Manhattan-New York

In Case You Missed It: Business News Round-up

Contributed by Martin Mitchell of the Corporate Training Group.Martin Mitchel of CTG

The chief executive of HSBC predicts a ‘W-shaped’ rather than ‘V-shaped’ recovery. The service sector in the US grew for the first time in a year in September. Goldman Sachs stands to receive a payment of $1bn if commercial lender CIT files for Chapter 11 bankruptcy protection. These are but a few highlights of important market events that we’ve gathered to help you start the week well informed.

Economic Backdrop

  • The chief executive of HSBC, Michael Geoghegan, is convinced that the economy will face a second downturn in the coming months. Believing the recovery is ‘W-shaped’ rather than ‘V-shaped’, Mr Geoghegan is ‘cautious about growing (HSBC) too fast.’
  • The World Bank has requested an additional sum of up to $5bn in new equity from its shareholder governments to support lending to middle income countries.
  • The service sector in the U.S. grew for the first time in a year in September. The Institute for Supply Management’s non-manufacturing index rose to 50.9 from 48.5 in August – anything above 50 indicates expansion.
  • Australia became the first of the G20 countries to raise interest rates in more than a year. Believing that the risk of serious economic retraction had passed, interest rates were raised by 25 basis points to 3.25%.

Mergers and Acquisitions

  • Citigroup offloaded its commodity trading unit Phibro to Occidental Petroleum for about $500m. The sale is thought to be the result of government pressure over remuneration – star trader Andrew Hall earned about $100m in 2008.
  • The merger deal struck by Ticketmaster Entertainment and Live Nation suffered a setback from the U.K.’s antitrust watchdog. In a provisional ruling, the Competition Commission said the tie up would severely inhibit new rivals in the U.K. ticket retail market and could lead to higher prices and poorer service. The commission will consider responses and publish its final report by November 24th.
  • Telefonica launched a €2.6bn bid for control of GVT, the Brazilian telecoms group. It will offer R$48 per share, trumping an existing offer of R$42 per share from French media group Vivendi.
  • Telenor, the Norwegian telecoms operator and its Russian partner Alfa Group, plan to merge their Russian and Ukrainian holdings. The deal will merge Russia’s number two mobile operator (Vimpelcom) with Ukraine’s Kyivstar to create a New York listed entity worth more than $23bn.

Financial Institutions

  • Santander of Spain raised $7bn from an IPO of its Brazilian subsidiary. In the biggest IPO so far this year, Santander floated 14% of the enlarged capital of its Brazilian business in a dual deal of shares listed in Sao Paulo and American Depositary Receipts.
  • The U.K. government-controlled banks Royal Bank of Scotland (RBS) and Lloyds Banking Group are failing to meet agreed lending targets to corporates. Lloyds agreed to lend £11bn and RBS agreed to lend £16bn as conditions for involvement in the government’s asset protection scheme, and, in the six months to the end of June, Lloyds corporate lending contracted by £18bn and RBS’s by £7bn.
  • HSBC is in advanced talks to buy Asian assets from both ING and Royal Bank of Scotland. ING is divesting its Asian private banking operations and RBS is selling its Asian retail and commercial assets.
  • SocGen launched a second rights issue in two years. The bank is raising €4.8bn in a two-for-nine issue at a 26.9% discount to the estimated ex-rights price. The money will be used to repay the French government’s €3.4bn of capital aid and create a €1.4bn war chest for acquisitions.
  • Nomura is set to almost double its headcount in the U.S. The hiring spree will see Nomura’s U.S. headcount increase to 1200 by the end of March 2010, highlighting the bank’s ambition to become a global player.
  • UK insurer Aviva is expected to sell 30 or 40 per cent of its Dutch subsidiary Delta Lloyd in an IPO. The issue should raise upwards of €1bn. Morgan Stanley and Goldman Sachs are leading the IPO for Aviva.
  • Aviva is also creating a parallel listing on the New York Stock Exchange with the first new issue of American Depositary Receipts from a U.K. company in almost ten years. U.S. investors currently hold about 20% of Aviva’s shares.
  • Deutsche Bank announced an alliance with sugar merchant Czarnikow to trade physical cargoes of the commodity. The global head of Deutsche’s oil and agricultural trading said it would allow the bank to profit from ‘the sharp edge’ of the physical market.

Credit

  • Tata Motors, the Indian owner of Land Rover and Jaguar, raised $750m through an international share sale and convertible bond issue and completed the refinancing of its $3bn bridge loan. The global depositary shares were sold at a 1.5% discount to the prevailing share price. The convertibles mature in 2014 and carry a coupon of 4% and a conversion premium of 7.5% over the GDS price.
  • German container shipping group Hapag-Lloyd is to receive state aid. The German government has agreed to guarantee €1.2bn in loans to help the group weather the downturn.
  • U.K. bookmaker Ladbrokes is to launch a heavily discounted £275m cash call to reduce its £962m debt pile ahead of refinancing talks next year with lenders RBS and Deutsche Bank. The one for two rights offer is priced at a 48% discount to the current share price and will enable Ladbrokes to reduce its debt to well below its current 3.5 times EBITDA.
  • Dubai World, the UAE group that is struggling under around $22bn of debt, is looking to get help from the central bank to aid its debt restructuring plans. A large proportion of the debt ($10bn) is held by the subsidiary Nakheel – the property developer behind Dubai’s ‘Palm.’
  • Unrated German conglomerate Evonik Industries sold $750m in five year bonds yielding 7.125%, attracting bids worth more than six times the paper on offer. If the company does not get a credit rating from two of the three main credit rating agencies by the first coupon payment date, the coupon will rise by 1.25 percentage points.
  • It was reported that Goldman Sachs stands to receive a payment of $1bn if commercial lender CIT files for Chapter 11 bankruptcy protection. The U.S. taxpayers would lose an estimated $2.3bn if CIT fails.

Other

  • The US Securities and Exchange Commission chairman said the United States remained committed to a single global accounting standard for public companies. The commitment was outlined to a technical committee meeting of the International Organisation of Securities Commissions in Basel. The G20 has agreed to the need for common standards by 2011.
  • A draft bill released by the U.S. House of Representatives’ financial services committee is recommending that all ‘standardised’ OTC derivatives be processed through clearing houses. In a potential get-out clause for corporates using the derivatives to hedge, the requirement for swaps to be cleared will not apply ‘if one of the counterparties is not a swap dealer or major swap participant.’
  • Sara Lee, the U.S. food group, has bowed to pressure from one of the world’s largest pension funds and agreed to split the roles of chief executive and chairman. Norges Bank Investment Management (NBIM), which manages $300bn in assets, has campaigned for the separation.
  • The U.K. financial regulator, the FSA, announced new liquidity standards for banks. U.K. companies will have to provide detailed reports on liquidity from the first half of 2010, and British branches of overseas banks will have to comply with the U.K. requirements unless their home states have adopted similar rules and shares information with the FSA.

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

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