DealZone Daily
Shares in Russian aluminium group Rusal fell heavily on their debut, as a broad market slump across Asia and worries over the group’s debt and legal issues dogged its landmark $2.2 billion Hong Kong IPO.
And in other media:
Greece is wooing China to buy up to 25 billion euros of its bonds in its efforts to avert one of Europe’s biggest debt crises, the Financial Times and Wall Street Journal reported.
Private equity groups including CVC Capital Partners and Carlyle are preparing to finance a 5 billion euro bid for German cable provider Kabel Deutschland, the FT reported. Read the story here.
Keeping score: Breaking records in Qatar, Taiwan
Highlights from the Thomson Reuters Investment Banking scorecard:
QATAR PRICES BIGGEST MIDDLE EASTERN BOND ON RECORD This week’s $7 billion offering from the State of Qatar marked the largest bond offering from a Middle Eastern issuer on record and the second multibillion dollar offering from Qatar this year. For year-to-date 2009, debt capital markets activity from Middle Eastern issuers totals $38.6 billion, a 120% increase over last year at this time. The offering, which was led by Barclays, Credit Suisse, Goldman Sachs, JP Morgan and Qatar National Bank, bested the previous Middle Eastern record, a $3.2 billion offering from UAE-based real estate developer, Nakheel Co PJSC.
TECH DEALS DOMINATE RECORD TAIWAN M&A ACTIVITY Taiwan’s Innolux Display Corp agreed to merge with Chi Mei Optoelectronics Corp, a manufacturer of LCD TV panels in a merger valued at $13.1 billion, including debt. The deal ranks as the largest merger in Taiwan’s history. M&A activity in Taiwan totals $26.1 billion for year-to-date 2009, nearly five times last year’s total and the largest annual period for M&A activity in Taiwan on record. High technology mergers account for just over 60% of activity in Taiwan this year, while financials account for $6.1 billion or 23%.
UNITYMEDIA IN BIGGEST BUYOUT EXIT THIS YEAR Germany’s Unitymedia GmBH, a provider of cable television and internet services was acquired by Englewood, Colorado-based Liberty Global Inc in a deal valued at $5.2 billion. A portfolio company of BC Partners and Apollo Management LP, the sale marks the biggest M&A exit for a buyout consortium this year. Worldwide M&A activity for buyout-backed companies totals $75.0 billion for year-to-date 2009, a 58% decrease from last year at this time when activity totaled $177.5 billion.
Keeping score: Asian IPOs, Oz M&A, tech debt
Highlights from this week’s Thomson Reuters Investment Banking scorecard:
ASIA PACIFIC IPOs UP 65% Malaysian telecommunications provider, Maxis Bhd, raised $3.3 billion in an initial public offering this week, the biggest IPO from a Malaysian issuer on record. Asia Pacific offerings account for 59% of global IPO activity this year and total $49.2 billion for year-to-date 2009, a 65% increase over last year at this time. In Asia, China International Capital Co, CITIC and UBS account for nearly 35% of overall IPO activity, by proceeds, this year while Morgan Stanley has lead managed the most offerings in the region, with 14.
AUSTRALIAN M&A TOTALS $130.9 BILLION Australian target M&A activity totals $130.9 billion for year-to-date 2009, a 58% increase over the year ago period. Deal activity in the materials, financial and industrial sectors accounts for nearly 80% of overall activity. A bid for Melbourne-based Transurban Group, an operator and developer of electronic tolling systems by an investor group comprised of Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan for $8.9 billion topped the list of biggest deals this week.
HIGH TECH CORPORATE DEBT UP 34% This week’s $4.9 billion bond offering from Cisco Systems brings year-to-date corporate debt volume in the high tech sector to $56.9 billion, a 34% increase over last year. Ranking as the largest US high tech bond for year-to-date 2009, it also marks Cisco’s second debt offering this year. As the global credit markets have rebounded this year, a number of high technology names have stepped into the bond market with multi-billion offerings including Hewlett-Packard, Oracle, Microsoft and IBM.
Cocos – credit market classics?
”Cocos” has become the user-friendly name for a new type of hybrid bond created to help UK bank Lloyds raise money from investors to break away from a government insurance scheme for bad loans.
This nickname seems to have caught on in financial circles as it is much snappier than the bonds’ official title: Enhanced Capital Notes.
The name Cocos seems to have derived from “contingent convertible,” which describes one characteristic of these bonds – they convert to equity in certain circumstances.
Coco was famously the first name of French fashion designer Chanel. She was not known for her understanding of the credit markets but she did know a thing or two about fashion and the value of tradition over new-fangledness.
One senior capital markets banker pointed out these comments she made:
“Innovation! One cannot be forever innovating. I want to create classics.”
Some bankers hope Cocos can become credit market classics, but admit that the jury is still out.
The rising and falling default rate
Rating agencies Moody’s and S&P regularly publish figures on how many companies have defaulted on their debt, and the numbers are rising fast.
S&P’s latest report, which came out on Thursday, shows the global speculative-grade bond default rate increased to 8.58% in July, up slightly on June, and a massive hike on the record low of 0.79% hit in November 2007.
It is less clear what will happen next. Earlier this year the agencies predicted defaults amongst speculative grade borrowers could reach 20 percent — a huge increase — but now agencies have rowed back and are painting a slightly less bleak picture.
S&P’s new report says the number of “weakest links” — companies with low (B- or worse) ratings on review for a downgrade or with a negative outlook — has declined. This, the agency says, is because the increased number of defaults has knocked out many of these weak credits.
A sliver of silver lining around this grey cloud is that the rate of companies falling into weakest-link territory is lower than the number of companies defaulting, which may suggest the default rate may ease sooner rather than later.
