after second-half profit surged almost sevenfold.
Five stocks declined for each that rose on the MSCI Asia Pacific Index, which was little changed at 77.60 as of 11:09 a.m. in Tokyo. The measure dropped 13 percent this year, extending 2008’s record 43 percent tumble, as the credit crisis sent the world’s biggest economies into recession.
“It’s difficult to see where significant demand will come in the next three months,” said Gary Anderson, who helps manage $3 billion of international equities in Kansas City for UMB Financial Corp. “The whole world seems to be slowing down by degrees. My concerns are deepening.”
The Nikkei 225 Stock Average gained 0.5 percent to 7,572.37, while Australia’s S&P/ASX 200 Index added 1.2 percent. Hong Kong’s Hang Seng Index dropped 1.3 percent and South Korea’s Kospi Index lost 1.6 percent.
Fortescue Metals Group Ltd., Australia’s third-biggest iron ore mining company, rose 7.7 percent after the Australian Financial Review reported a Chinese company may buy a stake.
Futures on the U.S. Standard & Poor’s 500 Index added 0.1 percent today. The gauge lost 0.1 percent yesterday as the Federal Reserve cut its growth forecast for the U.S. economy. Policy makers foresee the economic recovery could be delayed and “initially quite weak,” the central bank’s minutes released yesterday said.
Samsung Electronics Co., the world’s largest memory-chip maker, dropped 1.1 percent as Hewlett-Packard’s chief executive officer said the industry won’t improve this year. Honda Motor Co., which gets half its revenue in North America, added 1.3 percent in Tokyo as the yen traded near its weakest this year against the dollar. Iluka Resources Ltd., the world’s biggest zircon producer, jumped 10 percent in Sydney after second-half profit surged almost sevenfold.
Five stocks declined for each that rose on the MSCI Asia Pacific Index, which was little changed at 77.60 as of 11:09 a.m. in Tokyo. The measure dropped 13 percent this year, extending 2008’s record 43 percent tumble, as the credit crisis sent the world’s biggest economies into recession.
“It’s difficult to see where significant demand will come in the next three months,” said Gary Anderson, who helps manage $3 billion of international equities in Kansas City for UMB Financial Corp. “The whole world seems to be slowing down by degrees. My concerns are deepening.”
The Nikkei 225 Stock Average gained 0.5 percent to 7,572.37, while Australia’s S&P/ASX 200 Index added 1.2 percent. Hong Kong’s Hang Seng Index dropped 1.3 percent and South Korea’s Kospi Index lost 1.6 percent.
Fortescue Metals Group Ltd., Australia’s third-biggest iron ore mining company, rose 7.7 percent after the Australian Financial Review reported a Chinese company may buy a stake.
Futures on the U.S. Standard & Poor’s 500 Index added 0.1 percent today. The gauge lost 0.1 percent yesterday as the Federal Reserve cut its growth forecast for the U.S. economy. Policy makers foresee the economic recovery could be delayed and “initially quite weak,” the central bank’s minutes released yesterday said.
Tuesday, February 17, 2009
Axa May Post Second-Half Loss, Cut Dividend on Market Slump
Feb. 18 (Bloomberg) -- Axa SA, Europe’s second-largest insurer, may post a second-half loss and cut its dividend for the first time in seven years as the biggest slump in stock markets since the Great Depression eroded the value of investments.
The Paris-based insurer will probably report a net loss of 1.76 billion euros ($2.25 billion), compared with a 2.49 billion- euro profit a year earlier, according to the median estimate of 13 analysts surveyed by Bloomberg. Axa may lower its 2008 payout to shareholders by half to 60 cents, 11 analysts estimated.
The largest decline in equity markets since the 1930s has cut the value of Axa’s investments and dented demand for life- insurance policies linked to stock. Chief Executive Officer Henri de Castries said in November that the assumptions backing the company’s 2012 profit goals “have dramatically changed.”
“Axa is not immune to the financial crisis,” said Lutz Roehmeyer, who helps manage $14 billion at Landesbank Berlin Investment, including Axa shares. “The most important thing for an insurer today is to preserve capital and increase liquidity.”
Paris-based spokesman Emmanuel Touzeau declined to comment on the estimates for Axa’s earnings or its dividend.
The Dow Jones Stoxx 600 Index sank 46 percent last year for the worst annual performance on record as credit-related losses at financial firms that topped $1 trillion pushed the U.S., Europe and Japan into the first simultaneous recessions since World War II.
Insurer Writedowns
North American insurers have posted about $130 billion in writedowns and unrealized losses tied to the housing slump. Prudential Financial Inc., the second-largest U.S. life insurer, posted a $1.57 billion fourth-quarter loss after investments in subprime securities and stocks declined in value.
Life insurers invest the premiums they receive on behalf of customers in assets including equity, government bonds and corporate debt. Since life insurance contracts run for years, life insurers typically have bigger investment portfolios than other insurers and are more exposed to market movements.
MetLife Inc., the biggest life insurer, sold $2.3 billion in shares in October to boost finances, while Hartford Financial Services Group Inc. cut its dividend and raised $2.5 billion by selling debt and equity to Allianz SE.
Axa publishes profit tomorrow, the first among Europe’s top three insurers to report 2008 earnings.
The company has fallen 30 percent this year in Paris trading, valuing the insurer at 23.2 billion euros. Allianz, Europe’s largest insurer, has dropped 21 percent, while Italy’s Assicurazioni Generali SpA, the continent’s third biggest, has declined 29 percent.
‘Small Buffer’
Axa’s solvency ratio, a measure of its ability to absorb losses, will probably fall to 131 percent from 135 percent on Oct. 31, according to the median of eight estimates.
“Solvency has priority over dividends at Axa, so we expect it to opt to maintain a small buffer by reducing” the payout, Emmanuelle Cales, an analyst at Societe Generale SA, wrote in a note to investors. “This is exactly what Axa did in 2001-02.”
The insurer can absorb further shocks and has “absolutely” no need to raise funds, de Castries, 54, said on Nov. 25. The company is under no pressure from the government or regulators to increase capital, Chief Financial Officer Denis Duverne said that same day at an investors meeting.
Axa’s solvency ratio fell to 135 percent by Oct. 31 from 148 percent at the end of June, partly because of acquisitions in Mexico and Turkey.
AIG Assets
“Axa has got little leeway for solvency,” said Benoit de Broissia, an equity analyst at KBL Richelieu in Paris that oversees $5.1 billion including Axa shares. “The environment is such that maybe Axa will have to make a capital increase,” especially if it plans an acquisition such as buying parts of American International Group Inc., the U.S. insurer rescued by the government, he said.
AIG is auctioning off its global life-insurance operations to help repay parts of a $150 billion U.S. government bailout. AIG said in October it would sell life operations in countries including the U.S., Japan, and the U.K. and a minority stake in a unit that sells life policies in China and other Asian nations.
