Jan. 16 (Bloomberg) -- Asian currencies advanced this week, led by the Malaysian ringgit and Thailand’s baht, as improving regional economies attracted funds from abroad.
Investors put almost $3 billion into equity and bond funds in developing nations in the week to Jan. 13, following record inflows in 2009, according to Massachusetts-based fund tracker EPFR Global. U.S. retail sales unexpectedly fell last month, the Commerce Department reported on Jan. 14, prompting futures traders to pare bets that the Federal Reserve will raise its benchmark interest rate from near zero by mid-year.
“The inflows are going to lift Asian currencies, especially now that the market is looking at a delay in Fed hikes,” said Choong Yin Pheng, manager of economic and fixed- income research at Hong Leong Bank Bhd. in Kuala Lumpur. “The ringgit has done well for a laggard.”
The ringgit appreciated 1.1 percent to 3.3407 per dollar in Kuala Lumpur from a week ago, according to data compiled by Bloomberg. The baht gained 0.9 percent to 32.87 and Taiwan’s dollar climbed 0.2 percent to NT$31.828, approaching a 16-month high.
Asia is seeing signs of a V-shaped recovery and regional economies will expand 6.6 percent this year after growing 4.5 percent in 2009, Asian Development Bank President Haruhiko Kuroda said on Jan. 14.
U.S. Rate Outlook
South Korea’s won completed a four-week rally, climbing 0.7 percent to 1,123.07 from 1,130.75 on Jan. 8. It touched a 16- month high of 1,117.40 on Jan. 11.
Investors were net buyers of $826 million worth of Korean stocks this year and $1.8 billion in India, adding to record purchases in both countries in 2009, stock exchange data showed. India’s rupee gained 0.1 percent for the week to 45.7200.
New York Federal Reserve Bank President William Dudley said on Jan. 14 that short-term rates may remain low for at least six months and possibly for as long as two years.
Fed fund futures on Jan. 14 showed a 28 percent chance the Fed will lift rates by the end of June, from 40 percent odds a week ago.
A report from the Bank of Korea on Jan. 22 may show the economy expanded 6.3 percent from a year earlier in the fourth quarter of 2009, the most in seven years, according to economists surveyed by Bloomberg.
The People’s Bank of China on Jan. 12 announced an increase to the amount of deposits that banks must set aside as reserves to help cool record loan growth and prevent bubbles in real- estate and stock prices.
“Risk appetite is still pretty solid; there was some pullback after the China tightening, but generally flows into the region are maintaining momentum,” said Mirza Baig, a Singapore-based currency strategist at Deutsche Bank AG, the world’s biggest foreign-exchange trader. “Some consolidation is quite normal after the big move at the beginning of January.”
Yuan Forwards
Yuan forwards rose for a second week on speculation the central bank will allow currency appreciation to resume to stem inflation.
Foreign direct investment more than doubled in December the Ministry of Commerce reported yesterday, after the government said Jan. 14 that property prices in 70 Chinese cities rose at the fastest pace in 18 months. Official data next week may show consumer prices increased at the quickest rate in more than a year, according to a Bloomberg News survey of economists.
Twelve-month non-deliverable yuan contracts rose 0.3 percent in the week to 6.6100 per dollar, indicating brokerages are betting the currency will advance 3.3 percent from the spot rate of 6.8269 in the coming year.
“Investors still expect the yuan to rise amid optimistic economic data,” said Guan Jiaying, a Beijing-based analyst at China Citic Bank. “The currency is one of the tools to address inflation concerns in China.”
The mainland’s foreign-exchange reserves climbed 23 percent to a record $2.4 trillion in December, the central bank reported yesterday.
‘Positive’ on Rupiah
Indonesia’s rupiah fell yesterday, paring the week’s gain, on concern the start of policy tightening by Asian central banks will curtail an economic recovery.
The currency has appreciated 2 percent this year, adding to a 16 percent rise in 2009 and leading to speculation Indonesia’s central bank will intervene to slow the advance.
“We are still positive on the rupiah but maybe not as much as last year simply because it has gained a lot already,” Thomas Harr, senior currency strategist at Standard Chartered Plc in Singapore, said in an interview on Bloomberg Television. “We see the possibility of more monetary tightening in China.”
The rupiah dropped 0.3 percent to 9,195 per dollar in Jakarta, according to data compiled by Bloomberg. It climbed 0.2 percent for the week from 9,215 on Jan. 8 and is the third-best performing currency in Asia this year.
Elsewhere in Asia, the Philippine peso was little changed for the week at 45.820 versus the greenback and the Singapore dollar advanced 0.7 percent to S$1.3891. Vietnam’s dong was unchanged at 18,474.
Friday, January 15, 2010
Japan’s Bonds Gain as Signs of Slowing Recovery Boosts Demand
Jan. 16 (Bloomberg) -- Japan’s 10-year bonds completed the first weekly gain in almost a month as speculation the global economic recovery is losing momentum boosted demand for the relative safety of government debt.
Benchmark securities yesterday gained for a fourth day, the longest winning streak in three weeks, after a decline in U.S. retail sales boosted Treasury prices. Yields also fell to the lowest level in more than a week after the Bank of Japan said on Jan. 14 producer prices declined for a 12th month, enhancing the value of the fixed payments from debt.
“Bonds will continue on a firm tone into next week,” said Eiji Dohke, chief strategist in Tokyo at UBS Securities Japan Ltd., one of the 23 primary dealers that are required to bid at government debt sales. “The Japanese and U.S. recoveries seem to be losing momentum.”
The yield on the 1.3 percent bond due in December 2019 fell four basis points, or 0.04 percentage point, to 1.32 percent this week in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price gained 0.349 yen to 99.824 yen. Ten-year yields touched 1.315 percent yesterday, the lowest level since Jan. 5.
Ten-year bond futures for March delivery rose 0.38 this week to 139.10 at the afternoon close of the Tokyo Stock Exchange.
Retail Sales
Ten-year U.S. Treasury yields dropped five basis points on Jan. 14 when the Commerce Department said retail sales unexpectedly declined 0.3 percent in December.
“The effect of the strong Treasury market is strong,” said Kenro Kawano, a debt strategist at Credit Suisse Group AG in Tokyo. “As the economic recovery weakens during January to March, yields will have a bias to decline.”
The yield differential between the two nations’ 10-year notes, which was about 2.37 percentage points yesterday, will widen to 2.48 percentage points by the end of March, according to a Bloomberg News survey of economists and analysts with a heavier weighting on more recent forecasts.
The costs Japanese companies pay for energy and unfinished goods declined 3.9 percent last month from a year earlier, the Bank of Japan said on Jan. 14 in Tokyo.
The spread between yields on five-year notes and inflation- linked debt, which reflects the outlook among traders for consumer prices over the term of the securities, was negative 0.74 percentage point yesterday, compared with minus 0.71 percentage point at the end of last week.
Inflation-adjusted securities typically yield less than regular bonds because their principal payments increase at the same rate as inflation. Deflation, or a general drop in prices, enhances the value of the fixed interest of bonds.
40-Year Auction
Longer-maturity bonds led gains after a sale of 300 billion yen ($3.3 billion) of 40-year debt on Jan. 14 attracted the most bids since May. The 2.2 percent securities drew bids for 3.78 times the amount on offer.
“Yield declines are being led by longer-dated bonds,” said Takafumi Yamawaki, a senior strategist in Tokyo at BNP Paribas Securities Japan Ltd. “The yield curve has stopped steepening.”
The yield difference between 5- and 20-year securities reached 1.65 percentage points on Jan. 7, the widest level since 2001, according to data compiled by Bloomberg. The spread narrowed to 1.61 percentage points yesterday.
The “better-than-expected 40-year auction has had a favorable effect on the yield curve,” said Kazuhiko Sano, chief strategist in Tokyo at Citigroup Global Markets Japan Inc., a unit of New York-based Citigroup Inc. “The strength in the longer zones will continue.”
Benchmark securities yesterday gained for a fourth day, the longest winning streak in three weeks, after a decline in U.S. retail sales boosted Treasury prices. Yields also fell to the lowest level in more than a week after the Bank of Japan said on Jan. 14 producer prices declined for a 12th month, enhancing the value of the fixed payments from debt.
“Bonds will continue on a firm tone into next week,” said Eiji Dohke, chief strategist in Tokyo at UBS Securities Japan Ltd., one of the 23 primary dealers that are required to bid at government debt sales. “The Japanese and U.S. recoveries seem to be losing momentum.”
The yield on the 1.3 percent bond due in December 2019 fell four basis points, or 0.04 percentage point, to 1.32 percent this week in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price gained 0.349 yen to 99.824 yen. Ten-year yields touched 1.315 percent yesterday, the lowest level since Jan. 5.
Ten-year bond futures for March delivery rose 0.38 this week to 139.10 at the afternoon close of the Tokyo Stock Exchange.
Retail Sales
Ten-year U.S. Treasury yields dropped five basis points on Jan. 14 when the Commerce Department said retail sales unexpectedly declined 0.3 percent in December.
“The effect of the strong Treasury market is strong,” said Kenro Kawano, a debt strategist at Credit Suisse Group AG in Tokyo. “As the economic recovery weakens during January to March, yields will have a bias to decline.”
The yield differential between the two nations’ 10-year notes, which was about 2.37 percentage points yesterday, will widen to 2.48 percentage points by the end of March, according to a Bloomberg News survey of economists and analysts with a heavier weighting on more recent forecasts.
The costs Japanese companies pay for energy and unfinished goods declined 3.9 percent last month from a year earlier, the Bank of Japan said on Jan. 14 in Tokyo.
The spread between yields on five-year notes and inflation- linked debt, which reflects the outlook among traders for consumer prices over the term of the securities, was negative 0.74 percentage point yesterday, compared with minus 0.71 percentage point at the end of last week.
Inflation-adjusted securities typically yield less than regular bonds because their principal payments increase at the same rate as inflation. Deflation, or a general drop in prices, enhances the value of the fixed interest of bonds.
40-Year Auction
Longer-maturity bonds led gains after a sale of 300 billion yen ($3.3 billion) of 40-year debt on Jan. 14 attracted the most bids since May. The 2.2 percent securities drew bids for 3.78 times the amount on offer.