The reopening of the credit markets, and banks’ determination not to write off debts, seems to have slowed the pace of defaults. However, talk of double-dip recessions may mean rating agencies’ earlier, bleaker predictions may end up being proved correct, just over a longer time frame.
Whichever way it finishes, little of this will help rating agencies’ reputation for making accurate predictions.
from Commentaries:
Cash M&A still lifeless
Bond sales are at a record, equity markets are at year-highs, private equity firms are sitting on huge cash piles -- Blackstone alone has $29 billion -- and banks are lending to each other again.
The ingredients should all be there for a resurgence of cash-driven mergers and acquisitions. But instead, the market is in hibernation.
So far the value of all M&A deals completed this year totals $990 billion. You have to go back to 2003 -- when the total for the year was $1.23 trillion -- to find a figure this low, according to Thomson Reuters data.
Of this, some $364 billion -- just 37 percent -- were cash deals, marking a dramatic shift in the mix of recent years when cash has dominated.
The main spanner in the works is the still dire state of banks' balance sheets and the crippled syndicated loan market. This has kept a tight lid on cash bids of any size, with the mega merger or takeover a distant memory.
Most banks are doing all they can to shrink their balance sheets, guard against problem exposures and to lend to their best clients. As a result, global syndicated loan volumes hit their lowest monthly volume since 1993 in July.
True, corporate bond issuance is booming and companies are raising equity, but this is not going to be enough to fill the void. And even if companies are confident of being able to fund their purchases with bonds, they first need to find a bank to give them a bridge loan.
UPDATE-BA’s convertible bond flies off the shelves
*This post was updated after the bond priced*
British Airways unveiled a $1 billion fundraising aimed at securing its future earlier on Friday, including $540 million in bank loans that had been earmarked for its pension funds as a safety net against the airline going bust.
The fundraising also included a 350 million pound ($570.5 million) convertible bond, which was over 7 times covered, pointing to healthy investor appetite.
Convertible bonds have become an increasingly important source of finance for firms in Europe. The instrument allows companies to raise capital paying less interest than standard bonds, while avoiding an immediate dilution of earnings per share because investors look to gains in share prices over a medium term.
With European stocks rallying some 33 percent since early March, the convertible market has rebounded with year-to-date issuance reaching $16 billion including the BA deal, according to Thomson Reuters data.
The convertible was the third UK deal this year and BA’s first in 20 years. It was arranged by Barclays Capital, Deutsche Bank, HSBC, Merrill Lynch and RBS Hoare Govett.
Less is more for ITV
Faced with big debts and falling revenues, companies across the world are hiring experts and pondering options.
One option is to swap old bonds for new, exchanging looming maturities for redemptions a few years off. Another is to buy back debts trading at discounted prices.
UK broadcaster ITV (ITV.L) is the latest company to swap its bonds, one of the most successful of a string of exchanges Reuters predicted back in April.
ITV said today that 54 percent of holders of its 2011 bonds were happy to swap their holdings for a mix of cash and new bonds, maturing in 2014. A moderate success, said analysts.
However, this result came only after the company sweetened the deal with an increase in the coupon after sobering talks with some big investors.
Given the success of ITV’s swap we can expect the flow of exchanges to continue as many lenders continue to prefer pain deferred rather than risking pushing borrowers into default.
(Be)league(red) tables
Preliminary first-quarter data from Thomson Reuters on mergers and acquisitions (M&A) and capital markets are out. And unsurprisingly, spring has not sprung in investment banking, with the big exception of a record deluge of corporate bonds.
Fees across investment banking (M&A, loans, and debt and equity capital markets) halved, while fees for completed M&A topped that with a 68 percent fall. Overall announced M&A fell by a third, compared to the same period last year, to $444 billion.
And even that figure is flattered by two huge pharma deals, which bankers doubt will be followed by more of the same, and a flurry of bank bailouts.
Still, some houses will find reasons to be cheerful — Morgan Stanley, for example, which is no. 1 globally and in the United States, up from a dismal 10th a year earlier.
You can see a full round-down of previous quarters (and eventually of this quarter) here.
Stocks climb, bonds fall on Obama victory
Global stocks rose on Tuesday night as Barack Obama‘s history-making victory became apparent.
“People are hoping that we are seeing a path here to a resolution of one key uncertainty on the investment scene; who will be the leader of the free world,” said David Dietze, chief investment strategist at Point View Financial Services, Summit, New Jersey.
U.S. Treasury prices fell as the safe haven bid waned with global stocks rising. The 2-year note’s price traded down 3/32 for a yield of 1.44 percent.
“Money is coming out of the very shortest end (of Treasuries) and going into stocks and spread product.” Dietze said. “People are just more willing to invest in anything as opposed to being on the sidelines,” he said.
New Yorker business writer James Surowiecki has more:
It’s been interesting to watch the after-hours trading in the S. & P. futures, particularly around 9:30 P.M., when CNN and Fox both called Ohio for Obama, effectively (I think) clinching his victory. The announcement made essentially no impact on the futures market, which I think suggests that investors were already collectively expecting an Obama victory. So does the fact that in the last half hour the futures, which had been down earlier in the session, kept rising, so that they’re now actually up from today’s close. In other words, there’s no sign that investors are panicked at the thought of an Obama Presidency.
Of course, the market also knows at this point that it’s unlikely that the Democrats will get sixty seats in the Senate, which it’s fair to say many people on Wall Street were really concerned about. So that may have something to do with investors’ relative sanguinity. As for world markets, they’re still rallying, with Australia up almost two per cent and Hong Kong up 5.5 per cent. The Japanese? They’re still on their lunch break, but the Nikkei was up almost three per cent this morning. So at the moment, the global rally continues.
Home prices should start to rise under Obama also. Here’s a good site to follow the trend:
