Dubai’s failure to reassure investors its restructuring plan will succeed is causing the emirate’s benchmark stock index to drop the most in the world and forcing companies to scrap bond sales.
The Dubai Financial Market General Index lost 13 percent since Dec. 14, wiping out a rally sparked by Abu Dhabi’s bailout of Dubai World that day. Bonds of the state-owned company’s property developer Nakheel PJSC sank to 56 cents on the dollar from 67.5 cents, while credit default swaps on Dubai government debt trade at 491.5 basis points, near the highest level since Abu Dhabi’s fund injection.
Dubai World, in talks to reschedule $22 billion of debt, failed to present an offer in a meeting with lenders in December and declined to say when a deal may be struck. Dubai Electricity & Water Authority said Jan. 17 it delayed a $1.5 billion bond sale as borrowing costs were too high.
Lack of clarity on Dubai World’s restructuring plan “is creating uncertainty that is weighing heavily on the market,” said Rami Sidani, the Dubai-based head of Middle East and North Africa investment at Schroder Investment Management Ltd., which oversees about $230 billion worldwide. “We’re not out of the woods yet and we know Dubai will continue to struggle with a debt burden.”
Real-Estate Crash
Dubai stocks and bonds tumbled in November after the government said Dubai World would seek to delay payments to creditors until at least May 30. Investors speculated that Nakheel, which is building palm tree-shaped islands off the emirate’s coast, would default after Dubai companies lost access to cheap financing because of the global credit crunch and a 50 percent slump in Dubai home prices.
Abu Dhabi’s $10 billion bailout on Dec. 14 ensured that Nakheel would have the $4.1 billion it needed to repay an Islamic bond due that day. Dubai is the second-biggest of seven states that make up the United Arab Emirates, whose capital Abu Dhabi holds 8 percent of global oil reserves. Dubai and its state-owned companies borrowed at least $80 billion until 2008 to transform the emirate into a tourism and financial hub.
The Dubai stock index jumped 10 percent and bond prices soared on the day Abu Dhabi provided the funds. Dubai credit default swaps, which measure the cost of protecting against the default of government debt, sank to 430 basis points from 540.
Biggest Decline
The Dubai stock index has since posted the biggest decline among benchmark equity gauges in the world’s 70 largest markets. While global stocks have retreated on concern China will take steps to curb economic growth, the Dubai measure’s 13 percent loss compares with a 4.3 percent decline in the MSCI AC World Index.
Nakheel’s $750 million of 2.75 percent bonds due 2011 lost about 17 percent during the period, according to Citigroup Inc. prices on Bloomberg, while credit default swaps jumped 61.5 basis points. A basis point on a credit-default swap contract to protect against the default of $10 million of debt for five years is equivalent to $1,000 a year.
The Dubai stock index climbed 2.2 percent to close at 1,624.75 today, while the Nakheel 2011 bonds gained to 56 cents from 55.75 cents on Jan. 29. Dubai credit default swaps fell 1.5 basis points to 491.5, according to CMA DataVision prices.
“The Dubai World restructuring is going to be a long and tedious process,” said Shehab Gargash, a managing director at Dubai-based Daman Investments who’s holding half of his $1.5 billion under management in cash. “That’s the main reason we decided to stay out” of Dubai’s “bear market rally,” he said.
Worst Is Over
Templeton Asset Management Ltd.’s Mark Mobius says the Abu Dhabi bailout ensured the worst of the emirate’s debt crisis is over. The manager of $34 billion in emerging market assets said in an interview there’s “value and opportunity” in Dubai markets and that Templeton bought shares during the selloff in November and early December.
“There has to be more revelations about what is being done and how, but the panic is over,” Mobius, the chairman of Templeton Asset Management, said in the Jan. 28 interview in Melbourne. “We are trying to buy at a good price given the fact that transparency isn’t complete.”
The Dubai stock index trades for 5.2 times analysts’ 2010 earnings estimates, the cheapest level worldwide after Nigeria’s All Share Index, according to data compiled by Bloomberg.