“Yield declines are being led by longer-dated bonds,” said Takafumi Yamawaki, a senior strategist in Tokyo at BNP Paribas Securities Japan Ltd. “The yield curve has stopped steepening.”
The yield difference between 5- and 20-year securities reached 1.65 percentage points on Jan. 7, the widest level since 2001, according to data compiled by Bloomberg. The spread narrowed to 1.61 percentage points yesterday.
The “better-than-expected 40-year auction has had a favorable effect on the yield curve,” said Kazuhiko Sano, chief strategist in Tokyo at Citigroup Global Markets Japan Inc., a unit of New York-based Citigroup Inc. “The strength in the longer zones will continue.”
Thursday, January 14, 2010
Asian Stocks Fluctuate as Chipmakers Climb on Intel Forecast
Jan. 15 (Bloomberg) -- Asian stocks fluctuated, as a better-than-estimated revenue prediction from Intel Corp. countered declines by energy shares after oil prices fell.
Elpida Memory Inc., Japan’s biggest computer-memory chipmaker, climbed 1 percent as Goldman Sachs Group Inc. recommended buying the shares. Daewoo Shipbuilding & Marine Engineering Co. surged 8 percent in Seoul after Posco’s chief executive officer said he would consider a bid for the shipbuilder. Santos Ltd., Australia’s No.3 oil and gas producer, lost 1.4 percent in Sydney, as Bank of America Corp.’s Merrill Lynch downgraded the stock.
The MSCI Asia Pacific Index was little changed at 126.27 as of 11:05 a.m. in Tokyo, having swung between gains and losses at least six times today. The measure climbed 1.6 percent this week, its fourth weekly advance. The gauge has surged 52 percent in the past year amid signs of recovery in the region’s economies, led by China.
“The outlook for corporate earnings will likely increase after the earnings at Intel,” said Kazuhiro Takahashi, a general manager at Daiwa Securities SMBC Co. in Tokyo. “Intel’s earnings should spur buying of semiconductor-related stocks.”
Japan’s Nikkei 225 Stock Average lost 0.2 percent, while South Korea’s Kospi Index climbed 0.8 percent. Australia’s S&P/ASX 200 Index sank 0.7 percent.
Futures on the U.S. Standard & Poor’s 500 Index fell 0.2 percent. The gauge added 0.2 percent yesterday as technology shares climbed before Intel reported earnings and the government reported a better-than-estimated increase in business inventories.
Biggest Chipmaker
Intel, the world’s biggest chipmaker, predicted higher first-quarter revenue than analysts estimated as demand for notebook computers rebounded. Fourth-quarter net income increased more than ninefold to $2.28 billion, or 40 cents a share, the company said in a statement.
Elpida climbed 1 percent to 1,830 yen after Goldman raised its rating on company to “buy” from “neutral.”
Daewoo Shipbuilding & Marine Engineering Co. surged 8 percent to 20,900 won. Posco CEO Chung Joon Yang said yesterday at an investor relations session in Seoul that he would consider a bid for the shipbuilder.
Santos dropped 1.4 percent to A$13.76. The stock was cut to “neutral” from “buy” by analysts at Merrill Lynch, who cited higher costs and the risk of “a material capital raising.” Active crude-oil futures fell 0.5 percent in after-hours trading to $78.97 a barrel, taking a five-day decline to 4.6 percent.
The MSCI Asia Pacific Index has climbed 79 percent from its lowest level in more than five years on March 9, outpacing gains of 70 percent by the S&P 500 and 64 percent for Europe’s Dow Jones Stoxx 600 Index. Stocks in the MSCI gauge are valued at 20 times estimated earnings, compared with 15 times for the S&P and 13 times for the Stoxx 600.
Elpida Memory Inc., Japan’s biggest computer-memory chipmaker, climbed 1 percent as Goldman Sachs Group Inc. recommended buying the shares. Daewoo Shipbuilding & Marine Engineering Co. surged 8 percent in Seoul after Posco’s chief executive officer said he would consider a bid for the shipbuilder. Santos Ltd., Australia’s No.3 oil and gas producer, lost 1.4 percent in Sydney, as Bank of America Corp.’s Merrill Lynch downgraded the stock.
The MSCI Asia Pacific Index was little changed at 126.27 as of 11:05 a.m. in Tokyo, having swung between gains and losses at least six times today. The measure climbed 1.6 percent this week, its fourth weekly advance. The gauge has surged 52 percent in the past year amid signs of recovery in the region’s economies, led by China.
“The outlook for corporate earnings will likely increase after the earnings at Intel,” said Kazuhiro Takahashi, a general manager at Daiwa Securities SMBC Co. in Tokyo. “Intel’s earnings should spur buying of semiconductor-related stocks.”
Japan’s Nikkei 225 Stock Average lost 0.2 percent, while South Korea’s Kospi Index climbed 0.8 percent. Australia’s S&P/ASX 200 Index sank 0.7 percent.
Futures on the U.S. Standard & Poor’s 500 Index fell 0.2 percent. The gauge added 0.2 percent yesterday as technology shares climbed before Intel reported earnings and the government reported a better-than-estimated increase in business inventories.
Biggest Chipmaker
Intel, the world’s biggest chipmaker, predicted higher first-quarter revenue than analysts estimated as demand for notebook computers rebounded. Fourth-quarter net income increased more than ninefold to $2.28 billion, or 40 cents a share, the company said in a statement.
Elpida climbed 1 percent to 1,830 yen after Goldman raised its rating on company to “buy” from “neutral.”
Daewoo Shipbuilding & Marine Engineering Co. surged 8 percent to 20,900 won. Posco CEO Chung Joon Yang said yesterday at an investor relations session in Seoul that he would consider a bid for the shipbuilder.
Santos dropped 1.4 percent to A$13.76. The stock was cut to “neutral” from “buy” by analysts at Merrill Lynch, who cited higher costs and the risk of “a material capital raising.” Active crude-oil futures fell 0.5 percent in after-hours trading to $78.97 a barrel, taking a five-day decline to 4.6 percent.
The MSCI Asia Pacific Index has climbed 79 percent from its lowest level in more than five years on March 9, outpacing gains of 70 percent by the S&P 500 and 64 percent for Europe’s Dow Jones Stoxx 600 Index. Stocks in the MSCI gauge are valued at 20 times estimated earnings, compared with 15 times for the S&P and 13 times for the Stoxx 600.
Australia Jobs Boom May Fan Inflation, Strikes, Rates
Jan. 15 (Bloomberg) -- Australia’s biggest jobs boom in more than three years may fan inflation as unions strike for pay increases of as much as 30 percent, intensifying pressure on central bank Governor Glenn Stevens to raise interest rates.
Employers added 135,700 jobs in the four months through December, the biggest four-month gain since 2006, pushing down the jobless rate to an eight-month low of 5.5 percent, a report showed yesterday.
Teachers, nurses, postal workers and even casino staff have threatened or gone on strike for higher wages in recent weeks amid a looming skills shortage. A dispute between the Maritime Union of Australia and companies such as Norway-based Farstad Shipping ASA are costing the industry about A$1 million ($930,000) a day, the nation’s peak employer group says.
Labor disputes about wages are “going to be a growing theme,” said Helen Kevans, an economist a JPMorgan Chase & Co. in Sydney. “Our labor market has proved much more resilient than other nations. The central bank will definitely be worried about building wage pressures.”
The maritime union began a campaign in November against shipping companies supplying oil and gas producers, the Australian Chamber of Commerce & Industry said on Jan. 11. The union has sought annual wage increases of between A$70,000 and A$100,000 for each employee, the group said.
Interest Rates
Stevens is the only central banker in the world to raise borrowing costs three times since the height of the global financial crisis, predicting Chinese demand for iron ore will stoke economic growth in Australia, one of the few nations to skirt the global recession.
Investors are betting there is a 72 percent chance of a quarter-point increase in the overnight cash rate target to 4 percent at the central bank’s next meeting on Feb. 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 8:52 a.m. Chances of a quarter-point move in March are at 100 percent. Prior to yesterday’s report, the chances of a February increase were 60 percent.
The number of people employed gained 35,200 last month, more than three times the median estimate of 19 economists surveyed by Bloomberg for an increase of 10,000, yesterday’s report showed.
Full Employment
Australia’s jobless rate has fallen to 5.5 percent from 5.8 percent in October and is now almost half the 10 percent rate of the U.S. and European Union economy.
“If policy makers and businesses are going to worry about anything in coming months, it’s that the job market is tightening too quickly,” said Craig James, a senior economist at Commonwealth Bank of Australia in Sydney. “Full employment is considered to be where the jobless rate is around 5 percent, and that is certainly not far away.”
Deputy Prime Minister Julia Gillard told the Australian Financial Review this week there may be an increase in strikes as wage agreements come up for renegotiation in 2010.
“The union movement held its fire during the global financial crisis,” Peter Anderson, chief executive officer of the Chamber of Commerce & Industry, said in an interview this week.
“As the Australian economy has emerged less scathed from the financial crisis, we see unions in key industries starting to flex more ambitious industrial demands.”
Woodside, Chevron
Woodside Petroleum Ltd. and Chevron Corp., operator of the A$43 billion Gorgon natural gas project in Western Australia, are among companies affected by labor disputes in the shipping industry. Perth-based Woodside said last month that a strike by maritime union members working on its Pluto natural gas venture would have a short-term impact on the project.
The Maritime Union is seeking a 30 percent pay increase over three years and extra allowances for Farstad workers.
Others to strike recently include postal union workers and Sydney bus drivers, who halted work prior to Christmas. Jim Lloyd, president of the New South Wales Liquor Hospitality and Miscellaneous Union, told the Sun Herald newspaper on Jan. 3 that half of the workforce at Sydney’s Star City casino took industrial action last month after rejecting a 2 percent pay offer.
The labor market in “the mining sector is pretty much back to capacity,” Governor Stevens told economists in Sydney on Dec. 8. “There are a lot of other countries in the world who would like to have that problem.”
