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In Case You Missed It: Business News Round-up

martin1Contributed by Martin Mitchell of the Corporate Training Group

In case you were too busy to have kept up with all the news, contributor Martin Mitchell has gathered some important market events from last week to help you start this week well informed:     

Mergers and Acquisitions

  • The world’s second biggest cement maker, Holcim purchased the Australian operations of Mexico’s Cemex for A$2bn (US$1.6bn) in cash. Holcim will launch a SFr2bn (US$1.8bn) rights issue to finance the deal.
  • Anheuser-Busch InBev is looking to divest its central European operations to reduce its debt after the $52bn purchase of Anheuser-Busch. Private equity houses CVC Capital Partners, Kohlberg Kravis Roberts and TPG are among those expressing an interest in the assets that include 11 breweries.  The sale is expected to raise €1bn to €1.5bn.
  • Troubled carmaker General Motors signed a memorandum of understanding to sell Saab to Swedish company Koenigsegg Automotive. Details of the price have yet to be revealed, however the Swedish government will guarantee some $600m of funding from the European Investment Bank.
  • Islamic investment group Arcapita sold Church’s Chicken, the world’s third biggest chain of fast food restaurants to Friedman, Fleischer and Lowe, a San Francisco private equity group for around $390m. The deal will see Arcapita double its investment after purchasing Church’s Chicken in 2004.

Financial Institutions

  • Citigroup announced a tie-up with the International Finance Corporation, the private sector arm of the World Bank. The deal will see Citi provide $750m to banks in the emerging markets alongside a further $500m from the IFC and other development groups to unblock world trade flows with trade finance. The $1.25bn total will be used to finance trade involving the emerging markets, potentially financing up to $7.5bn in trade flows over the next three years.
  • Citigroup also moved forward with the planned sale of its Japanese asset management arm. At least four contenders were lined up for the second round of bidding. The US bank is thought to want more than Y100bn (€749m) for Nikko Asset Management that manages Y8,817bn of assets. The four are thought to be Nomura, Mizuho, Sumitomo Mitsui Financial Group and T&D Holdings.
  • A New York brokerage, Auerbach Grayson became the first international company to sell Iraqi securities since the 2003 invasion. Auerbach has entered into an agreement with Rabee Securities, a Baghdad brokerage that will provide research, trade execution and intelligence on companies traded on the Iraq Stock Exchange to US institutional investors.
  • The pecking order of bourses around the world saw Hong Kong and Brazil overtake the likes of the London Stock Exchange, NYSE Euronext and Nasdaq OMX in market capitalisation. The top four exchanges by market cap are currently  CME Group Hong Kong Exchange and Clearing Deutsche Borse, and Brazil’s BM&F Bovespa.
  • Dubai investment bank Shuaa Capital’s shares were briefly suspended after a dispute surrounding a convertible bond with a face value of Dh1.5bn that is held by Dubai government-controlled Dubai Banking Group. The dispute surrounds Shuaa’s view that the bond has a mandatory conversion provision to convert into Shuaa shares at Dh6 each. The Dubai banking Group maintains that it can instead demand repayment of the principal and interest. Shuaa shares are currently trading at around Dh1.7.
  • Barclays Capital revealed its ambition to become ‘the premier global investment bank’ in the next couple of years. President of Barclays Bob Diamond wants to see the likes of Goldman Sachs and JPMorgan displaced from the top slots of investment banking worldwide.
  • The market-making part of Bernard Madoff’s business was relaunched as Surge Trading. The market-making activities were not part of Mr Madoff’s ‘Ponzi’ Scheme and the business will provide financial institutions with access to trade execution services and exchanges.
  • US government-controlled insurer AIG appointed Deutsche Bank and Morgan Stanley to be the global co-ordinators for the $5bn-plus initial public offer of its Asian life assurance activities.
  • The former chief executive of the UK’s Royal Bank of Scotland (RBS), Sir Fred Goodwin has voluntarily agreed to hand back more than a third of his controversial pension entitlement. RBS is now 70% owned by the UK government after the bank required a £20bn bail-out. After a legal review of the pension agreement that concluded Sir Fred had done nothing wrong, he handed back the money that will see his pension pot fall to £12.2m and his annual pension fall to £342,500 per annum.
  • Sir Allen Stanford is facing fraud charges alleging that he plotted with senior executives and a Caribbean regulator to cover up a $7bn investor scam. The allegations surround Sir Allen’s Antigua-based Stanford International Bank and claim Sir Allen stole more than $1.6bn from his businesses. The money was used to fund his own ‘personal playground’ that included real estate deals and last year’s 20/20 cricket tournament that involved England and the West Indies.