While investors speculate on the recovery values of Dubai debt, the lifeline from Abu Dhabi is helping the state-owned companies meet their interest payments. Nakheel paid a $10.3 million coupon last month on its 2011 bond. Dubai Holding Commercial Operations Group LLC, the investment company owned by Dubai’s ruler, made about $100 million of scheduled payments in January on three bonds.
Refinancing Needs
Dubai-based firms have to refinance $7.3 billion in syndicated loans and $2.8 billion in maturing bonds this year, according to Deutsche Bank AG estimates. Some of the biggest debt maturities include a $1.25 billion loan due in June by Dubai International Capital LLC, an investment company owned by Dubai’s ruler, and $1.5 billion in two floating-rate dollar notes issued by Emirates NBD PJSC.
Emirates Telecommunications Corp., the U.A.E.’s biggest phone company, has deferred plans to issue the equivalent of $490 million in bonds as it has enough cash for expansion plans, Ahmed bin Ali, a spokesman for the company, said Jan. 28.
IPOs Dry Up
The Dubai government’s $1.93 billion Islamic bond issued in October was the last sale of bonds from the emirate. Drake & Scull International PJSC, a Dubai-based construction-engineering contractor that raised about 1.2 billion dirhams ($327 million) from its initial public offering in 2008, was the last stock sale from a Dubai-based company, according to Bloomberg data.
“It makes very little sense for a Dubai corporate issuer to go out now and just try to force the issue in the market,” said Abdul Kadir Hussain, chief executive officer of fund manager Mashreq Capital DIFC Ltd. “Right now the market is waiting for a strategy. How are we going to reduce the absolute debt level in Dubai and how quickly is this going to happen. Investors are taking a very conservative attitude toward the U.A.E.”
To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.netMichael Patterson in London at mpatterson10@bloomberg.net. Vivian Salama in Abu Dhabi at vsalama@bloomberg.net
Monday, February 1, 2010
U.S. Stock Futures Rise, Treasuries Fall on Economy; Euro Gains
U.S. stock-index futures advanced and the euro snapped a four-day decline versus the dollar on speculation manufacturing is recovering around the world.
Futures on the Standard & Poor’s 500 Index rose 0.4 percent at 11:40 a.m. in London. The euro strengthened 0.2 percent against the dollar the yen. The zloty climbed as much as 1.3 percent to its highest in a year against the euro and the rand gained 0.3 percent against the dollar as factory production rose in Poland and South Africa.
U.S. manufacturing probably expanded in January for a sixth month, the Institute for Supply Management may say today, adding to evidence the recovery in the world’s biggest economy is gaining momentum. Indexes of manufacturing in the euro region and the U.K. rose more than economists forecast.
“We look for a further leg up in equities, which could be driven by positive economic and earnings news,” JPMorgan Asset Management strategists David Shairp and Rekha Sharma wrote in a report today. The prospect of central banks withdrawing stimulus may mean that “markets will be periodically challenged and volatility will be on the rise,” they wrote.
The MSCI World Index of 23 developed nations’ stocks slipped 0.2 percent as Asian stocks dropped on concern China will take more steps to prevent its economy from overheating. Toshiba Corp. declined 6 percent in Tokyo after cutting its revenue forecast. Honda Motor Co. slid 2.5 after saying it’s recalling some cars in North America and the U.K.
European Movers
Europe’s Dow Jones Stoxx 600 Index fell 0.3 percent, paring earlier losses of as much as 0.8 percent. Vivendi SA, the owner of the world’s largest music company, slid 2.6 percent in Paris after a U.S. jury ruled it misled investors. Ryanair Holdings Plc advanced 5.1 percent in Dublin after Europe’s biggest discount airline raised its profit forecast.
Northumbrian Water Group Plc led shares of utility companies higher, jumping as much as 13 percent in London, after the Sunday Times reported that Ontario Teachers’ Pension Plan may bid 1.7 billion pounds ($2.7 billion) for the company.
The gain in U.S. futures indicated the S&P 500 may rebound from a three-month low. The U.S. Institute for Supply Management’s factory index, due at 10 a.m. in New York, rose to 55.5 last month from 54.9 in December, according to the median forecast of 62 economists surveyed by Bloomberg News. Readings greater than 50 signal expansion. Other reports may show personal spending rose and construction fell.