Inflation Threat
Higher wage demands threaten to fuel core inflation, which has held above the central bank’s target range of between 2 percent and 3 percent since the second quarter of 2007. The bank’s so-called weighted-median gauge of inflation rose an annual 3.8 percent in the third quarter. Fourth-quarter figures are due on Jan. 27.
“Inflation expectations have rebounded,” said Kieran Davies, chief economist at RBS Group Australia Ltd. in Sydney. “Wages have been knocked flat by the drop in hours worked over the past year, but survey measures of labor costs are stirring.”
A gauge of labor costs rose 0.9 percent in the three months through November, up from 0.8 percent in October, according to a survey of companies published last month by National Australia Bank Ltd.
“The fact that we are starting this recovery with an unemployment rate vastly below the levels of past recoveries would alarm the central bank,” Davies said.
Employers added 135,700 jobs in the four months through December, the biggest four-month gain since 2006, pushing down the jobless rate to an eight-month low of 5.5 percent, a report showed yesterday.
Teachers, nurses, postal workers and even casino staff have threatened or gone on strike for higher wages in recent weeks amid a looming skills shortage. A dispute between the Maritime Union of Australia and companies such as Norway-based Farstad Shipping ASA are costing the industry about A$1 million ($930,000) a day, the nation’s peak employer group says.
Labor disputes about wages are “going to be a growing theme,” said Helen Kevans, an economist a JPMorgan Chase & Co. in Sydney. “Our labor market has proved much more resilient than other nations. The central bank will definitely be worried about building wage pressures.”
The maritime union began a campaign in November against shipping companies supplying oil and gas producers, the Australian Chamber of Commerce & Industry said on Jan. 11. The union has sought annual wage increases of between A$70,000 and A$100,000 for each employee, the group said.
Interest Rates
Stevens is the only central banker in the world to raise borrowing costs three times since the height of the global financial crisis, predicting Chinese demand for iron ore will stoke economic growth in Australia, one of the few nations to skirt the global recession.
Investors are betting there is a 72 percent chance of a quarter-point increase in the overnight cash rate target to 4 percent at the central bank’s next meeting on Feb. 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 8:52 a.m. Chances of a quarter-point move in March are at 100 percent. Prior to yesterday’s report, the chances of a February increase were 60 percent.
The number of people employed gained 35,200 last month, more than three times the median estimate of 19 economists surveyed by Bloomberg for an increase of 10,000, yesterday’s report showed.
Full Employment
Australia’s jobless rate has fallen to 5.5 percent from 5.8 percent in October and is now almost half the 10 percent rate of the U.S. and European Union economy.
“If policy makers and businesses are going to worry about anything in coming months, it’s that the job market is tightening too quickly,” said Craig James, a senior economist at Commonwealth Bank of Australia in Sydney. “Full employment is considered to be where the jobless rate is around 5 percent, and that is certainly not far away.”
Deputy Prime Minister Julia Gillard told the Australian Financial Review this week there may be an increase in strikes as wage agreements come up for renegotiation in 2010.
“The union movement held its fire during the global financial crisis,” Peter Anderson, chief executive officer of the Chamber of Commerce & Industry, said in an interview this week.
“As the Australian economy has emerged less scathed from the financial crisis, we see unions in key industries starting to flex more ambitious industrial demands.”
Woodside, Chevron
Woodside Petroleum Ltd. and Chevron Corp., operator of the A$43 billion Gorgon natural gas project in Western Australia, are among companies affected by labor disputes in the shipping industry. Perth-based Woodside said last month that a strike by maritime union members working on its Pluto natural gas venture would have a short-term impact on the project.
The Maritime Union is seeking a 30 percent pay increase over three years and extra allowances for Farstad workers.
Others to strike recently include postal union workers and Sydney bus drivers, who halted work prior to Christmas. Jim Lloyd, president of the New South Wales Liquor Hospitality and Miscellaneous Union, told the Sun Herald newspaper on Jan. 3 that half of the workforce at Sydney’s Star City casino took industrial action last month after rejecting a 2 percent pay offer.
The labor market in “the mining sector is pretty much back to capacity,” Governor Stevens told economists in Sydney on Dec. 8. “There are a lot of other countries in the world who would like to have that problem.”
Inflation Threat
Higher wage demands threaten to fuel core inflation, which has held above the central bank’s target range of between 2 percent and 3 percent since the second quarter of 2007. The bank’s so-called weighted-median gauge of inflation rose an annual 3.8 percent in the third quarter. Fourth-quarter figures are due on Jan. 27.
“Inflation expectations have rebounded,” said Kieran Davies, chief economist at RBS Group Australia Ltd. in Sydney. “Wages have been knocked flat by the drop in hours worked over the past year, but survey measures of labor costs are stirring.”
A gauge of labor costs rose 0.9 percent in the three months through November, up from 0.8 percent in October, according to a survey of companies published last month by National Australia Bank Ltd.
“The fact that we are starting this recovery with an unemployment rate vastly below the levels of past recoveries would alarm the central bank,” Davies said.
Wednesday, January 13, 2010
Bankers ‘Let Down’ as Tax Rise Makes London Most Expensive City
Jan. 14 (Bloomberg) -- The U.K. government’s decision to raise the top rate of income tax will leave residents earning more than 1 million pounds ($1.6 million) a year worse off than they would be in any of the world’s other major financial centers.
“People feel let down,” Nick Bacon, a London-based financial services tax partner at accounting firm KPMG, said in a telephone interview. “They thought that the U.K. could always be relied on as being tax-friendly.”
The U.K. government will raise the top rate of income tax to 50 percent in April, making London more expensive for residents earning 1 million pounds a year than New York or Hong Kong, according to KPMG estimates. A London banker on that amount will pay 491,278 pounds in income tax and social security payments from April, a third more than in Hong Kong and 58,500 pounds more than in New York, the data show.
Prime Minister Gordon Brown, facing an election by June, pledged last year to make the finance industry “the servant of people and industry, and not their master” after bailing out banks with more than 1 trillion pounds of taxpayers’ money. London firms such as Tullett Prebon Plc, which acts as a go- between between banks trading securities, and hedge fund operator BlueCrest Capital Management Ltd. said they may move some operations overseas to avoid the tax increases.
The U.K. government will raise the top rate of tax to 50 percent from 40 percent on incomes of more than 150,000 pounds. That will cost anyone earning 1 million pounds a year about 87,588 pounds more in tax, according to KPMG’s estimates.
Righting the ‘Damage’
“I’m sure the seven and half million other Londoners will be overflowing with sympathy,” said Brendan Barber, general secretary of the Trades Union Congress, whose members fund two- thirds of the annual budget of Brown’s Labour Party. “The recession that cost many Londoners their jobs was caused in the finance sector. It is only right that London’s super-rich now make a fair contribution to putting right the damage.”
The rise follows a tax on banks that pay bonuses introduced by Chancellor of the ExchequerAlistair Darling in December. Firms will have to pay a levy of 50 percent on discretionary bonuses of more than 25,000 pounds awarded before April.
“Talent is mobile,” John Varley, chief executive officer of Barclays Plc, the U.K.’s second-biggest bank, told the New Statesman magazine last week. “If the best talent feels compromised by an unlevel playing field, then, yes, it will go. And it will not be good for the economy if talented people conclude they’re better located in Madrid, New York, or Singapore.”
U.K. Most Expensive
The income tax rise will force U.K.-residents earning 1 million pounds to pay more in tax than colleagues in Frankfurt, Hong Kong, Mumbai, New York, Paris, Singapore, Tokyo or Zurich, the KPMG figures showed. The previous year, Londoners would have paid less in tax than all of those cities except for Hong Kong, Singapore or Tokyo.
It will also be the first time since 1989 that the U.K.’s top marginal personal income tax rate will be higher than France and Germany’s, KPMG’s Bacon said.
“The U.K. is an international financial center and those from overseas provide tens of thousands of British jobs and pay billions of pounds in tax,” said British Bankers’ Association Chief Executive Officer Angela Knight on Jan. 8. “The government must not take steps that are detrimental to this business and the U.K. economy.”
Still, the London’s cost of living relative to other financial centers may offset the effect of the tax rise. The U.K. capital dropped out of the world’s top 10 most expensive cities for expatriates last year for the first time since 2001 as the pound and rental prices dropped, according to Mercer LLC’s Cost of Living Survey, published in July. The study of 143 cities takes into account the prices of more than 200 items, including housing, food, transportation and entertainment.
KPMG’s calculations are based on the assumption that the employee is single, has no children and earns a salary of 1 million pounds a year. Tax and social security payments are calculated from Jan. 1 to Dec. 31, 2010.
As of April 1, 2010
City Income Tax Social Security Total
London 477,519 13,759 491,278
Frankfurt 476,469 10,339 486,808
Paris 350,786 110,342 461,128
Mumbai 338,050 120,000 458,050
New York 414,250 18,520 432,770
Zurich 363,694 54,492 418,186
Tokyo 349,655 12,260 361,915
Singapore 190,366 1,180 191,546
Hong Kong 149,859 940 150,799
“People feel let down,” Nick Bacon, a London-based financial services tax partner at accounting firm KPMG, said in a telephone interview. “They thought that the U.K. could always be relied on as being tax-friendly.”
The U.K. government will raise the top rate of income tax to 50 percent in April, making London more expensive for residents earning 1 million pounds a year than New York or Hong Kong, according to KPMG estimates. A London banker on that amount will pay 491,278 pounds in income tax and social security payments from April, a third more than in Hong Kong and 58,500 pounds more than in New York, the data show.
Prime Minister Gordon Brown, facing an election by June, pledged last year to make the finance industry “the servant of people and industry, and not their master” after bailing out banks with more than 1 trillion pounds of taxpayers’ money. London firms such as Tullett Prebon Plc, which acts as a go- between between banks trading securities, and hedge fund operator BlueCrest Capital Management Ltd. said they may move some operations overseas to avoid the tax increases.
The U.K. government will raise the top rate of tax to 50 percent from 40 percent on incomes of more than 150,000 pounds. That will cost anyone earning 1 million pounds a year about 87,588 pounds more in tax, according to KPMG’s estimates.