Credit

  • The UK became the first triple A rated nation since 2005 to sell its conventional bonds by a syndicated offer through investment banks, rather than the more usual auction. Barclays Capital, Goldman Sachs, HSBC and the Royal Bank of Scotland sales teams managed to sell £7bn of a new 25 year gilt, with demand rising to £15.25bn in two hours. The deal had originally planned to raise £3bn to £5bn. The bonds will yield 11 basis points above UK debt with a similar maturity. 
  • Italian fashion house Prada is attempting to renegotiate some of its €1.1bn of net debt. It is in talks to reschedule the repayment of €350m of bank debt that matures in the summer of 2010. It is hoped that the rescheduling will enable Prada to ride out the global recession without adversely impacting its store expansion plans.
  • Spain opened itself to criticism of financial protectionism as the investment of the €58.6bn surplus on its social security funds was shifted to domestic government bonds. Previously the surplus was diversified across the debt paper of other leading European countries.
  • Japanese moneylender Takefuji has started talks with bond insurance group Ambac after its credit rating was downgraded to junk by Standard and Poor’s. 
  • UK retailer Tesco raised £430m of funds by selling a commercial property-backed bond to European institutional investors. The bond issue was arranged by Goldman Sachs and is a relatively simple structure, incorporating just a single tranche with an A-rating backed by cash flows generated by a collection of properties used by Tesco. The bond was priced to yield 330 basis points over 20 year gilts and was three-times subscribed. 
  • UK and Irish broadcaster Setanta took a step towards administration as it missed the deadline for a £10m payment to the English Premier League, triggering the loss of broadcast rights for next season.  

Other

  • President Obama revealed his plans for US regulatory reform in the light of the financial crisis. The proposals that have yet to go through Congress are as follows: (1) the Federal Reserve will scrutinise all financial companies that could pose a systemic threat. These will include banks and any other companies that have significant financial operations such as GE;  (2) the government will have the power to seize and wind up failing institutions, such as Lehman Brothers and AIG; (3) there will be more transparency for markets, particularly derivatives markets. There will be stronger oversight of the credit ratings agencies and issuers of securitised loans will be required to retain at least 5% of the credit risk; (4) a new Consumer Financial Protection Agency will be created to ensure safe selling of mortgages, credit cards and other consumer products. The new agency will oversee mortgage brokers and take on financial education responsibilities.
  • A survey of the members of the British branch of the CFA Institute found that they felt efficient markets no longer existed. Asked whether they trusted ‘market efficiency’ more than two-thirds said they did not, and 77% did not feel that investors behaved rationally.
  • Mining company Rio Tinto launched a 21 for 40 rights issue to raise more than $15bn after its planned $19.5bn asset sales to Chinalco were aborted under shareholder pressure. The issue is fully underwritten and will cost around $430m in fees, on top of the $195m break fee Rio had to pay to Chinalco.
  • Meanwhile, Rio Tinto’s plan to enter into a joint venture with rival BHP Billiton in iron ore may be scuppered by China’s ministry of commerce.  Together the two companies supply 75% of China’s iron ore imports and China may use its antitrust law to attempt to block the deal it sees as ‘monopolistic’. If implemented, the JV will save Rio around $10bn in costs.
  • NYSE Euronext agreed to pay $200m for a 20% stake in the Doha Securities Market in Qatar that will take its stake to 45%. The Doha government is planning to float part of its stake in the joint venture in Qatar next year.  

Note : The details contained in this article have been drawn from a daily review of the Financial Times

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