Earnings Rebound
A record nine-quarter earnings slump for S&P 500 companies is projected to have ended in the final three months of 2009 with a 76 percent increase in profits. Almost 80 percent of the results released since Jan. 11 topped the average forecasts of Wall Street estimates, data compiled by Bloomberg show. Exxon Mobil Corp. is among companies reporting earnings today.
The Dubai Financial Market General Index climbed 1.5 percent after Aabar Investments PJSC, the Abu Dhabi fund that’s the biggest shareholder in Daimler AG, said full-year profit more than doubled. The MSCI Emerging Markets Index fell 0.7 percent, extending its drop since Jan. 11 to as much as 10 percent. The ruble weakened 0.4 percent to a six-week low against the dollar.
The euro advanced against 10 of its 16 most-traded counterparts, rising most versus the South Korean won with a 1 percent gain. The pound fell after reports showing a decline in U.K. house prices and a drop in mortgage approvals. The U.K. currency lost 0.6 percent against the dollar and 0.9 percent versus the euro.
The Dollar Index, which tracks the U.S. currency against those of six major trading partners, ended a four-day advance, dropping 0.1 percent. Treasuries fell for the first time in three days, with the yield on the 10-year note rising 3 basis points to 3.62 percent.
Copper for delivery in three months fell as much as 2.2 percent to $6,600 a metric ton in London, the lowest compared with intraday prices since Nov. 16. Tin retreated 5.2 percent to $16,300 a ton, the lowest since Dec. 24. Gold for immediate delivery added 0.3 percent to $1,083.55 an ounce and crude oil added 0.2 percent to $73.02 a barrel in New York.
To contact the reporter on this story: Justin Carrigan in Copenhagen at swallace6@bloomberg.net
Futures on the Standard & Poor’s 500 Index rose 0.4 percent at 11:40 a.m. in London. The euro strengthened 0.2 percent against the dollar the yen. The zloty climbed as much as 1.3 percent to its highest in a year against the euro and the rand gained 0.3 percent against the dollar as factory production rose in Poland and South Africa.
U.S. manufacturing probably expanded in January for a sixth month, the Institute for Supply Management may say today, adding to evidence the recovery in the world’s biggest economy is gaining momentum. Indexes of manufacturing in the euro region and the U.K. rose more than economists forecast.
“We look for a further leg up in equities, which could be driven by positive economic and earnings news,” JPMorgan Asset Management strategists David Shairp and Rekha Sharma wrote in a report today. The prospect of central banks withdrawing stimulus may mean that “markets will be periodically challenged and volatility will be on the rise,” they wrote.
The MSCI World Index of 23 developed nations’ stocks slipped 0.2 percent as Asian stocks dropped on concern China will take more steps to prevent its economy from overheating. Toshiba Corp. declined 6 percent in Tokyo after cutting its revenue forecast. Honda Motor Co. slid 2.5 after saying it’s recalling some cars in North America and the U.K.
European Movers
Europe’s Dow Jones Stoxx 600 Index fell 0.3 percent, paring earlier losses of as much as 0.8 percent. Vivendi SA, the owner of the world’s largest music company, slid 2.6 percent in Paris after a U.S. jury ruled it misled investors. Ryanair Holdings Plc advanced 5.1 percent in Dublin after Europe’s biggest discount airline raised its profit forecast.
Northumbrian Water Group Plc led shares of utility companies higher, jumping as much as 13 percent in London, after the Sunday Times reported that Ontario Teachers’ Pension Plan may bid 1.7 billion pounds ($2.7 billion) for the company.
The gain in U.S. futures indicated the S&P 500 may rebound from a three-month low. The U.S. Institute for Supply Management’s factory index, due at 10 a.m. in New York, rose to 55.5 last month from 54.9 in December, according to the median forecast of 62 economists surveyed by Bloomberg News. Readings greater than 50 signal expansion. Other reports may show personal spending rose and construction fell.
Earnings Rebound
A record nine-quarter earnings slump for S&P 500 companies is projected to have ended in the final three months of 2009 with a 76 percent increase in profits. Almost 80 percent of the results released since Jan. 11 topped the average forecasts of Wall Street estimates, data compiled by Bloomberg show. Exxon Mobil Corp. is among companies reporting earnings today.