Property, Casualty
De Castries said in October that the French insurer was interested in AIG’s assets in the U.S. and Asia. The company hasn’t made comments on AIG since then. Axa’s Touzeau declined to comment on any acquisition plans.
The company’s 2008 net income probably fell to 400 million euros from 5.67 billion euros, according to analysts’ estimates. Operating income, excluding one-time items and acquisition- related costs, probably declined 24 percent to 3.79 billion euros.
In the second half, Axa’s operating earnings from life and savings, the insurer’s biggest business, probably shrank to 53 million euros from 1.18 billion euros a year earlier, according to the estimates. Property and casualty’s profit probably rose 5.6 percent to 950 million euros, while asset-management earnings probably fell 47 percent to 161 million euros.
Bloomberg calculated 2007 second-half earnings by subtracting Axa’s first-half figures from annual data. Axa declined to confirm the figures.
The Paris-based insurer will probably report a net loss of 1.76 billion euros ($2.25 billion), compared with a 2.49 billion- euro profit a year earlier, according to the median estimate of 13 analysts surveyed by Bloomberg. Axa may lower its 2008 payout to shareholders by half to 60 cents, 11 analysts estimated.
The largest decline in equity markets since the 1930s has cut the value of Axa’s investments and dented demand for life- insurance policies linked to stock. Chief Executive Officer Henri de Castries said in November that the assumptions backing the company’s 2012 profit goals “have dramatically changed.”
“Axa is not immune to the financial crisis,” said Lutz Roehmeyer, who helps manage $14 billion at Landesbank Berlin Investment, including Axa shares. “The most important thing for an insurer today is to preserve capital and increase liquidity.”
Paris-based spokesman Emmanuel Touzeau declined to comment on the estimates for Axa’s earnings or its dividend.
The Dow Jones Stoxx 600 Index sank 46 percent last year for the worst annual performance on record as credit-related losses at financial firms that topped $1 trillion pushed the U.S., Europe and Japan into the first simultaneous recessions since World War II.
Insurer Writedowns
North American insurers have posted about $130 billion in writedowns and unrealized losses tied to the housing slump. Prudential Financial Inc., the second-largest U.S. life insurer, posted a $1.57 billion fourth-quarter loss after investments in subprime securities and stocks declined in value.
Life insurers invest the premiums they receive on behalf of customers in assets including equity, government bonds and corporate debt. Since life insurance contracts run for years, life insurers typically have bigger investment portfolios than other insurers and are more exposed to market movements.
MetLife Inc., the biggest life insurer, sold $2.3 billion in shares in October to boost finances, while Hartford Financial Services Group Inc. cut its dividend and raised $2.5 billion by selling debt and equity to Allianz SE.
Axa publishes profit tomorrow, the first among Europe’s top three insurers to report 2008 earnings.
The company has fallen 30 percent this year in Paris trading, valuing the insurer at 23.2 billion euros. Allianz, Europe’s largest insurer, has dropped 21 percent, while Italy’s Assicurazioni Generali SpA, the continent’s third biggest, has declined 29 percent.
‘Small Buffer’
Axa’s solvency ratio, a measure of its ability to absorb losses, will probably fall to 131 percent from 135 percent on Oct. 31, according to the median of eight estimates.
“Solvency has priority over dividends at Axa, so we expect it to opt to maintain a small buffer by reducing” the payout, Emmanuelle Cales, an analyst at Societe Generale SA, wrote in a note to investors. “This is exactly what Axa did in 2001-02.”
The insurer can absorb further shocks and has “absolutely” no need to raise funds, de Castries, 54, said on Nov. 25. The company is under no pressure from the government or regulators to increase capital, Chief Financial Officer Denis Duverne said that same day at an investors meeting.
Axa’s solvency ratio fell to 135 percent by Oct. 31 from 148 percent at the end of June, partly because of acquisitions in Mexico and Turkey.
AIG Assets
“Axa has got little leeway for solvency,” said Benoit de Broissia, an equity analyst at KBL Richelieu in Paris that oversees $5.1 billion including Axa shares. “The environment is such that maybe Axa will have to make a capital increase,” especially if it plans an acquisition such as buying parts of American International Group Inc., the U.S. insurer rescued by the government, he said.
AIG is auctioning off its global life-insurance operations to help repay parts of a $150 billion U.S. government bailout. AIG said in October it would sell life operations in countries including the U.S., Japan, and the U.K. and a minority stake in a unit that sells life policies in China and other Asian nations.
Property, Casualty
De Castries said in October that the French insurer was interested in AIG’s assets in the U.S. and Asia. The company hasn’t made comments on AIG since then. Axa’s Touzeau declined to comment on any acquisition plans.
The company’s 2008 net income probably fell to 400 million euros from 5.67 billion euros, according to analysts’ estimates. Operating income, excluding one-time items and acquisition- related costs, probably declined 24 percent to 3.79 billion euros.
In the second half, Axa’s operating earnings from life and savings, the insurer’s biggest business, probably shrank to 53 million euros from 1.18 billion euros a year earlier, according to the estimates. Property and casualty’s profit probably rose 5.6 percent to 950 million euros, while asset-management earnings probably fell 47 percent to 161 million euros.
Bloomberg calculated 2007 second-half earnings by subtracting Axa’s first-half figures from annual data. Axa declined to confirm the figures.
Korea Banks’ Foreign Debt Burden Has Fallen, Ahn Says
Feb. 18 (Bloomberg) -- South Korean banks’ demand for dollars is decreasing as foreign-currency debt maturing every month this year is at least 50 percent lower than in the fourth quarter, a central bank official said.
Monthly foreign debt payments due have dropped to about $4 billion, from between $8 billion and $9 billion in the final three months of 2008, Ahn Byung Chan, director general of the Bank of Korea’s international bureau, said in an interview from Seoul yesterday. Concerns that Korean banks are facing a shortage of funds deepened after Woori Bank’s failure to meet an early repayment of 2014 debt roiled investors.
“Our banks are not having trouble getting foreign funding now,” Ahn said. “They are facing less need for foreign borrowing compared with the final quarter of last year.”
South Korea’s won has slumped 34 percent against the dollar in the past year, the worst-performing of the world’s 16 most- active currencies, on concern banks will run short of the greenback as exports slump and global funds dump emerging-market assets. South Korea has as much as $160 billion of external debt maturing over the next two years, compared with foreign-exchange reserves that shrank 23 percent in the past year to $200 billion, according to UBS AG, the world’s second-largest currency trader.
“They are left with no choice but to maintain a strong front,” said Nizam Idris, a currency strategist with UBS in Singapore. “The relative shortage of dollar liquidity domestically has remained strong, although not yet as bad as it was in November.”
Won Decline
The won weakened 0.5 percent to 1,462.60 per dollar as of 11:31 a.m. in Seoul, extending this year’s loss to 14 percent. The one-year cross-currency swap rate, a gauge of availability of dollars, slid to a record minus 1.7 percent yesterday, indicating Korean banks need to pay extra interest on top of floating rates to borrow dollars. It was at minus 1.6 percent today. In such swaps, two parties agree to exchange payments in one currency for payments in another.