Righting the ‘Damage’
“I’m sure the seven and half million other Londoners will be overflowing with sympathy,” said Brendan Barber, general secretary of the Trades Union Congress, whose members fund two- thirds of the annual budget of Brown’s Labour Party. “The recession that cost many Londoners their jobs was caused in the finance sector. It is only right that London’s super-rich now make a fair contribution to putting right the damage.”
The rise follows a tax on banks that pay bonuses introduced by Chancellor of the ExchequerAlistair Darling in December. Firms will have to pay a levy of 50 percent on discretionary bonuses of more than 25,000 pounds awarded before April.
“Talent is mobile,” John Varley, chief executive officer of Barclays Plc, the U.K.’s second-biggest bank, told the New Statesman magazine last week. “If the best talent feels compromised by an unlevel playing field, then, yes, it will go. And it will not be good for the economy if talented people conclude they’re better located in Madrid, New York, or Singapore.”
U.K. Most Expensive
The income tax rise will force U.K.-residents earning 1 million pounds to pay more in tax than colleagues in Frankfurt, Hong Kong, Mumbai, New York, Paris, Singapore, Tokyo or Zurich, the KPMG figures showed. The previous year, Londoners would have paid less in tax than all of those cities except for Hong Kong, Singapore or Tokyo.
It will also be the first time since 1989 that the U.K.’s top marginal personal income tax rate will be higher than France and Germany’s, KPMG’s Bacon said.
“The U.K. is an international financial center and those from overseas provide tens of thousands of British jobs and pay billions of pounds in tax,” said British Bankers’ Association Chief Executive Officer Angela Knight on Jan. 8. “The government must not take steps that are detrimental to this business and the U.K. economy.”
Still, the London’s cost of living relative to other financial centers may offset the effect of the tax rise. The U.K. capital dropped out of the world’s top 10 most expensive cities for expatriates last year for the first time since 2001 as the pound and rental prices dropped, according to Mercer LLC’s Cost of Living Survey, published in July. The study of 143 cities takes into account the prices of more than 200 items, including housing, food, transportation and entertainment.
KPMG’s calculations are based on the assumption that the employee is single, has no children and earns a salary of 1 million pounds a year. Tax and social security payments are calculated from Jan. 1 to Dec. 31, 2010.
As of April 1, 2010
City Income Tax Social Security Total
London 477,519 13,759 491,278
Frankfurt 476,469 10,339 486,808
Paris 350,786 110,342 461,128
Mumbai 338,050 120,000 458,050
New York 414,250 18,520 432,770
Zurich 363,694 54,492 418,186
Tokyo 349,655 12,260 361,915
Singapore 190,366 1,180 191,546
Hong Kong 149,859 940 150,799
Australian Banks Risk More Bad-Debt Losses in 2010, Fitch Says
Jan. 14 (Bloomberg) -- Australian banks, including Westpac Banking Corp. and Commonwealth Bank of Australia, risk more loan defaults as the government unwinds economic stimulus and the central bank raises interest rates, according to Fitch Ratings.
Small and medium-sized companies with loans are starting to show “signs of stress,” and mortgage and credit-card defaults may rise as borrowing costs climb, Fitch said in a report today. The biggest banks, which also includes National Australia Bank Ltd. and Australia & New Zealand Banking Group, have “substantial capacity” to absorb bad debts, Fitch said.
Australia’s government has said A$42 billion ($39 billion) of stimulus spending has already peaked, and the central bank has started raising interest rates toward pre-crisis levels after an economic recovery. These steps may stretch smaller businesses and households in 2010, adding to bad-debt charges at banks, Fitch said in its six-monthly review of the lenders.
“As interest rates rise towards a more neutral setting and government stimulus measures are progressively wound back, asset quality may be further tested,” Tim Roche, director at Fitch’s financial institutions group, said in a statement. “Impairment charges are likely to remain high.”
Still, the threat of a series of “large corporate collapses” has receded in the past 12 months and the Australian economy is now stronger than expected at the start of 2009, Fitch said. Tests by the lenders suggest any increase in mortgage defaults would be “manageable,” it said.
Westpac, Australia’s second-biggest bank, and ANZ Bank, the fourth largest, said last year that bad debts have probably peaked. NAB, the third-largest bank, said then it was too early to say. Commonwealth Bank, the No. 1 bank, said in November the pace of the recovery was “unclear.”
Australia’s central bank increased interest rates three times since October to 3.75 percent from 3 percent.
The four largest banks are also likely to adopt “more conservative funding mixes” with longer maturities if regulators impose higher and more liquid capital requirements, Fitch said.
Small and medium-sized companies with loans are starting to show “signs of stress,” and mortgage and credit-card defaults may rise as borrowing costs climb, Fitch said in a report today. The biggest banks, which also includes National Australia Bank Ltd. and Australia & New Zealand Banking Group, have “substantial capacity” to absorb bad debts, Fitch said.
Australia’s government has said A$42 billion ($39 billion) of stimulus spending has already peaked, and the central bank has started raising interest rates toward pre-crisis levels after an economic recovery. These steps may stretch smaller businesses and households in 2010, adding to bad-debt charges at banks, Fitch said in its six-monthly review of the lenders.
“As interest rates rise towards a more neutral setting and government stimulus measures are progressively wound back, asset quality may be further tested,” Tim Roche, director at Fitch’s financial institutions group, said in a statement. “Impairment charges are likely to remain high.”
Still, the threat of a series of “large corporate collapses” has receded in the past 12 months and the Australian economy is now stronger than expected at the start of 2009, Fitch said. Tests by the lenders suggest any increase in mortgage defaults would be “manageable,” it said.
Westpac, Australia’s second-biggest bank, and ANZ Bank, the fourth largest, said last year that bad debts have probably peaked. NAB, the third-largest bank, said then it was too early to say. Commonwealth Bank, the No. 1 bank, said in November the pace of the recovery was “unclear.”
Australia’s central bank increased interest rates three times since October to 3.75 percent from 3 percent.
The four largest banks are also likely to adopt “more conservative funding mixes” with longer maturities if regulators impose higher and more liquid capital requirements, Fitch said.
Unitech to Develop Mumbai Slums Into Luxury Housing
Jan. 13 (Bloomberg) -- Unitech Ltd., India’s second-biggest developer, expects its share of sales from redeveloping Mumbai slums into luxury apartments to triple in three years and boost profit, Managing Director Sanjay Chandra said.
Unitech, based in New Delhi, is developing 100 acres (40 hectares) of land in north Mumbai’s Santacruz area, near the city’s airport, by knocking down shacks typically built with tin, asbestos and plastic sheets, and building apartments in towers serviced by high-speed elevators. Slum dwellers will be resettled in smaller apartments in separate buildings on part of the cleared land.
The world’s second-fastest pace of economic growth is boosting incomes for India’s urban population and spurring demand for houses that cost at least 2.5 million rupees ($54,818) in a Mumbai suburb. About 8 million people live in slums in India’s financial capital and surrounding areas, more than the population of Switzerland.
“Mumbai is a lucrative market and prices tend to go up firmly and demand is usually strong,” said Jigar Shah, head of research at Kim Eng Securities India Pvt. in Mumbai. The measures to develop slum areas and build affordable homes “will help lift return on equity and profit.”
Mumbai properties may account for 40 percent of revenue in three years, up from the current 12 percent, Chandra said in an interview in Mumbai.
Moving People
The government’s plan to redevelop larger shanty towns such as the 535-acre Dharavi slum near the new Bandra-Kurla business district has been delayed because of political indecision and disagreements, said Jockin Arputham, founder and president of the National Slum Dwellers Federation. Set up in 1975, the federation, spread over 70 towns, has 15 million slum dwellers as members through their respective local associations.
“It’s not easy to do redevelopment as moving people is a complex task,” said Anshuman Magazine, New Delhi-based managing director of CB Richard Ellis for South Asia. “Not everyone may want to be relocated for economic reasons, not to mention legal and other regulatory issues, and the state of the real estate market.”
Shares of Unitech gained 0.2 percent to 88.7 rupees at the close of Mumbai trading. They more than doubled last year compared with an 81 percent increase in the benchmark index.
Unitech, which posted a 51 percent drop in profit in the three months ended Sept. 30, is also building budget homes. It has cut the time to build low-cost housing by 40 percent as it tries to boost revenue in a nation facing a shortage of 24.7 million homes.
‘Assembly Line’
The company is trying to emulate the success developers including Cyrela Brazil Realty SA Empreendimentos e Participacoes have had in boosting profit from selling budget homes, Chandra said. Cyrela, Brazil’s biggest developer, tripled profit in the third quarter and plans to sell 19,000 homes this year, according to a company presentation.
“We are looking at it as an assembly line kind of business model,” Chandra, 37, said. “If you make an affordable product, the margins will be lower, but the capital will churn much faster, so your return on equity will be much faster.”
Success for Unitech will depend on government laws, Chandra said. The company, which began selling its Unihomes brand of budget housing in Bhopal, hasn’t built such properties in its biggest market near New Delhi because of rules restricting the number of residents in its housing complexes, he said.
The Unihome brand sells property for about 2 million rupees, according to the company’s Web site.
Unitech, based in New Delhi, is developing 100 acres (40 hectares) of land in north Mumbai’s Santacruz area, near the city’s airport, by knocking down shacks typically built with tin, asbestos and plastic sheets, and building apartments in towers serviced by high-speed elevators. Slum dwellers will be resettled in smaller apartments in separate buildings on part of the cleared land.
The world’s second-fastest pace of economic growth is boosting incomes for India’s urban population and spurring demand for houses that cost at least 2.5 million rupees ($54,818) in a Mumbai suburb. About 8 million people live in slums in India’s financial capital and surrounding areas, more than the population of Switzerland.
“Mumbai is a lucrative market and prices tend to go up firmly and demand is usually strong,” said Jigar Shah, head of research at Kim Eng Securities India Pvt. in Mumbai. The measures to develop slum areas and build affordable homes “will help lift return on equity and profit.”
Mumbai properties may account for 40 percent of revenue in three years, up from the current 12 percent, Chandra said in an interview in Mumbai.