The Dubai Financial Market General Index climbed 1.5 percent after Aabar Investments PJSC, the Abu Dhabi fund that’s the biggest shareholder in Daimler AG, said full-year profit more than doubled. The MSCI Emerging Markets Index fell 0.7 percent, extending its drop since Jan. 11 to as much as 10 percent. The ruble weakened 0.4 percent to a six-week low against the dollar.
The euro advanced against 10 of its 16 most-traded counterparts, rising most versus the South Korean won with a 1 percent gain. The pound fell after reports showing a decline in U.K. house prices and a drop in mortgage approvals. The U.K. currency lost 0.6 percent against the dollar and 0.9 percent versus the euro.
The Dollar Index, which tracks the U.S. currency against those of six major trading partners, ended a four-day advance, dropping 0.1 percent. Treasuries fell for the first time in three days, with the yield on the 10-year note rising 3 basis points to 3.62 percent.
Copper for delivery in three months fell as much as 2.2 percent to $6,600 a metric ton in London, the lowest compared with intraday prices since Nov. 16. Tin retreated 5.2 percent to $16,300 a ton, the lowest since Dec. 24. Gold for immediate delivery added 0.3 percent to $1,083.55 an ounce and crude oil added 0.2 percent to $73.02 a barrel in New York.
To contact the reporter on this story: Justin Carrigan in Copenhagen at swallace6@bloomberg.net
Germany May Buy Stolen Bank Account Data, Risking Swiss Ties
The German government said it may buy stolen information relating to Swiss bank accounts, risking a worsening of relations between the two neighbors already damaged last year in a spat over tax evasion.
“We will decide this case along the same lines that we decided the Liechtenstein case,” German Finance Ministry spokesman Michael Offer told reporters in Berlin today. “In the case of Lichtenstein, the conclusion was reached to buy the data.” There are “a number of questions that still need to be answered” before a decision, Offer said.
German authorities opened a tax-evasion probe in 2008 aimed at hundreds of investors in Liechtenstein, a principality adjacent to Switzerland, using data purchased from a former employee of LGT Group. Crown Prince Alois, who rules Liechtenstein, called the probe an “attack” on his country.
The Swiss case involves files on Swiss bank accounts held by German nationals which may enable the government to recoup as much as 200 million euros ($277 million) in lost tax revenue, newspapers including Handelsblatt reported late yesterday.
German Finance Minister Wolfgang Schaeuble and his Swiss counterpart, Finance Minister Hans-Rudolf Merz, held “constructive” talks by phone today, when they agreed to work to resolve the matter together, Offer said.
The potential sale of Swiss bank account details comes as Merkel’s coalition with the Free Democrats, in office since October, attempts to repair relations with Switzerland damaged last year when then Finance Minister Peer Steinbrueck said Swiss rules encouraged Germans to evade taxes at home. Blick, the Swiss mass-market newspaper, said that Steinbrueck, a Social Democrat, was one of the “most hated people in Switzerland.”
‘Deep’ Ties
“I think relations are so stable, friendly and deep that they won’t be affected by what’s happened,” German Economy Minister Rainer Bruederle told ZDF television yesterday.
The Swiss information was drawn primarily from accounts at UBS AG, Handelsblatt reported today. The Financial Times Deutschland said the data came from a Geneva-based private- banking unit of HSBC Holdings Plc. German authorities have been offered information on about 1,300 German holders of Swiss bank accounts for 2.5 million euros, the FTD said.
UBS “is not aware of any such information,” spokesman Christoph Meier said yesterday of the Handelsblatt report. “At this point in time this is speculation.”
Steffen Poerner, a spokesman for HSBC Trinkaus & Burkhardt AG, the Dusseldorf, Germany-based bank controlled by HSBC, said he couldn’t immediately comment on the report. A spokesman for HSBC in Geneva declined to comment when contacted by phone today.
To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net
“We will decide this case along the same lines that we decided the Liechtenstein case,” German Finance Ministry spokesman Michael Offer told reporters in Berlin today. “In the case of Lichtenstein, the conclusion was reached to buy the data.” There are “a number of questions that still need to be answered” before a decision, Offer said.