“The shortage of dollars has become more acute in South Korea as evident in the cost for banks to swap won for dollars,” Marc Chandler, global head of currency strategy at Brown Brothers in New York, wrote in a note today. “The dollar has near term scope towards 1,500.”
The slump in the Korean won was compounded by concerns that a prolonged global recession may “hurt the export-driven Korean economy,” starving banks of foreign exchange, Ahn said. He forecast the nation will post a trade surplus of as much as $2 billion this month after a shortfall of $3.3 billion in January.
March Crisis?
Speculation the country is headed for a “March crisis” when Japanese financial institutions close their books is groundless, Ahn said. Banks in Korea, including local branches of foreign financial institutions, have about $6 billion of yen debt due to be paid by March, he said. Their total yen denominated debt stands at $25 billion.
Nomura Holdings Inc. cut its forecast for South Korea’s gross domestic product for the second time in a month, predicting the economy will shrink 6 percent in 2009, a deeper contraction than the 2 percent decline forecast in January.
The government is close to setting limits for how much individual banks can draw from a 20 trillion won ($14 billion) state-backed recapitalization fund, Shin Dong Kyu, chairman of the Korea Federation of Banks, said in an interview yesterday.
Getting money from the fund may help Korean banks avoid skipping options to redeem their subordinated debt, Shin said. A decision by Woori Bank, the nation’s second-biggest lender, not to redeem $400 million of callable debt drove up the cost for Korean lenders to borrow dollars in the swap market.
The Bank of Korea will provide 10 trillion won for the recapitalization fund and state-owned Korea Development Bank will put in 2 trillion won. The remainder will come from private investors. The fund will be used for buying banks’ preferred shares and subordinated debt.
Shin, 57, dismissed concerns that Korean banks may struggle to repay overseas debt, saying foreign-exchange reserves will allow the country to help them meet obligations if necessary.
Monthly foreign debt payments due have dropped to about $4 billion, from between $8 billion and $9 billion in the final three months of 2008, Ahn Byung Chan, director general of the Bank of Korea’s international bureau, said in an interview from Seoul yesterday. Concerns that Korean banks are facing a shortage of funds deepened after Woori Bank’s failure to meet an early repayment of 2014 debt roiled investors.
“Our banks are not having trouble getting foreign funding now,” Ahn said. “They are facing less need for foreign borrowing compared with the final quarter of last year.”
South Korea’s won has slumped 34 percent against the dollar in the past year, the worst-performing of the world’s 16 most- active currencies, on concern banks will run short of the greenback as exports slump and global funds dump emerging-market assets. South Korea has as much as $160 billion of external debt maturing over the next two years, compared with foreign-exchange reserves that shrank 23 percent in the past year to $200 billion, according to UBS AG, the world’s second-largest currency trader.
“They are left with no choice but to maintain a strong front,” said Nizam Idris, a currency strategist with UBS in Singapore. “The relative shortage of dollar liquidity domestically has remained strong, although not yet as bad as it was in November.”
Won Decline
The won weakened 0.5 percent to 1,462.60 per dollar as of 11:31 a.m. in Seoul, extending this year’s loss to 14 percent. The one-year cross-currency swap rate, a gauge of availability of dollars, slid to a record minus 1.7 percent yesterday, indicating Korean banks need to pay extra interest on top of floating rates to borrow dollars. It was at minus 1.6 percent today. In such swaps, two parties agree to exchange payments in one currency for payments in another.
“The shortage of dollars has become more acute in South Korea as evident in the cost for banks to swap won for dollars,” Marc Chandler, global head of currency strategy at Brown Brothers in New York, wrote in a note today. “The dollar has near term scope towards 1,500.”
The slump in the Korean won was compounded by concerns that a prolonged global recession may “hurt the export-driven Korean economy,” starving banks of foreign exchange, Ahn said. He forecast the nation will post a trade surplus of as much as $2 billion this month after a shortfall of $3.3 billion in January.
March Crisis?
Speculation the country is headed for a “March crisis” when Japanese financial institutions close their books is groundless, Ahn said. Banks in Korea, including local branches of foreign financial institutions, have about $6 billion of yen debt due to be paid by March, he said. Their total yen denominated debt stands at $25 billion.
Nomura Holdings Inc. cut its forecast for South Korea’s gross domestic product for the second time in a month, predicting the economy will shrink 6 percent in 2009, a deeper contraction than the 2 percent decline forecast in January.
The government is close to setting limits for how much individual banks can draw from a 20 trillion won ($14 billion) state-backed recapitalization fund, Shin Dong Kyu, chairman of the Korea Federation of Banks, said in an interview yesterday.
Getting money from the fund may help Korean banks avoid skipping options to redeem their subordinated debt, Shin said. A decision by Woori Bank, the nation’s second-biggest lender, not to redeem $400 million of callable debt drove up the cost for Korean lenders to borrow dollars in the swap market.
The Bank of Korea will provide 10 trillion won for the recapitalization fund and state-owned Korea Development Bank will put in 2 trillion won. The remainder will come from private investors. The fund will be used for buying banks’ preferred shares and subordinated debt.
Shin, 57, dismissed concerns that Korean banks may struggle to repay overseas debt, saying foreign-exchange reserves will allow the country to help them meet obligations if necessary.
Korea Banks’ Foreign Debt Burden Has Fallen, Ahn Says
Feb. 18 (Bloomberg) -- South Korean banks’ demand for dollars is decreasing as foreign-currency debt maturing every month this year is at least 50 percent lower than in the fourth quarter, a central bank official said.
Monthly foreign debt payments due have dropped to about $4 billion, from between $8 billion and $9 billion in the final three months of 2008, Ahn Byung Chan, director general of the Bank of Korea’s international bureau, said in an interview from Seoul yesterday. Concerns that Korean banks are facing a shortage of funds deepened after Woori Bank’s failure to meet an early repayment of 2014 debt roiled investors.
“Our banks are not having trouble getting foreign funding now,” Ahn said. “They are facing less need for foreign borrowing compared with the final quarter of last year.”
South Korea’s won has slumped 34 percent against the dollar in the past year, the worst-performing of the world’s 16 most- active currencies, on concern banks will run short of the greenback as exports slump and global funds dump emerging-market assets. South Korea has as much as $160 billion of external debt maturing over the next two years, compared with foreign-exchange reserves that shrank 23 percent in the past year to $200 billion, according to UBS AG, the world’s second-largest currency trader.
“They are left with no choice but to maintain a strong front,” said Nizam Idris, a currency strategist with UBS in Singapore. “The relative shortage of dollar liquidity domestically has remained strong, although not yet as bad as it was in November.”