Moving People
The government’s plan to redevelop larger shanty towns such as the 535-acre Dharavi slum near the new Bandra-Kurla business district has been delayed because of political indecision and disagreements, said Jockin Arputham, founder and president of the National Slum Dwellers Federation. Set up in 1975, the federation, spread over 70 towns, has 15 million slum dwellers as members through their respective local associations.
“It’s not easy to do redevelopment as moving people is a complex task,” said Anshuman Magazine, New Delhi-based managing director of CB Richard Ellis for South Asia. “Not everyone may want to be relocated for economic reasons, not to mention legal and other regulatory issues, and the state of the real estate market.”
Shares of Unitech gained 0.2 percent to 88.7 rupees at the close of Mumbai trading. They more than doubled last year compared with an 81 percent increase in the benchmark index.
Unitech, which posted a 51 percent drop in profit in the three months ended Sept. 30, is also building budget homes. It has cut the time to build low-cost housing by 40 percent as it tries to boost revenue in a nation facing a shortage of 24.7 million homes.
‘Assembly Line’
The company is trying to emulate the success developers including Cyrela Brazil Realty SA Empreendimentos e Participacoes have had in boosting profit from selling budget homes, Chandra said. Cyrela, Brazil’s biggest developer, tripled profit in the third quarter and plans to sell 19,000 homes this year, according to a company presentation.
“We are looking at it as an assembly line kind of business model,” Chandra, 37, said. “If you make an affordable product, the margins will be lower, but the capital will churn much faster, so your return on equity will be much faster.”
Success for Unitech will depend on government laws, Chandra said. The company, which began selling its Unihomes brand of budget housing in Bhopal, hasn’t built such properties in its biggest market near New Delhi because of rules restricting the number of residents in its housing complexes, he said.
The Unihome brand sells property for about 2 million rupees, according to the company’s Web site.
Tuesday, January 12, 2010
Indonesia Pays More Than Philippines in $2 Billion Bonds Sale
Jan. 13 (Bloomberg) -- Indonesia sold $2 billion of 10-year bonds at a higher yield than last week’s sale by the Philippines, after scaling back the offering and cancelling plans to sell 30- year debt.
The government sold 10-year notes to yield 6 percent, or about 2.28 percentage points above U.S. Treasuries, Rahmat Waluyanto, director general of the debt management office at the finance ministry, said in a text message. Demand was 2.3 times the amount on offer, he said. The Philippines, whose bonds carry the same BB- rating as Indonesia from * STORY * PHOTO * VIDEO * Standard & Poor’s, sold $1.5 billion of 2020 securities last week at 5.67 percent, having attracted orders for more than six times that amount.
While corporate bond returns are off to the best start to a year sinc* STORY * PHOTO * VIDEO * e 1998, demand for developing nations’ debt is ebbing after Mexico, Poland, Turkey and the Philippines sold $8.8 billion of overseas debt before Indonesia’s attempted sale. Holders of Indonesian debt, including Aberdeen Asset Management Plc and Vegagest SGR SpA, said last week that the nation would need to offer higher yields as a rally in emerging-market bonds slows after the biggest gains in six years.
Indonesia was “too confident of the absorption potential of the market,” said Cornel Bruhin, a bond manager in Zurich at Clariden Leu AG, which owns Indonesia’s 2014, 2037 and 2038 bonds and oversees the equivalent of $152 billion of assets. “The Philippines profited from first-mover status.”
Indonesia hired Barclays Capital Plc, Citigroup Inc. and Credit Suisse Group AG for the sale. Barclays spokesman Timothy Cuffe, Citigroup spokesman James Griffiths and Credit Suisse spokesman Adam Harper declined to comment yesterday. Indonesia initially planned to sell between $3 billion and $4 billion of debt, people familiar said.
Finance Minister
Finance Minister Sri Mulyani Indrawati, a 47-year-old named Finance Minister of the Year by Euromoney magazine in 2006, was seeking to rely less heavily on rupiah bond sales to fund a budget deficit forecast to reach 98 trillion rupiah ($10.7 billion) this year, equal to 1.6 percent of gross domestic product. A 30-year debt sale would also have allowed her to extend the payment period for the nation’s debt.
“Obviously the headline was bad that they had to pull one tranche,” said Tim Condon, head of Asia research at ING Groep NV in Singapore. “It makes it seem as though they didn’t have a very good read on the market. I think it’s high-yield issuance indigestion.”
Last week’s Philippine debt sale came a day after Turkey got orders worth triple the $2 billion in dollar bonds it offered. After that response, managers of Indonesia’s sale “could be forgiven for reaching for the stars,” said Condon.
Rally Slowing
Confidence ebbed as Pacific Investment Management Co., the world’s biggest bond fund, said last week it was “highly unlikely” developing nations’ dollar debt would perform as well as last year, when the JPMorgan Emerging-Market Bond Index Plus index returned 26 percent. Poland sold 3 billion euros ($4.3 billion) in debt and Mexico $1 billion, draining funds available to buy Indonesia’s offering amid the busiest start to a year for developing nations’ overseas bond sales in at least a decade.
“Trying to do $4 billion right now is a bridge too far for the market,” said Edwin Gutierrez, a portfolio manager who oversees $5 billion in emerging-market debt for Aberdeen in London. “The market has seen other big deals struggle.”
Philippine Advantage
Indonesia can’t count on as strong demand for its dollar debt as the Philippines, where remittances from citizens abroad make up 10 percent of the economy, said Desmond Soon, vice- president for fixed-income at DBS Asset Management Ltd., a unit of Southeast Asia’s largest lender, which oversees $20 billion.
“On all the fundamentals, the story is more robust in Indonesia,” said Soon. However, the Philippines is able to sell its securities at a lower yield than Indonesia because of “a lot of dollars from overseas workers,” he said
Indonesia fared better than its neighbors in the economic slump, as growth in the $514 billion economy accelerated last quarter for the first time in a year. President Susilo Bambang Yudhoyono, 60, who won re-election in 2009, aims to boost the country’s expansion to more than 7 percent from an average of 5.1 percent last decade.
Sri Mulyani has still lowered her funding costs over the past year. Indonesia’s 11.625 percent dollar debt maturing March 2019 yielded 5.84 percent yesterday and returned more than 50 percent since they were sold on Feb. 27 to yield 11.75 percent, or 8.759 percentage points more than U.S. government debt. Similar-maturity rupiah debt yields 9.55 percent.
Best Performers
Indonesia’s dollar bonds were the third-best performing in the region, after Pakistan and India, giving investors a return of 45 percent in the past year, according to indexes compiled by HSBC Holdings Plc. Debt of the Philippines returned 22 percent.
Investors were demanding as much as 8 percent yields for the 30-year debt, compared with a prevailing yield closer to 7 percent so the government “ditched it,” said Chia Woon Khien, head of currency and interest-rate strategy for Asia outside of Japan at Royal Bank of Scotland Group Plc in Singapore.
The government raised 7.5 trillion rupiah from sales of local-currency debt at an auction yesterday, more than the 5 trillion rupiah it originally sought.
“Indonesia is now much more confident of its currency stability and credit standing,” Chia said.
The government sold 10-year notes to yield 6 percent, or about 2.28 percentage points above U.S. Treasuries, Rahmat Waluyanto, director general of the debt management office at the finance ministry, said in a text message. Demand was 2.3 times the amount on offer, he said. The Philippines, whose bonds carry the same BB- rating as Indonesia from * STORY * PHOTO * VIDEO * Standard & Poor’s, sold $1.5 billion of 2020 securities last week at 5.67 percent, having attracted orders for more than six times that amount.
While corporate bond returns are off to the best start to a year sinc* STORY * PHOTO * VIDEO * e 1998, demand for developing nations’ debt is ebbing after Mexico, Poland, Turkey and the Philippines sold $8.8 billion of overseas debt before Indonesia’s attempted sale. Holders of Indonesian debt, including Aberdeen Asset Management Plc and Vegagest SGR SpA, said last week that the nation would need to offer higher yields as a rally in emerging-market bonds slows after the biggest gains in six years.
Indonesia was “too confident of the absorption potential of the market,” said Cornel Bruhin, a bond manager in Zurich at Clariden Leu AG, which owns Indonesia’s 2014, 2037 and 2038 bonds and oversees the equivalent of $152 billion of assets. “The Philippines profited from first-mover status.”
Indonesia hired Barclays Capital Plc, Citigroup Inc. and Credit Suisse Group AG for the sale. Barclays spokesman Timothy Cuffe, Citigroup spokesman James Griffiths and Credit Suisse spokesman Adam Harper declined to comment yesterday. Indonesia initially planned to sell between $3 billion and $4 billion of debt, people familiar said.
Finance Minister
Finance Minister Sri Mulyani Indrawati, a 47-year-old named Finance Minister of the Year by Euromoney magazine in 2006, was seeking to rely less heavily on rupiah bond sales to fund a budget deficit forecast to reach 98 trillion rupiah ($10.7 billion) this year, equal to 1.6 percent of gross domestic product. A 30-year debt sale would also have allowed her to extend the payment period for the nation’s debt.
“Obviously the headline was bad that they had to pull one tranche,” said Tim Condon, head of Asia research at ING Groep NV in Singapore. “It makes it seem as though they didn’t have a very good read on the market. I think it’s high-yield issuance indigestion.”
Last week’s Philippine debt sale came a day after Turkey got orders worth triple the $2 billion in dollar bonds it offered. After that response, managers of Indonesia’s sale “could be forgiven for reaching for the stars,” said Condon.
Rally Slowing
Confidence ebbed as Pacific Investment Management Co., the world’s biggest bond fund, said last week it was “highly unlikely” developing nations’ dollar debt would perform as well as last year, when the JPMorgan Emerging-Market Bond Index Plus index returned 26 percent. Poland sold 3 billion euros ($4.3 billion) in debt and Mexico $1 billion, draining funds available to buy Indonesia’s offering amid the busiest start to a year for developing nations’ overseas bond sales in at least a decade.
“Trying to do $4 billion right now is a bridge too far for the market,” said Edwin Gutierrez, a portfolio manager who oversees $5 billion in emerging-market debt for Aberdeen in London. “The market has seen other big deals struggle.”
