Negative Tone Prevails In Euro Credit Equity Markets
LONDON, Aug. 20 (MNI) - European stock markets are trading lower so far today, following on from the negative tone in the US and Asia overnight and compounded by some dovish comments from a European Central Bank Governing Council member on the euro area.
The overall downbeat sentiment for equities has outweighed the M&A news in the oil & gas sector this morning. In London, BG Group is outperforming on renewed bid speculation, with the hostile bid from Korea National Oil Corp ("KNOC") for Dana Petroleum further boosting the sector.
KNOC launched a landmark 1,800p per share hostile takeover offer for Dana early today, after shareholders owning 48.62% of the UK oil explorer offered their support. The offer values the entire ordinary share capital and convertible bonds issued by the company at around Stg1.87 billion.
The FT notes that the move is the first time an Asian state-owned company has taken a bid directly to shareholders in the UK, signalling a shift in the battle for overseas reserves by the region's national energy groups. In the credit markets, spreads for the CDS indices are all moderately wider, following the negative sentiment in stocks. The benchmark iTraxx Xover index is currently around 4 bps wider at the 502 bps level.
In the basic materials sector, there is speculation this morning that PotashCorp of Canada is expecting rival interest from China that could disrupt BHP Billiton's hostile $39 billion bid for the company, according to the FT. Reportedly, the world's biggest fertiliser producer is counting on Beijing's interest in securing reliable supplies of fertiliser as well as preserving the potash market's pricing structure. PotashCorp has rejected a $130 per share offer from BHP, describing the bid as "grossly inadequate".
In-line with this theory, the South China Morning Post has listed a number of potential Asian counter-bidders, Sinochem Group, the nation's largest chemical trader, China Investment Corp, the sovereign wealth fund, or Sinofert Holdings, the Hong Kong listed fertiliser company in which Potash Corp has a 22% stake. However, a concern for PotashCorp is that Chinese companies move too slowly for the Canadian takeover code.
The FT has also reported that the chief executive of PotashCorp stands to make at least $370 million if BHP Billiton succeeds in taking over the company for $130 a share and possibly more if market expectations of a rising offer price prove accurate, especially if a counter-bid emerges.
Bill Doyle, chief executive since 1999, has amassed ordinary shares and options that are worth $372 million at BHP Billiton's opening bid and has typically waited as long as possible before exercising his stock options. This would mean that Doyle's accumulation should help align his interests with those of other shareholders in seeking a full value in any potential deal.
Doyle could easily receive $500 million in cash if BHP raises its opening $130 a share offer, due to shareholder's demands if rival interest emerges. Shares in BHP are currently up around 17p in London, trading at the 1827p level, with CDS spreads currently seen trading around the 113 bps level.
In the consumer sector, the FT is reporting that Accor aims to significantly expand its emerging market portfolio, targeting high growth markets such as Brazil and India, but also including North African countries such as Algeria, Morocco and Egypt using its Sofitel, Ibis, Novotel and Formula 1 brands.
The French hotels and services group aims to almost double the number of hotels in its global portfolio to 7,000 in seven years and, on average, open a new hotel each week in Asia over the next two years.
However, Gilles Pelisson, the company's chairman and chief executive, has said that his enthusiasm for fast expansion was not universal across all emerging markets. He advised caution in China, where the group has 96 hotels, saying there was a danger of oversupply in hotel rooms in the world's fastest growing large economy. He also said that in Russia, the hotel group had struggled to develop its brand in a difficult operating environment, adding that "Russia is kind of a challenge".
The world's fourth-largest hotel group wants to invest E1.4 billion on building new hotels over the next five years. CDS spreads for Accor have widened by 1 bps to trade around the 151 bps level.
Lastly n the financial sector, HSH Nordbank has said that it will give up its number one position in the ship-financing market as the German bank no longer has the capacity nor the flexibility in its balance sheet to focus on the low-margin business, according to Lloyds List, citing Torsten Temp, the bank's new board member for shipping.
In an interview with the journal, Temp said "We will most certainly remain amongst the top five, but we no longer aim to be the market leader." Instead, the bank will in future aim for additional business from owners and shipping companies, as margins are too small in pure ship financing.
Yesterday, the bank's CEO Dirk Jens Nonnenmacher said that the bank will achieve a "positive operating result" in Q2 2010. Temp said that even though the bank has achieved a good second quarter result, it continues to make losses. "But the shade of red is becoming lighter," Temp noted.
Like Nonnemacher, Temp also expects an increase in activity by the Chinese in the ship-financing market. "This is something we encounter at every conference," he said. However, so far, Chinese banks only want to finance ships that were built in Chinese shipyards, he said. It would also still take some time before Chinese institutions were really top-notch in this business.
Nonnenmacher said, Chinese investors might well replace the majority stake held by the states of Hamburg and Schleswig-Holstein as the latter are likely to have to sell equity in order to comply with the European Commission. CDS spreads for HSH are currently around 1 bps tighter at the 125 bps level.
The Liquid Team - 20 Aug 2010