Won Decline
The won weakened 0.5 percent to 1,462.60 per dollar as of 11:31 a.m. in Seoul, extending this year’s loss to 14 percent. The one-year cross-currency swap rate, a gauge of availability of dollars, slid to a record minus 1.7 percent yesterday, indicating Korean banks need to pay extra interest on top of floating rates to borrow dollars. It was at minus 1.6 percent today. In such swaps, two parties agree to exchange payments in one currency for payments in another.
“The shortage of dollars has become more acute in South Korea as evident in the cost for banks to swap won for dollars,” Marc Chandler, global head of currency strategy at Brown Brothers in New York, wrote in a note today. “The dollar has near term scope towards 1,500.”
The slump in the Korean won was compounded by concerns that a prolonged global recession may “hurt the export-driven Korean economy,” starving banks of foreign exchange, Ahn said. He forecast the nation will post a trade surplus of as much as $2 billion this month after a shortfall of $3.3 billion in January.
March Crisis?
Speculation the country is headed for a “March crisis” when Japanese financial institutions close their books is groundless, Ahn said. Banks in Korea, including local branches of foreign financial institutions, have about $6 billion of yen debt due to be paid by March, he said. Their total yen denominated debt stands at $25 billion.
Nomura Holdings Inc. cut its forecast for South Korea’s gross domestic product for the second time in a month, predicting the economy will shrink 6 percent in 2009, a deeper contraction than the 2 percent decline forecast in January.
The government is close to setting limits for how much individual banks can draw from a 20 trillion won ($14 billion) state-backed recapitalization fund, Shin Dong Kyu, chairman of the Korea Federation of Banks, said in an interview yesterday.
Getting money from the fund may help Korean banks avoid skipping options to redeem their subordinated debt, Shin said. A decision by Woori Bank, the nation’s second-biggest lender, not to redeem $400 million of callable debt drove up the cost for Korean lenders to borrow dollars in the swap market.
The Bank of Korea will provide 10 trillion won for the recapitalization fund and state-owned Korea Development Bank will put in 2 trillion won. The remainder will come from private investors. The fund will be used for buying banks’ preferred shares and subordinated debt.
Shin, 57, dismissed concerns that Korean banks may struggle to repay overseas debt, saying foreign-exchange reserves will allow the country to help them meet obligations if necessary.
Monthly foreign debt payments due have dropped to about $4 billion, from between $8 billion and $9 billion in the final three months of 2008, Ahn Byung Chan, director general of the Bank of Korea’s international bureau, said in an interview from Seoul yesterday. Concerns that Korean banks are facing a shortage of funds deepened after Woori Bank’s failure to meet an early repayment of 2014 debt roiled investors.
“Our banks are not having trouble getting foreign funding now,” Ahn said. “They are facing less need for foreign borrowing compared with the final quarter of last year.”
South Korea’s won has slumped 34 percent against the dollar in the past year, the worst-performing of the world’s 16 most- active currencies, on concern banks will run short of the greenback as exports slump and global funds dump emerging-market assets. South Korea has as much as $160 billion of external debt maturing over the next two years, compared with foreign-exchange reserves that shrank 23 percent in the past year to $200 billion, according to UBS AG, the world’s second-largest currency trader.
“They are left with no choice but to maintain a strong front,” said Nizam Idris, a currency strategist with UBS in Singapore. “The relative shortage of dollar liquidity domestically has remained strong, although not yet as bad as it was in November.”
Won Decline
The won weakened 0.5 percent to 1,462.60 per dollar as of 11:31 a.m. in Seoul, extending this year’s loss to 14 percent. The one-year cross-currency swap rate, a gauge of availability of dollars, slid to a record minus 1.7 percent yesterday, indicating Korean banks need to pay extra interest on top of floating rates to borrow dollars. It was at minus 1.6 percent today. In such swaps, two parties agree to exchange payments in one currency for payments in another.
“The shortage of dollars has become more acute in South Korea as evident in the cost for banks to swap won for dollars,” Marc Chandler, global head of currency strategy at Brown Brothers in New York, wrote in a note today. “The dollar has near term scope towards 1,500.”
The slump in the Korean won was compounded by concerns that a prolonged global recession may “hurt the export-driven Korean economy,” starving banks of foreign exchange, Ahn said. He forecast the nation will post a trade surplus of as much as $2 billion this month after a shortfall of $3.3 billion in January.
March Crisis?
Speculation the country is headed for a “March crisis” when Japanese financial institutions close their books is groundless, Ahn said. Banks in Korea, including local branches of foreign financial institutions, have about $6 billion of yen debt due to be paid by March, he said. Their total yen denominated debt stands at $25 billion.
Nomura Holdings Inc. cut its forecast for South Korea’s gross domestic product for the second time in a month, predicting the economy will shrink 6 percent in 2009, a deeper contraction than the 2 percent decline forecast in January.
The government is close to setting limits for how much individual banks can draw from a 20 trillion won ($14 billion) state-backed recapitalization fund, Shin Dong Kyu, chairman of the Korea Federation of Banks, said in an interview yesterday.
Getting money from the fund may help Korean banks avoid skipping options to redeem their subordinated debt, Shin said. A decision by Woori Bank, the nation’s second-biggest lender, not to redeem $400 million of callable debt drove up the cost for Korean lenders to borrow dollars in the swap market.
The Bank of Korea will provide 10 trillion won for the recapitalization fund and state-owned Korea Development Bank will put in 2 trillion won. The remainder will come from private investors. The fund will be used for buying banks’ preferred shares and subordinated debt.
Shin, 57, dismissed concerns that Korean banks may struggle to repay overseas debt, saying foreign-exchange reserves will allow the country to help them meet obligations if necessary.
Asian Stocks Decline for Third Day as Global Recession Deepens
Feb. 18 (Bloomberg) -- Asian stocks dropped for a third day, dragging Japan’s Topix index toward the lowest close in 25 years, as the deepening global recession hurts demand for commodities and corporate earnings.
Westpac Banking Corp., Australia’s biggest lender by market value, slipped 2.6 percent as a fivefold surge in bad-debt charges dragged quarterly profit lower. BHP Billiton Ltd. retreated 4.3 percent in Sydney after metal and oil prices declined. Sony Corp., which gets a quarter of its sales from the U.S., fell 3.1 percent after manufacturing in New York shrank at the fastest pace on record.
“I’d be very surprised if profit numbers didn’t keep on coming down,” said San Francisco-based Robert Horrocks, who helps manage about $4.7 billion including Asian equities at Matthews International Capital Management LLC. “You’re seeing the ripples from the credit shock, where the medium-term effect on demand is a chronic problem that governments are trying to combat.”
The MSCI Asia Pacific Index declined 0.9 percent to 78 as of 9:53 a.m. in Tokyo, set to close at the lowest level since Nov. 24. Finance and commodity shares were the biggest drag on the gauge, which has lost 13 percent this year. The measure tumbled by a record 43 percent in 2008, as the credit crisis dragged the world’s biggest economies into recession.