Philippine Advantage
Indonesia can’t count on as strong demand for its dollar debt as the Philippines, where remittances from citizens abroad make up 10 percent of the economy, said Desmond Soon, vice- president for fixed-income at DBS Asset Management Ltd., a unit of Southeast Asia’s largest lender, which oversees $20 billion.
“On all the fundamentals, the story is more robust in Indonesia,” said Soon. However, the Philippines is able to sell its securities at a lower yield than Indonesia because of “a lot of dollars from overseas workers,” he said
Indonesia fared better than its neighbors in the economic slump, as growth in the $514 billion economy accelerated last quarter for the first time in a year. President Susilo Bambang Yudhoyono, 60, who won re-election in 2009, aims to boost the country’s expansion to more than 7 percent from an average of 5.1 percent last decade.
Sri Mulyani has still lowered her funding costs over the past year. Indonesia’s 11.625 percent dollar debt maturing March 2019 yielded 5.84 percent yesterday and returned more than 50 percent since they were sold on Feb. 27 to yield 11.75 percent, or 8.759 percentage points more than U.S. government debt. Similar-maturity rupiah debt yields 9.55 percent.
Best Performers
Indonesia’s dollar bonds were the third-best performing in the region, after Pakistan and India, giving investors a return of 45 percent in the past year, according to indexes compiled by HSBC Holdings Plc. Debt of the Philippines returned 22 percent.
Investors were demanding as much as 8 percent yields for the 30-year debt, compared with a prevailing yield closer to 7 percent so the government “ditched it,” said Chia Woon Khien, head of currency and interest-rate strategy for Asia outside of Japan at Royal Bank of Scotland Group Plc in Singapore.
The government raised 7.5 trillion rupiah from sales of local-currency debt at an auction yesterday, more than the 5 trillion rupiah it originally sought.
“Indonesia is now much more confident of its currency stability and credit standing,” Chia said.
Australian Dollar Is Near 8-Week High Before Employment Report
Jan. 13 (Bloomberg) -- Australia’s dollar traded near an eight-week high before a government report tomorrow economists said will show employers added jobs for a fourth month.
The so-called Aussie gained against 12 of its 16 major counterparts before the report, which will show employers added 10,000 jobs last month, according to the median estimate of economists in a Bloomberg News survey.
“The fundamentals underpinning the strength of the Aussie dollar remain,” said Guthrie Williamson, a portfolio manager in Sydney at Principal Global Investors, which manages $200 billion in assets worldwide.
Australia’s dollar traded at 92.11 U.S. cents at 12:45 p.m. in Sydney from 92 cents yesterday in New York, when it fell 1 percent in the biggest slide since Dec. 17. The Aussie advanced 0.1 percent to 83.79 yen after dropping 2.2 percent yesterday.
New Zealand’s dollar was at 73.77 U.S. cents from 73.85 yesterday, when it declined 0.4 percent. The kiwi increased 0.1 percent to 67.25 yen from 67.19 yen.
Demand for both currencies was limited after China yesterday raised banks’ reserve requirements by 50 basis points starting Jan. 18, from 15.5 percent. The decision indicated increasing government concern a continuation of the record 9.21 trillion yuan ($1.3 trillion) of loans in the first 11 months of 2009 will create a bubble in property and stock prices.
“There are concerns over China’s reserve requirement hike,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “Modest in the grand scheme of things, but not insignificant for a jittery market as risk aversion takes hold.”
Potential Buyers
The Aussie may find buyers near 91.49 U.S. cents and 90.92 cents, wrote Matthew Strauss, a senior currency strategist in Toronto at Royal Bank of Canada, the nation’s biggest lender. It will struggle to rise past 93.25 cents, he wrote.
“The Australian dollar will likely continue to be at the mercy of global sentiment,” Strauss wrote. “The yen and to a lesser extent the U.S. dollar were back in favor as risk aversion returned.”
Australian government bonds advanced for a second day. The yield on 10-year notes fell 12 basis points, or 0.12 percentage point, to 5.51 percent, according to data compiled by Bloomberg.
Holders of Aussie bonds of all maturities have incurred a loss of 2.7 percent last year, according to Bank of America Merrill Lynch indexes, the worst performance since 1994.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to rate expectations, was at 4.5525 percent, from 4.5400 percent yesterday.
The so-called Aussie gained against 12 of its 16 major counterparts before the report, which will show employers added 10,000 jobs last month, according to the median estimate of economists in a Bloomberg News survey.
“The fundamentals underpinning the strength of the Aussie dollar remain,” said Guthrie Williamson, a portfolio manager in Sydney at Principal Global Investors, which manages $200 billion in assets worldwide.
Australia’s dollar traded at 92.11 U.S. cents at 12:45 p.m. in Sydney from 92 cents yesterday in New York, when it fell 1 percent in the biggest slide since Dec. 17. The Aussie advanced 0.1 percent to 83.79 yen after dropping 2.2 percent yesterday.
New Zealand’s dollar was at 73.77 U.S. cents from 73.85 yesterday, when it declined 0.4 percent. The kiwi increased 0.1 percent to 67.25 yen from 67.19 yen.
Demand for both currencies was limited after China yesterday raised banks’ reserve requirements by 50 basis points starting Jan. 18, from 15.5 percent. The decision indicated increasing government concern a continuation of the record 9.21 trillion yuan ($1.3 trillion) of loans in the first 11 months of 2009 will create a bubble in property and stock prices.
“There are concerns over China’s reserve requirement hike,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “Modest in the grand scheme of things, but not insignificant for a jittery market as risk aversion takes hold.”
Potential Buyers
The Aussie may find buyers near 91.49 U.S. cents and 90.92 cents, wrote Matthew Strauss, a senior currency strategist in Toronto at Royal Bank of Canada, the nation’s biggest lender. It will struggle to rise past 93.25 cents, he wrote.
“The Australian dollar will likely continue to be at the mercy of global sentiment,” Strauss wrote. “The yen and to a lesser extent the U.S. dollar were back in favor as risk aversion returned.”
Australian government bonds advanced for a second day. The yield on 10-year notes fell 12 basis points, or 0.12 percentage point, to 5.51 percent, according to data compiled by Bloomberg.
Holders of Aussie bonds of all maturities have incurred a loss of 2.7 percent last year, according to Bank of America Merrill Lynch indexes, the worst performance since 1994.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to rate expectations, was at 4.5525 percent, from 4.5400 percent yesterday.
Monday, January 11, 2010
Asian Stocks Fluctuate as Mining Companies Fall; Shippers Rise
Jan. 12 (Bloomberg) -- Asian stocks fluctuated, as mining companies fell after Alcoa Inc.’s profits missed analyst estimates, countering gains by Japanese shipping lines.
Alumina Ltd., which operates a venture with Alcoa, slumped 3.9 percent in Sydney. BHP Billiton Ltd., the world’s biggest mining company, dropped 1.6 percent. CSR Ltd. surged 3.8 percent after receiving an offer for its sugar and renewable energy unit from a Chinese food producer. Nippon Yusen K.K., Japan’s biggest shipping line by sales, climbed 3.3 percent as a measure of shipping costs for commodities rose for the first time in four days.
The MSCI Asia Pacific Index was little changed at 125.56 as of 9:55 a.m. in Tokyo. Stocks that rose about matched the number that declined. The gauge has surged 41 percent in the past 12 months as government spending and lower borrowing costs dragged economies around the world out of recession.
“Investors at present are nervous, with many thinking we’ve had a rally that’s not yet deserved,” said Angus Gluskie, who oversees $300 million at White Funds Management Pty in Sydney. “Most indicators continue to track in a positive direction, but we’ll need to see more economic data to confirm this in investor minds. The below-consensus result from Alcoa is being used as a reason to take money off the table.”
The Nikkei 225 Stock Average added 0.1 percent today in Japan, where markets resumed trading after a holiday. Australia’s S&P/ASX 200 Index sank 0.6 percent.
Economic Recovery
Futures on the Standard & Poor’s 500 Index were little changed. The gauge gained 0.2 percent yesterday as China’s customs bureau reported record imports, adding to evidence that the global economy is gathering pace.
The MSCI Asia Pacific Index increased 34 percent last year, outpacing gains of 23 percent by the S&P 500 and 28 percent for Europe’s Dow Jones Stoxx 600 Index. Stocks in the MSCI benchmark are valued at 20 times estimated earnings, compared with 15 times for the S&P 500 and 13 times for the Stoxx 600.
Alumina shares slumped 3.9 percent to A$1.98. The company owns 40 percent of a venture with Alcoa that is the world’s largest producer of the material.
Alcoa, the largest U.S. aluminum producer, reported fourth- quarter profit that trailed analysts’ estimates as the company faced higher energy and currency costs. The company’s shares fell 4.3 percent in after-hours U.S. trading.
Alumina Ltd., which operates a venture with Alcoa, slumped 3.9 percent in Sydney. BHP Billiton Ltd., the world’s biggest mining company, dropped 1.6 percent. CSR Ltd. surged 3.8 percent after receiving an offer for its sugar and renewable energy unit from a Chinese food producer. Nippon Yusen K.K., Japan’s biggest shipping line by sales, climbed 3.3 percent as a measure of shipping costs for commodities rose for the first time in four days.
The MSCI Asia Pacific Index was little changed at 125.56 as of 9:55 a.m. in Tokyo. Stocks that rose about matched the number that declined. The gauge has surged 41 percent in the past 12 months as government spending and lower borrowing costs dragged economies around the world out of recession.
“Investors at present are nervous, with many thinking we’ve had a rally that’s not yet deserved,” said Angus Gluskie, who oversees $300 million at White Funds Management Pty in Sydney. “Most indicators continue to track in a positive direction, but we’ll need to see more economic data to confirm this in investor minds. The below-consensus result from Alcoa is being used as a reason to take money off the table.”
The Nikkei 225 Stock Average added 0.1 percent today in Japan, where markets resumed trading after a holiday. Australia’s S&P/ASX 200 Index sank 0.6 percent.
Economic Recovery
Futures on the Standard & Poor’s 500 Index were little changed. The gauge gained 0.2 percent yesterday as China’s customs bureau reported record imports, adding to evidence that the global economy is gathering pace.
The MSCI Asia Pacific Index increased 34 percent last year, outpacing gains of 23 percent by the S&P 500 and 28 percent for Europe’s Dow Jones Stoxx 600 Index. Stocks in the MSCI benchmark are valued at 20 times estimated earnings, compared with 15 times for the S&P 500 and 13 times for the Stoxx 600.
Alumina shares slumped 3.9 percent to A$1.98. The company owns 40 percent of a venture with Alcoa that is the world’s largest producer of the material.
Alcoa, the largest U.S. aluminum producer, reported fourth- quarter profit that trailed analysts’ estimates as the company faced higher energy and currency costs. The company’s shares fell 4.3 percent in after-hours U.S. trading.
Treasuries Advance as Stock Losses Increase Demand for Safety
Jan. 12 (Bloomberg) -- Treasuries rose, sending 10-year notes to their biggest gain in a week, as declines in Asian stocks and the euro increased demand for the relative safety of government debt.
U.S. securities climbed as traders added to bets the Federal Reserve will keep borrowing costs at a record low. Stock losses raised speculation that the global economic expansion will be uneven this year following 2009’s recession.
“The economy doesn’t have enough power to lead the Fed to raise rates in 2010,” said Kei Katayama, who oversees $1.6 billion of non-yen debt in Tokyo as leader of the foreign fixed- income group at Daiwa SB Investments Ltd., a unit of Japan’s second-biggest investment bank. “I may buy as the yield rises.”
Ten-year note yields declined 2 basis points to 3.80 percent as of 10:32 a.m. in Tokyo, according to BGCantor Market data. The 3.375 percent security due in November 2019 rose 5/32, or $1.56 per $1,000 face amount, to 96 18/32.
U.S. securities climbed as traders added to bets the Federal Reserve will keep borrowing costs at a record low. Stock losses raised speculation that the global economic expansion will be uneven this year following 2009’s recession.
“The economy doesn’t have enough power to lead the Fed to raise rates in 2010,” said Kei Katayama, who oversees $1.6 billion of non-yen debt in Tokyo as leader of the foreign fixed- income group at Daiwa SB Investments Ltd., a unit of Japan’s second-biggest investment bank. “I may buy as the yield rises.”
Ten-year note yields declined 2 basis points to 3.80 percent as of 10:32 a.m. in Tokyo, according to BGCantor Market data. The 3.375 percent security due in November 2019 rose 5/32, or $1.56 per $1,000 face amount, to 96 18/32.
Sunday, January 10, 2010
Australia Job Advertisements Rise Most in 2 1/2 Years
Jan. 11 (Bloomberg) -- Australian advertisements for job vacancies surged by the most in 2 1/2 years, adding to signs the nation’s economy is strengthening enough for the central bank to boost borrowing costs for a fourth straight meeting next month.
Jobs advertised in newspapers and on the Internet gained 6 percent in December, according to an Australia & New Zealand Banking Group Ltd. report released in Melbourne today. Advertisements were 22.6 percent lower than a year earlier.
Unemployment fell in November amid the biggest three-month surge in hiring in three years as companies such as Chevron Corp. expand liquefied natural gas ventures in Western Australia to meeting rising global demand for energy. Traders predict central bank Governor Glenn Stevens will raise borrowing costs by early March after boosting the benchmark rate by a quarter percentage point on Dec. 1 to 3.75 percent.
Job advertisements “are now well past the low reached in July 2009 and are continuing to improve month on month,” said Warren Hogan, chief economist at ANZ Bank in Sydney. “This is already translating into employment growth.”
Employers added 99,500 new jobs in the three months through November, cutting the jobless rate to 5.7 percent from 5.8 percent in October. Employers added another 10,000 jobs last month, according to the median estimate of 19 economists surveyed by Bloomberg News ahead of a Jan. 14 government report.
Consumer Confidence
The Australian dollar traded at 93.06 U.S. cents at 11:35 a.m. in Sydney from 93.03 cents just before the report was released. The two-year government bond yield rose 1 basis point to 4.53 percent. A basis point is 0.01 percentage point.
Rising employment has helped boost consumer confidence, spurring household spending that accounts for more than half of the economy.
Retail sales jumped 1.4 percent in November from October, a report showed on Jan. 7. The gain was almost five times the median forecast of 12 economists surveyed by Bloomberg News, and prompted Gerry Harvey, the billionaire chairman of the nation’s largest electronics seller, to say Australia’s economy is heading for its “next big boom.”
Strengthening economic growth increases pressure on Governor Stevens to raise the overnight cash rate target, which he slashed to a half-century low of 3 percent in April to cushion the economy against the global recession.
Rate Outlook
Stevens boosted the rate by a quarter point in October, November and last month.
Investors are betting there is a 58 percent chance of a quarter-point increase in the benchmark rate to 4 percent at the central bank’s next meeting on Feb. 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:37 a.m. Chances of a quarter-point move in March are at 100 percent.
National vacancies advertised in newspapers and on the Internet averaged 149,063 a week last month, today’s report showed. Newspaper advertisements surged 11.6 percent to an average 10,631 a week. Internet notices gained 5.6 percent to 138,432.
Jobs advertised in newspapers and on the Internet gained 6 percent in December, according to an Australia & New Zealand Banking Group Ltd. report released in Melbourne today. Advertisements were 22.6 percent lower than a year earlier.
Unemployment fell in November amid the biggest three-month surge in hiring in three years as companies such as Chevron Corp. expand liquefied natural gas ventures in Western Australia to meeting rising global demand for energy. Traders predict central bank Governor Glenn Stevens will raise borrowing costs by early March after boosting the benchmark rate by a quarter percentage point on Dec. 1 to 3.75 percent.
Job advertisements “are now well past the low reached in July 2009 and are continuing to improve month on month,” said Warren Hogan, chief economist at ANZ Bank in Sydney. “This is already translating into employment growth.”
Employers added 99,500 new jobs in the three months through November, cutting the jobless rate to 5.7 percent from 5.8 percent in October. Employers added another 10,000 jobs last month, according to the median estimate of 19 economists surveyed by Bloomberg News ahead of a Jan. 14 government report.
Consumer Confidence
The Australian dollar traded at 93.06 U.S. cents at 11:35 a.m. in Sydney from 93.03 cents just before the report was released. The two-year government bond yield rose 1 basis point to 4.53 percent. A basis point is 0.01 percentage point.
Rising employment has helped boost consumer confidence, spurring household spending that accounts for more than half of the economy.
Retail sales jumped 1.4 percent in November from October, a report showed on Jan. 7. The gain was almost five times the median forecast of 12 economists surveyed by Bloomberg News, and prompted Gerry Harvey, the billionaire chairman of the nation’s largest electronics seller, to say Australia’s economy is heading for its “next big boom.”
Strengthening economic growth increases pressure on Governor Stevens to raise the overnight cash rate target, which he slashed to a half-century low of 3 percent in April to cushion the economy against the global recession.
Rate Outlook
Stevens boosted the rate by a quarter point in October, November and last month.
Investors are betting there is a 58 percent chance of a quarter-point increase in the benchmark rate to 4 percent at the central bank’s next meeting on Feb. 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:37 a.m. Chances of a quarter-point move in March are at 100 percent.
National vacancies advertised in newspapers and on the Internet averaged 149,063 a week last month, today’s report showed. Newspaper advertisements surged 11.6 percent to an average 10,631 a week. Internet notices gained 5.6 percent to 138,432.
Japan Air Set for Bankruptcy as State Bailouts End
Jan. 11 (Bloomberg) -- Japan Airlines Corp. is preparing for what may be the country’s sixth-largest bankruptcy as Prime Minister Yukio Hatoyama breaks with predecessors who bailed out the carrier three times in the past nine years.
A final decision on the future of Asia’s largest carrier, founded in 1951, may be made this week, and a bankruptcy filing will follow next week, according to three people familiar with the situation. The finance ministry and the Tokyo-based carrier’s biggest lenders all favor a court restructuring, according to people familiar with the matter.
Hatoyama ended half a century of near-continuous rule by the Liberal Democratic Party in September on a pledge to cut “wasteful” government spending and he is set to push through a bankruptcy rather than granting unrestricted loans to a carrier with at least 1.5 trillion yen ($16 billion) of liabilities. The yield on JAL’s 2013 notes tripled last week and shares slumped to a record low in Tokyo trading on speculation the carrier would seek court protection.
“It’s impossible that JAL would have gone bankrupt in the LDP era,” said Satoshi Yuzaki, an analyst at Takagi Securities Co. in Tokyo. “The quick decision-making by Hatoyama’s government is commendable.”
The carrier, headed by Chief Executive Officer Haruka Nishimatsu, 62, will continue flying, the government has said. JAL previously won emergency loans from a state-owned bank under LDP administrations following the Sept. 11 terrorist attacks in 2001, the 2003 SARS outbreak and again last year as Japan suffered its worst postwar recession.
Turnaround Plan
Under the proposed restructuring plan, Enterprise Turnaround Initiative of Corp. of Japan, a state-affiliated fund, will provide 300 billion yen of capital to JAL and a 400 billion yen credit line, the Yomiuri newspaper said last week. Creditors will be asked for about 350 billion yen in debt waivers and debt-for-equity swaps, the report said. The carrier may also cut 10,000 jobs over three years, the Nikkei said last week. Nishimatsu, CEO since 2006, has already said he will step down.
“Bankruptcy is the best way to ensure a speedy revival for JAL,” said Osuke Itazaki, an airlines analyst at Credit Suisse Group AG in Tokyo.
JAL’s four biggest lenders, Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc., Mizuho Financial Group Inc. and state-owned Development Bank of Japan were owed 429 billion yen at the end of March, according to the carrier.
Mizuho spokeswoman Masako Shiono, Mitsubishi UFJ spokesman Takashi Takeuchi and JAL spokeswoman Sze Hunn Yap declined to comment on the possibility of bankruptcy. Sumitomo Mitsui spokeswoman Chika Togawa wasn’t immediately available. Calls to the media relations office of the Ministry of Finance, which oversees Development Bank, went unanswered.