Japan’s Topix lost 1 percent to 749.04 and earlier sank to as low as 744.37, which would be the lowest close since January 1984. Hong Kong’s Hang Seng Index dropped 1.3 percent, while Australia’s S&P/ASX 200 Index fell 2.6 percent.
Government Action
Futures on the Standard & Poor’s 500 Index rose 0.3 percent today. The gauge slumped 4.6 percent yesterday as U.S. President Barack Obama signed a $787 billion stimulus bill into law. After U.S. markets closed, General Motors Corp. said it needs as much as $16.6 billion in new U.S. loans, more than doubling the aid to date it needs to survive.
Governments and central banks have been cutting interest rates and introducing spending packages to reverse the worst global slump since World War II. International Monetary Fund Managing Director Dominique Strauss-Kahn said last week that he expects more countries to apply to the IMF for aid.
The Japanese government, which yesterday appointed Kaoru Yosano as its new finance minister, said two days ago that gross domestic product contracted 12.7 percent in the fourth quarter, the most since the 1974 oil shock. The Federal Reserve Bank of New York’s general economic index sank to the lowest level since records began in 2001, according to a report yesterday.
A gauge of finance companies on the MSCI index dropped 1.4 percent. The finance measure is the second-worst performer in the past 12 months of 10 industry groups as the credit crisis caused losses at institutions worldwide to swell to more than $1 trillion.
‘Volatile’ Conditions
Westpac Banking Corp. declined 2.6 percent to A$16.34 after profit fell 2 percent in the three months to Dec. 31 as bad debts outweighed increased fee income from last year’s purchase of St. George Bank Ltd.
“With global economic conditions continuing to be volatile, operating conditions will remain difficult,” Chief Executive Officer Gail Kelly, said in a statement.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, fell 2 percent to 442 yen. Sony Financial Holdings, which cut its profit forecast last week, lost 6.7 percent to 256,000 yen.
The Markit iTraxx Japan index of credit-default swaps, which measures the cost of protecting investors in Japanese corporate bonds from default, rose to a record today, Barclays Capital prices show.
BHP fell 4.3 percent to A$30.36 in Sydney. Rio Tinto Group, the world’s third-largest mining company, dropped 2.4 percent to A$47.86.
Slowing Global Demand
Concern the global economic slump will deepen drove down commodity prices. Crude oil tumbled 6.9 percent to settle at $34.93 a barrel in New York, the steepest drop since Jan. 27. Copper futures slumped 7.2 percent, the most since Oct. 30.
Sony lost 3.1 percent to 1,608 yen on concern global demand for its televisions and video-game consoles will slow further. The company reported a 95 percent plunge in third-quarter profit on Jan. 29. Canon Inc., the world’s biggest digital-camera maker, slid 2.3 percent to 2,310 yen.
“There are looming prospects that corporate earnings will deteriorate even further,” Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television. “We’re getting ever closer to historic lows, and that weighs on investor sentiment as well.”
Westpac Banking Corp., Australia’s biggest lender by market value, slipped 2.6 percent as a fivefold surge in bad-debt charges dragged quarterly profit lower. BHP Billiton Ltd. retreated 4.3 percent in Sydney after metal and oil prices declined. Sony Corp., which gets a quarter of its sales from the U.S., fell 3.1 percent after manufacturing in New York shrank at the fastest pace on record.
“I’d be very surprised if profit numbers didn’t keep on coming down,” said San Francisco-based Robert Horrocks, who helps manage about $4.7 billion including Asian equities at Matthews International Capital Management LLC. “You’re seeing the ripples from the credit shock, where the medium-term effect on demand is a chronic problem that governments are trying to combat.”
The MSCI Asia Pacific Index declined 0.9 percent to 78 as of 9:53 a.m. in Tokyo, set to close at the lowest level since Nov. 24. Finance and commodity shares were the biggest drag on the gauge, which has lost 13 percent this year. The measure tumbled by a record 43 percent in 2008, as the credit crisis dragged the world’s biggest economies into recession.
Japan’s Topix lost 1 percent to 749.04 and earlier sank to as low as 744.37, which would be the lowest close since January 1984. Hong Kong’s Hang Seng Index dropped 1.3 percent, while Australia’s S&P/ASX 200 Index fell 2.6 percent.
Government Action
Futures on the Standard & Poor’s 500 Index rose 0.3 percent today. The gauge slumped 4.6 percent yesterday as U.S. President Barack Obama signed a $787 billion stimulus bill into law. After U.S. markets closed, General Motors Corp. said it needs as much as $16.6 billion in new U.S. loans, more than doubling the aid to date it needs to survive.
Governments and central banks have been cutting interest rates and introducing spending packages to reverse the worst global slump since World War II. International Monetary Fund Managing Director Dominique Strauss-Kahn said last week that he expects more countries to apply to the IMF for aid.
The Japanese government, which yesterday appointed Kaoru Yosano as its new finance minister, said two days ago that gross domestic product contracted 12.7 percent in the fourth quarter, the most since the 1974 oil shock. The Federal Reserve Bank of New York’s general economic index sank to the lowest level since records began in 2001, according to a report yesterday.
A gauge of finance companies on the MSCI index dropped 1.4 percent. The finance measure is the second-worst performer in the past 12 months of 10 industry groups as the credit crisis caused losses at institutions worldwide to swell to more than $1 trillion.
‘Volatile’ Conditions
Westpac Banking Corp. declined 2.6 percent to A$16.34 after profit fell 2 percent in the three months to Dec. 31 as bad debts outweighed increased fee income from last year’s purchase of St. George Bank Ltd.
“With global economic conditions continuing to be volatile, operating conditions will remain difficult,” Chief Executive Officer Gail Kelly, said in a statement.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, fell 2 percent to 442 yen. Sony Financial Holdings, which cut its profit forecast last week, lost 6.7 percent to 256,000 yen.
The Markit iTraxx Japan index of credit-default swaps, which measures the cost of protecting investors in Japanese corporate bonds from default, rose to a record today, Barclays Capital prices show.
BHP fell 4.3 percent to A$30.36 in Sydney. Rio Tinto Group, the world’s third-largest mining company, dropped 2.4 percent to A$47.86.
Slowing Global Demand
Concern the global economic slump will deepen drove down commodity prices. Crude oil tumbled 6.9 percent to settle at $34.93 a barrel in New York, the steepest drop since Jan. 27. Copper futures slumped 7.2 percent, the most since Oct. 30.
Sony lost 3.1 percent to 1,608 yen on concern global demand for its televisions and video-game consoles will slow further. The company reported a 95 percent plunge in third-quarter profit on Jan. 29. Canon Inc., the world’s biggest digital-camera maker, slid 2.3 percent to 2,310 yen.
“There are looming prospects that corporate earnings will deteriorate even further,” Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television. “We’re getting ever closer to historic lows, and that weighs on investor sentiment as well.”
Monday, February 16, 2009
Mideast wealth funds fret over US Treasuries
Sovereign wealth funds in the Middle East are growing increasingly concerned about the health of the US Treasury market, raising questions about whether they will remain such active buyers of US government debt.
Middle Eastern buyers are the fifth-largest investors in Treasuries after China, Japan, the UK and Caribbean banking centres, and their appetite could prove critical to US government plans to issue mountains of debt to fund stimulus efforts.
EDITOR’S CHOICE
Sovereign wealth funds set to revive investing - Feb-16
Goodyear to head Temasek - Feb-06
China overseas deals set for strong rebound - Dec-16
Edhec points the way for SWFs - Dec-14
Sovereign funds cool on rescue finance - Nov-09
In depth: Global financial crisis - Dec-21
So far there is little sign of a flight from the dollar or from Treasuries, but senior executives at several sovereign funds in the region say the US Treasury has been conducting a dialogue to reassure Middle Eastern investors that US government debt still offers value.
Treasury prices soared – and Treasury yields declined – last year as investors sought the safety of government debt. Yields have started rising this year, and Middle East investors remain concerned that they will continue to do so, reducing the value of holdings and removing the incentive to buy more.
Current Treasury yields were an expression of “the psychology of fear”, said the head of one sovereign fund in the Middle East. “It is the financial equivalent of a 10-alarm fire outside one’s home.”
Adding to the skittishness of Middle East investors is the fear that the dollar will also decline, further depressing the value of US debt holdings. Since oil is priced in dollars, these investors are inclined to invest in dollar-denominated assets.
“If there is a further meltdown in the financial system, it could have an impact on the dollar,” says one Gulf central bank governor. “A run on the dollar would be the worst-case scenario.”
Deutsche Bank estimates that Treasury issuance will rise sharply as a result of the stimulus efforts – “with at least $2,000bn [€1,538bn, £1,388bn] in net marketable borrowing likely to occur this year and potentially that much again next year”.
Middle Eastern investors will also face competing claims at home, and will probably have to scale back Treasury purchases, at least at the margin, as they allocate funds to help revive their domestic economies.
“There are supply issues, valuation issues and demand issues with existing holders,” says Mohamed El-Erian, chief executive at Pimco, the US-based bond investor.
“Where you go from here is a big dilemma.
Middle Eastern buyers are the fifth-largest investors in Treasuries after China, Japan, the UK and Caribbean banking centres, and their appetite could prove critical to US government plans to issue mountains of debt to fund stimulus efforts.
EDITOR’S CHOICE
Sovereign wealth funds set to revive investing - Feb-16
Goodyear to head Temasek - Feb-06
China overseas deals set for strong rebound - Dec-16
Edhec points the way for SWFs - Dec-14
Sovereign funds cool on rescue finance - Nov-09
In depth: Global financial crisis - Dec-21
So far there is little sign of a flight from the dollar or from Treasuries, but senior executives at several sovereign funds in the region say the US Treasury has been conducting a dialogue to reassure Middle Eastern investors that US government debt still offers value.
Treasury prices soared – and Treasury yields declined – last year as investors sought the safety of government debt. Yields have started rising this year, and Middle East investors remain concerned that they will continue to do so, reducing the value of holdings and removing the incentive to buy more.
Current Treasury yields were an expression of “the psychology of fear”, said the head of one sovereign fund in the Middle East. “It is the financial equivalent of a 10-alarm fire outside one’s home.”
Adding to the skittishness of Middle East investors is the fear that the dollar will also decline, further depressing the value of US debt holdings. Since oil is priced in dollars, these investors are inclined to invest in dollar-denominated assets.
“If there is a further meltdown in the financial system, it could have an impact on the dollar,” says one Gulf central bank governor. “A run on the dollar would be the worst-case scenario.”
Deutsche Bank estimates that Treasury issuance will rise sharply as a result of the stimulus efforts – “with at least $2,000bn [€1,538bn, £1,388bn] in net marketable borrowing likely to occur this year and potentially that much again next year”.
Middle Eastern investors will also face competing claims at home, and will probably have to scale back Treasury purchases, at least at the margin, as they allocate funds to help revive their domestic economies.
“There are supply issues, valuation issues and demand issues with existing holders,” says Mohamed El-Erian, chief executive at Pimco, the US-based bond investor.
“Where you go from here is a big dilemma.
BG Lifts Bid for Pure to A$995 Million, Topping Arrow
Feb. 17 (Bloomberg) -- BG Group Plc raised its hostile offer for Pure Energy Resources Ltd. to A$995 million ($646 million), topping a bid by Arrow Energy Ltd., as it seeks to add coal-seam gas reserves for an Australian export venture.
BG, the U.K.’s third-biggest gas producer, boosted its cash offer by 25 percent to A$8 a share, the company said today in a statement. That’s 11 percent higher than the cash and stock bid from Arrow, based on yesterday’s closing prices, and 7 percent more than Brisbane-based Pure’s close yesterday of A$7.48.
Arrow and BG are among companies building up gas reserves in northeastern Australia to feed planned liquefied natural gas projects that would tap a forecast shortfall in supply. Australia’s coal-seam gas industry attracted more than A$17 billion in investment last year as producers such as ConocoPhillips and Malaysia’s Petroliam Nasional Bhd. bought into ventures that may meet Asian demand for cleaner fuel.
BG’s latest bid “still looks as though it’s within the range of previous acquisitions, so it’s not overspending,” said Andrew Williams, an energy analyst at Credit Suisse Group in Melbourne. “It’s conjecture whether Arrow can come back or not with a higher offer.”
Pure Energy gained as much as 90 cents, or 12 percent, to A$8.38 on the Australian stock exchange, rising beyond BG’s increased offer. Arrow advanced as much as 6.3 percent to A$2.85.
Reading, England-based BG is being advised by Gresham Advisory Partners, while Goldman Sachs JBWere Pty is advising Pure and Wilson HTM Corporate Finance is advising Arrow.
‘Competitively Priced’
Nick Davies, managing director of Brisbane-based Arrow, said earlier today he believed Pure’s assets were “still competitively priced” at Arrow’s latest bid, worth A$7.21 a share at yesterday’s close.
“Of course that value equation will change at some level of bid,” he said in the document. Davies couldn’t be immediately reached for comment today.
Pure is exploring for coal-seam gas, which mostly comprises methane on the surface of coal. BG, Arrow’s coal-seam gas partner Royal Dutch Shell Plc, Petronas and ConocoPhillips are among the companies in five rival ventures planning to convert coal-seam gas into LNG for export to Asia, the biggest market for the fuel.
Coal-seam gas, which can be extracted when pressure on the coal seam is reduced, usually by removing water, hasn’t previously been used as a fuel for LNG export projects. BG’s latest bid is more than double the price Pure was trading at before Arrow made its initial A$5.40-a-share bid in December.
‘Frustrating’ Bid
BG probably needs Pure Energy more than Arrow does, Credit Suisse’s Williams said today in a report.
“We see BG with a stronger imperative for success in the Pure Energy bidding situation and certainly with more cash resources to be successful,” he said.
In terms of reserves, BG is bidding 40 Australian cents a gigajoule for Pure, still less than the 72 cents a gigajoule it paid for Queensland Gas Co. in October. BG’s A$5.2 billion purchase of the rest of Queensland Gas, its partner in its Australian LNG venture, followed a failed A$13.5 billion offer earlier in the year for Origin Energy Ltd., Australia’s biggest producer of gas from coal seams, which attracted an A$8 billion investment from ConocoPhillips.
BG’s bid for Pure may be designed “to frustrate Arrow Energy’s plans for LNG” at a rival LNG project Arrow plans with Liquefied Natural Gas Ltd. at Fisherman’s Landing near Gladstone, Citigroup Inc said in a Feb. 12 report.
Australia’s Foreign Investment Review Board has advised it has no objections to the bid from BG, which today said its offer is unconditional.
Arrow’s bid, of A$3 in cash and 1.57 shares for each Pure share, is also unconditional. Arrow is Pure’s biggest shareholder, with a stake of 19.9 percent. Shell owns about 11.2 percent and BG owns 9.7 percent.
LNG is natural gas chilled to liquid form for transport by tanker to destinations not connected by pipeline.
BG, the U.K.’s third-biggest gas producer, boosted its cash offer by 25 percent to A$8 a share, the company said today in a statement. That’s 11 percent higher than the cash and stock bid from Arrow, based on yesterday’s closing prices, and 7 percent more than Brisbane-based Pure’s close yesterday of A$7.48.
Arrow and BG are among companies building up gas reserves in northeastern Australia to feed planned liquefied natural gas projects that would tap a forecast shortfall in supply. Australia’s coal-seam gas industry attracted more than A$17 billion in investment last year as producers such as ConocoPhillips and Malaysia’s Petroliam Nasional Bhd. bought into ventures that may meet Asian demand for cleaner fuel.
BG’s latest bid “still looks as though it’s within the range of previous acquisitions, so it’s not overspending,” said Andrew Williams, an energy analyst at Credit Suisse Group in Melbourne. “It’s conjecture whether Arrow can come back or not with a higher offer.”
Pure Energy gained as much as 90 cents, or 12 percent, to A$8.38 on the Australian stock exchange, rising beyond BG’s increased offer. Arrow advanced as much as 6.3 percent to A$2.85.
Reading, England-based BG is being advised by Gresham Advisory Partners, while Goldman Sachs JBWere Pty is advising Pure and Wilson HTM Corporate Finance is advising Arrow.
‘Competitively Priced’
Nick Davies, managing director of Brisbane-based Arrow, said earlier today he believed Pure’s assets were “still competitively priced” at Arrow’s latest bid, worth A$7.21 a share at yesterday’s close.
“Of course that value equation will change at some level of bid,” he said in the document. Davies couldn’t be immediately reached for comment today.
Pure is exploring for coal-seam gas, which mostly comprises methane on the surface of coal. BG, Arrow’s coal-seam gas partner Royal Dutch Shell Plc, Petronas and ConocoPhillips are among the companies in five rival ventures planning to convert coal-seam gas into LNG for export to Asia, the biggest market for the fuel.
Coal-seam gas, which can be extracted when pressure on the coal seam is reduced, usually by removing water, hasn’t previously been used as a fuel for LNG export projects. BG’s latest bid is more than double the price Pure was trading at before Arrow made its initial A$5.40-a-share bid in December.
‘Frustrating’ Bid
BG probably needs Pure Energy more than Arrow does, Credit Suisse’s Williams said today in a report.
“We see BG with a stronger imperative for success in the Pure Energy bidding situation and certainly with more cash resources to be successful,” he said.
In terms of reserves, BG is bidding 40 Australian cents a gigajoule for Pure, still less than the 72 cents a gigajoule it paid for Queensland Gas Co. in October. BG’s A$5.2 billion purchase of the rest of Queensland Gas, its partner in its Australian LNG venture, followed a failed A$13.5 billion offer earlier in the year for Origin Energy Ltd., Australia’s biggest producer of gas from coal seams, which attracted an A$8 billion investment from ConocoPhillips.
BG’s bid for Pure may be designed “to frustrate Arrow Energy’s plans for LNG” at a rival LNG project Arrow plans with Liquefied Natural Gas Ltd. at Fisherman’s Landing near Gladstone, Citigroup Inc said in a Feb. 12 report.
Australia’s Foreign Investment Review Board has advised it has no objections to the bid from BG, which today said its offer is unconditional.
Arrow’s bid, of A$3 in cash and 1.57 shares for each Pure share, is also unconditional. Arrow is Pure’s biggest shareholder, with a stake of 19.9 percent. Shell owns about 11.2 percent and BG owns 9.7 percent.
LNG is natural gas chilled to liquid form for transport by tanker to destinations not connected by pipeline.
Asian Stocks Decline on Capital Concerns; T&D, Brambles Slump
Feb. 17 (Bloomberg) -- Asian stocks fell, led by finance and commodity companies, amid concern insurers may have to boost capital reserves and as metals prices and shipping rates declined.
T&D Holdings Inc., Japan’s largest publicly traded life insurer, plunged 9.7 percent, as the U.K.’s Financial Services Authority asked the industry to assess how well they can withstand market shocks. BHP Billiton Ltd., the world’s biggest mining company, fell 0.7 percent in Sydney as copper retreated. Brambles Ltd., the world’s biggest supplier of pallets used to move and store goods, tumbled 9.4 percent after a drop in profit prompted brokerage downgrades.
“In the current market climate, there is little incentive for investors to buy stocks,” Mamoru Shimode, a Tokyo-based equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television.
The MSCI Asia Pacific Index declined 0.8 percent to 80.58 as of 10:10 a.m. in Tokyo. Five stocks dropped for every two that advanced. The gauge has lost 10 percent this year, extending 2008’s record 43 percent tumble, as the credit crisis dragged the world’s biggest economies into recession.
The Nikkei 225 Stock Average lost 0.8 percent to 7,690.02. Benchmark measures in other Asian markets open for trading also fell. Futures on the U.S. Standard & Poor’s 500 Index fell 1.1 percent. U.S. markets were closed yesterday for Presidents’ Day.
T&D slumped 9.7 percent to 2,010 yen, tracking an 11 percent drop by the U.K.’s Legal & General Group Plc, which declined on speculation the 173-year-old British insurer may have to cut its dividend to boost capital reserves.
Broker Downgrades
BHP lost 0.7 percent to A$31.91. A measure of six primary metals traded in London fell 2.4 percent, with copper losing 2.9 percent. The Baltic Dry Index, a measure of shipping costs for commodities, dropped 3.2 percent on lower rates to haul coal and iron ore for steel production.