Delta, American
Delta Air Lines Inc. and AMR Corp.’s American Airlines, the world’s two largest carriers, which are competing to invest in JAL, both said last week that a bankruptcy filing wouldn’t deter their plans. The carriers want a stake to access JAL’s networks in China and Japan.
JAL fell 26 percent in the past three trading days to 67 yen, after dropping 68 percent last year, the worst performance in the Nikkei 225 Stock Average. The carrier will be delisted as part of the restructuring, wiping out shareholders, the Asahi reported today, without saying where it got the information.
Bonds Slump
The yield on JAL’s 10 billion yen in 2.94 percent notes due in 2013 reached a record 52.2 percent on Jan. 8, according to Japan Securities Dealers Association prices on Bloomberg. The notes yielded 9 percent a year ago. Tokyo markets are closed today for a national holiday.
Singapore Airlines Ltd.’s S$900 million ($647 million) of 4.15 percent bonds due 2011 yield 2.3 percent, according to DBS Bank prices on Bloomberg today. Cathay Pacific Airways Ltd.’s S$150 million of 3.82 percent bonds due 2011 yielded 2.69 percent today, DBS prices show.
JAL sought help from Enterprise Turnaround in October after creditors and the government said the carrier’s restructuring plan, which included 6,800 job cuts, was insufficient. The carrier employed 47,526 people as of March, compared with 33,045 at All Nippon Airways Co., Japan’s No. 2 carrier.
JAL posted a 63 billion yen loss in the year ended March, its third unprofitable year in four, and lost 131.2 billion in the following six months. Passenger numbers dropped for a 15th straight month in October, as the global recession sapped travel demand. Worldwide international air travel likely fell 4.1 percent last year, causing industrywide losses of $11 billion, according to the International Air Transport Association.
Shrinking export demand and unemployment of about 5 percent helped damp air travel in Japan last year. The worst global recession since the Great Depression sapped consumer spending worldwide and made credit harder to find, forcing General Motors Corp. and Chrysler LLC into bankruptcy.
Route Cuts
To pare losses, JAL has announced plans to cut about 30 routes since April. The carrier filled less than 65 percent of seats on domestic routes in the last six fiscal years because of competition from bullet trains and low-cost carrier Skymark Airlines Inc.
“JAL has a lot of routes that are unprofitable,” said Soumyajyoti Basu, an analyst at advisory company Frost & Sullivan. Whether bankruptcy will revive JAL “depends on how effectively” they can reorganize its network, he said.
Boeing Fleet
The carrier had a fleet of 279 planes as of March, including 48 Boeing Co. 747s. JAL has 35 Boeing 787s on order. The airline served 59 domestic airports as of April and flew to about 20 other countries and territories. It operated more than 700 international and domestic flights a day in November.
JAL has shed staff and sold assets, including hotels and a stake in a credit-card unit. Workers have agreed to a cut in future pensions payments and existing retirees have also been asked to accept reductions. The pension fund may be dissolved if that request is rejected, two people familiar with the matter said yesterday.
The airline has opposed bankruptcy on concerns it would deter passengers from booking trips. The Transport Ministry and lenders initially took a similar stand, according to the Yomiuri.
“This is a matter of trust,” said Mitsuo Shimizu, an analyst at Cosmo Securities Co. in Tokyo. “Even if a new JAL emerges, you have to wonder about the company’s image.”
To reassure passengers, Transport Minister Seiji Maehara has repeatedly said operations will continue. State-owned Development Bank of Japan has given JAL 200 billion yen of credit lines to ensure it can keep flying.
Delta and Northwest Airlines Corp. both exited bankruptcy in the U.S. in 2007 after filing in 2005. Delta, which collapsed under $28.3 billion of debts, later bought Northwest.
JAL may also re-emerge from bankruptcy because of the pre- planning that is going on and the support the carrier is getting from the government, said Basu.
“The ideas behind the filing process looks good and well in place,” he said. “The only cause of concern would be how they are implemented.”
A final decision on the future of Asia’s largest carrier, founded in 1951, may be made this week, and a bankruptcy filing will follow next week, according to three people familiar with the situation. The finance ministry and the Tokyo-based carrier’s biggest lenders all favor a court restructuring, according to people familiar with the matter.
Hatoyama ended half a century of near-continuous rule by the Liberal Democratic Party in September on a pledge to cut “wasteful” government spending and he is set to push through a bankruptcy rather than granting unrestricted loans to a carrier with at least 1.5 trillion yen ($16 billion) of liabilities. The yield on JAL’s 2013 notes tripled last week and shares slumped to a record low in Tokyo trading on speculation the carrier would seek court protection.
“It’s impossible that JAL would have gone bankrupt in the LDP era,” said Satoshi Yuzaki, an analyst at Takagi Securities Co. in Tokyo. “The quick decision-making by Hatoyama’s government is commendable.”
The carrier, headed by Chief Executive Officer Haruka Nishimatsu, 62, will continue flying, the government has said. JAL previously won emergency loans from a state-owned bank under LDP administrations following the Sept. 11 terrorist attacks in 2001, the 2003 SARS outbreak and again last year as Japan suffered its worst postwar recession.
Turnaround Plan
Under the proposed restructuring plan, Enterprise Turnaround Initiative of Corp. of Japan, a state-affiliated fund, will provide 300 billion yen of capital to JAL and a 400 billion yen credit line, the Yomiuri newspaper said last week. Creditors will be asked for about 350 billion yen in debt waivers and debt-for-equity swaps, the report said. The carrier may also cut 10,000 jobs over three years, the Nikkei said last week. Nishimatsu, CEO since 2006, has already said he will step down.
“Bankruptcy is the best way to ensure a speedy revival for JAL,” said Osuke Itazaki, an airlines analyst at Credit Suisse Group AG in Tokyo.
JAL’s four biggest lenders, Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc., Mizuho Financial Group Inc. and state-owned Development Bank of Japan were owed 429 billion yen at the end of March, according to the carrier.
Mizuho spokeswoman Masako Shiono, Mitsubishi UFJ spokesman Takashi Takeuchi and JAL spokeswoman Sze Hunn Yap declined to comment on the possibility of bankruptcy. Sumitomo Mitsui spokeswoman Chika Togawa wasn’t immediately available. Calls to the media relations office of the Ministry of Finance, which oversees Development Bank, went unanswered.
Delta, American
Delta Air Lines Inc. and AMR Corp.’s American Airlines, the world’s two largest carriers, which are competing to invest in JAL, both said last week that a bankruptcy filing wouldn’t deter their plans. The carriers want a stake to access JAL’s networks in China and Japan.
JAL fell 26 percent in the past three trading days to 67 yen, after dropping 68 percent last year, the worst performance in the Nikkei 225 Stock Average. The carrier will be delisted as part of the restructuring, wiping out shareholders, the Asahi reported today, without saying where it got the information.
Bonds Slump
The yield on JAL’s 10 billion yen in 2.94 percent notes due in 2013 reached a record 52.2 percent on Jan. 8, according to Japan Securities Dealers Association prices on Bloomberg. The notes yielded 9 percent a year ago. Tokyo markets are closed today for a national holiday.
Singapore Airlines Ltd.’s S$900 million ($647 million) of 4.15 percent bonds due 2011 yield 2.3 percent, according to DBS Bank prices on Bloomberg today. Cathay Pacific Airways Ltd.’s S$150 million of 3.82 percent bonds due 2011 yielded 2.69 percent today, DBS prices show.
JAL sought help from Enterprise Turnaround in October after creditors and the government said the carrier’s restructuring plan, which included 6,800 job cuts, was insufficient. The carrier employed 47,526 people as of March, compared with 33,045 at All Nippon Airways Co., Japan’s No. 2 carrier.
JAL posted a 63 billion yen loss in the year ended March, its third unprofitable year in four, and lost 131.2 billion in the following six months. Passenger numbers dropped for a 15th straight month in October, as the global recession sapped travel demand. Worldwide international air travel likely fell 4.1 percent last year, causing industrywide losses of $11 billion, according to the International Air Transport Association.
Shrinking export demand and unemployment of about 5 percent helped damp air travel in Japan last year. The worst global recession since the Great Depression sapped consumer spending worldwide and made credit harder to find, forcing General Motors Corp. and Chrysler LLC into bankruptcy.
Route Cuts
To pare losses, JAL has announced plans to cut about 30 routes since April. The carrier filled less than 65 percent of seats on domestic routes in the last six fiscal years because of competition from bullet trains and low-cost carrier Skymark Airlines Inc.
“JAL has a lot of routes that are unprofitable,” said Soumyajyoti Basu, an analyst at advisory company Frost & Sullivan. Whether bankruptcy will revive JAL “depends on how effectively” they can reorganize its network, he said.
Boeing Fleet
The carrier had a fleet of 279 planes as of March, including 48 Boeing Co. 747s. JAL has 35 Boeing 787s on order. The airline served 59 domestic airports as of April and flew to about 20 other countries and territories. It operated more than 700 international and domestic flights a day in November.
JAL has shed staff and sold assets, including hotels and a stake in a credit-card unit. Workers have agreed to a cut in future pensions payments and existing retirees have also been asked to accept reductions. The pension fund may be dissolved if that request is rejected, two people familiar with the matter said yesterday.
The airline has opposed bankruptcy on concerns it would deter passengers from booking trips. The Transport Ministry and lenders initially took a similar stand, according to the Yomiuri.
“This is a matter of trust,” said Mitsuo Shimizu, an analyst at Cosmo Securities Co. in Tokyo. “Even if a new JAL emerges, you have to wonder about the company’s image.”
To reassure passengers, Transport Minister Seiji Maehara has repeatedly said operations will continue. State-owned Development Bank of Japan has given JAL 200 billion yen of credit lines to ensure it can keep flying.
Delta and Northwest Airlines Corp. both exited bankruptcy in the U.S. in 2007 after filing in 2005. Delta, which collapsed under $28.3 billion of debts, later bought Northwest.
JAL may also re-emerge from bankruptcy because of the pre- planning that is going on and the support the carrier is getting from the government, said Basu.
“The ideas behind the filing process looks good and well in place,” he said. “The only cause of concern would be how they are implemented.”
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