Brambles tumbled 9.4 percent to A$5.12. The stock was downgraded at Merrill Lynch & Co., JPMorgan Chase & Co. and Macquarie Group Ltd. a day after the company reported a 28 percent decline in first- half profit.
T&D Holdings Inc., Japan’s largest publicly traded life insurer, plunged 9.7 percent, as the U.K.’s Financial Services Authority asked the industry to assess how well they can withstand market shocks. BHP Billiton Ltd., the world’s biggest mining company, fell 0.7 percent in Sydney as copper retreated. Brambles Ltd., the world’s biggest supplier of pallets used to move and store goods, tumbled 9.4 percent after a drop in profit prompted brokerage downgrades.
“In the current market climate, there is little incentive for investors to buy stocks,” Mamoru Shimode, a Tokyo-based equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television.
The MSCI Asia Pacific Index declined 0.8 percent to 80.58 as of 10:10 a.m. in Tokyo. Five stocks dropped for every two that advanced. The gauge has lost 10 percent this year, extending 2008’s record 43 percent tumble, as the credit crisis dragged the world’s biggest economies into recession.
The Nikkei 225 Stock Average lost 0.8 percent to 7,690.02. Benchmark measures in other Asian markets open for trading also fell. Futures on the U.S. Standard & Poor’s 500 Index fell 1.1 percent. U.S. markets were closed yesterday for Presidents’ Day.
T&D slumped 9.7 percent to 2,010 yen, tracking an 11 percent drop by the U.K.’s Legal & General Group Plc, which declined on speculation the 173-year-old British insurer may have to cut its dividend to boost capital reserves.
Broker Downgrades
BHP lost 0.7 percent to A$31.91. A measure of six primary metals traded in London fell 2.4 percent, with copper losing 2.9 percent. The Baltic Dry Index, a measure of shipping costs for commodities, dropped 3.2 percent on lower rates to haul coal and iron ore for steel production.
Brambles tumbled 9.4 percent to A$5.12. The stock was downgraded at Merrill Lynch & Co., JPMorgan Chase & Co. and Macquarie Group Ltd. a day after the company reported a 28 percent decline in first- half profit.
Indian Bonds Tumble Most in Five Weeks on Record Debt Sale Plan
Feb. 16 (Bloomberg) -- India’s bonds tumbled the most in five weeks after the government said it will borrow record amounts this fiscal year and the next as it boosts spending to revive economic growth.
Yields on debt due in 2018 climbed to an almost one-week high as India said it plans to sell 2.61 trillion rupees ($53.5 billion) of debt, or 80 percent more than its initial target, in the year ending March 31. The borrowing target for the next fiscal year is 3.62 trillion rupees, according to the government’s interim budget unveiled today.
“People are dumping bonds because debt sales in the pipeline are the biggest yet,” said Arvind Sampath, head of interest-rate trading at Standard Chartered Plc in Mumbai. “Yields are rising as supply is set to overwhelm demand.”
The yield on the 8.24 percent note due April 2018 rose 25 basis points to 6.42 percent at the 5:30 p.m. in Mumbai, according to the central bank’s trading system. That is the steepest increase since Jan. 9. The price fell 1.89 rupees per 100-rupee face amount to 112.47. A basis point is 0.01 percentage point.
The yield on the note has climbed 1.57 percentage points from a record low of 4.85 percent reached last month.
Prime Minister Manmohan Singh’s government is borrowing more to fund two stimulus packages it unveiled in the past two months to revive Asia’s third-largest economy. Growth may slow to 7.1 percent in the year to March 31, 2009, the weakest in six years, according to government estimates. Foreign Minister Pranab Mukherjee, while presenting the budget, said spending to revive the economy is more important now than worrying about the deficit.
Market ‘Spooked’
“What spooked the bond market was the statement that next year’s fiscal deficit estimates are based on current numbers,” said K. Ramanathan, who helps manage 25 billion rupees at ING Investment Management in Mumbai. “The concern is that the government will have to spend more to protect the economy and growth with more stimulus measures. The deficit could be higher.”
India will release as much as 480 billion rupees into the financial system in the coming financial year by repaying bonds previously sold under the so-called market stabilization plan, according to the finance ministry. The government sells debt under the stabilization plan to prevent excess cash at banks from fanning inflation. The government repaid 817.8 billion rupees of stabilization debt in the current fiscal year.
Bonds pared losses after India said it will turn to sources outside the bond market to raise as much as 450 billion rupees of the additional borrowings planned for the current fiscal year. The government didn’t give details.
The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, climbed. The rate, a fixed payment made to receive floating rates, rose to 4.88 percent from 4.70 percent on Feb. 13
Yields on debt due in 2018 climbed to an almost one-week high as India said it plans to sell 2.61 trillion rupees ($53.5 billion) of debt, or 80 percent more than its initial target, in the year ending March 31. The borrowing target for the next fiscal year is 3.62 trillion rupees, according to the government’s interim budget unveiled today.
“People are dumping bonds because debt sales in the pipeline are the biggest yet,” said Arvind Sampath, head of interest-rate trading at Standard Chartered Plc in Mumbai. “Yields are rising as supply is set to overwhelm demand.”
The yield on the 8.24 percent note due April 2018 rose 25 basis points to 6.42 percent at the 5:30 p.m. in Mumbai, according to the central bank’s trading system. That is the steepest increase since Jan. 9. The price fell 1.89 rupees per 100-rupee face amount to 112.47. A basis point is 0.01 percentage point.
The yield on the note has climbed 1.57 percentage points from a record low of 4.85 percent reached last month.
Prime Minister Manmohan Singh’s government is borrowing more to fund two stimulus packages it unveiled in the past two months to revive Asia’s third-largest economy. Growth may slow to 7.1 percent in the year to March 31, 2009, the weakest in six years, according to government estimates. Foreign Minister Pranab Mukherjee, while presenting the budget, said spending to revive the economy is more important now than worrying about the deficit.
Market ‘Spooked’
“What spooked the bond market was the statement that next year’s fiscal deficit estimates are based on current numbers,” said K. Ramanathan, who helps manage 25 billion rupees at ING Investment Management in Mumbai. “The concern is that the government will have to spend more to protect the economy and growth with more stimulus measures. The deficit could be higher.”
India will release as much as 480 billion rupees into the financial system in the coming financial year by repaying bonds previously sold under the so-called market stabilization plan, according to the finance ministry. The government sells debt under the stabilization plan to prevent excess cash at banks from fanning inflation. The government repaid 817.8 billion rupees of stabilization debt in the current fiscal year.
Bonds pared losses after India said it will turn to sources outside the bond market to raise as much as 450 billion rupees of the additional borrowings planned for the current fiscal year. The government didn’t give details.
The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, climbed. The rate, a fixed payment made to receive floating rates, rose to 4.88 percent from 4.70 percent on Feb. 13
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