German authorities opened a tax-evasion probe in 2008 aimed at hundreds of investors in Liechtenstein, a principality adjacent to Switzerland, using data purchased from a former employee of LGT Group. Crown Prince Alois, who rules Liechtenstein, called the probe an “attack” on his country.
The Swiss case involves files on Swiss bank accounts held by German nationals which may enable the government to recoup as much as 200 million euros ($277 million) in lost tax revenue, newspapers including Handelsblatt reported late yesterday.
German Finance Minister Wolfgang Schaeuble and his Swiss counterpart, Finance Minister Hans-Rudolf Merz, held “constructive” talks by phone today, when they agreed to work to resolve the matter together, Offer said.
The potential sale of Swiss bank account details comes as Merkel’s coalition with the Free Democrats, in office since October, attempts to repair relations with Switzerland damaged last year when then Finance Minister Peer Steinbrueck said Swiss rules encouraged Germans to evade taxes at home. Blick, the Swiss mass-market newspaper, said that Steinbrueck, a Social Democrat, was one of the “most hated people in Switzerland.”
‘Deep’ Ties
“I think relations are so stable, friendly and deep that they won’t be affected by what’s happened,” German Economy Minister Rainer Bruederle told ZDF television yesterday.
The Swiss information was drawn primarily from accounts at UBS AG, Handelsblatt reported today. The Financial Times Deutschland said the data came from a Geneva-based private- banking unit of HSBC Holdings Plc. German authorities have been offered information on about 1,300 German holders of Swiss bank accounts for 2.5 million euros, the FTD said.
UBS “is not aware of any such information,” spokesman Christoph Meier said yesterday of the Handelsblatt report. “At this point in time this is speculation.”
Steffen Poerner, a spokesman for HSBC Trinkaus & Burkhardt AG, the Dusseldorf, Germany-based bank controlled by HSBC, said he couldn’t immediately comment on the report. A spokesman for HSBC in Geneva declined to comment when contacted by phone today.
To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net
Toyota to Send Pedal-Repair Kits to U.S. Dealers This Week
Toyota Motor Corp. is making “field remedy” kits to fix flawed accelerator pedals that caused a recall of 2.3 million U.S. vehicles and aims to deliver them to dealerships in the nation starting late this week.
The company is making steel plates in Japan that will be used to fill a gap in the pedals and prevent the risk of sticking that triggered the recall, said John Hanson, a spokesman for Toyota’s U.S. unit. CTS Corp., which made the original pedals, is delivering modified pedals to Toyota’s North American plants to help restart idled assembly lines, he said.
“We have very high confidence in the durability of the field remedy, that it’s as good as the factory remedy,” Hanson said. “The kits are being produced in large quantities, and dealers may start getting them as early as Friday.”
The automaker on Jan. 21 recalled 2.3 million U.S. vehicles for the pedal flaw, which may cause sudden acceleration. The action, coinciding with other sudden acceleration-related recalls of about 5.4 million vehicles, led to a halt of U.S. sales and North American production of eight models and prompted Congress to schedule hearings on the matter.
The company’s U.S. sales and assembly suspension, announced Jan. 26, includes Toyota’s top-selling Camry and Corolla cars; Avalon sedans; Matrix hatchbacks; Highlander, RAV4 and Sequoia sport-utility vehicles; and Tundra pickups. Five assembly lines in the U.S. and Canada that make the models are to be shut this week.
‘Open 24 Hours’
Hanson said he couldn’t confirm whether Toyota arranged for a North American supplier to also produce the steel plates. Since Toyota dealers will get repair kits before customers receive recall notices by mail, they’ll proceed with the fix as owners of recalled models bring their vehicles in, Hanson said.
“Some of our dealers have said they’ll stay open 24 hours a day, seven days a week to get this done,” he said.
Pedal assemblies in models that were recalled have a gap that the steel plate is designed to fill, Hanson said. The new piece relieves friction that can develop in some pedals as a result of wear and tear and condensation, and allows the pedal to spring back without sticking, he said.
Toyota last week said its North American plants were already receiving new accelerator pedals from CTS.
In Europe, the carmaker will recall as many as 1.8 million of its autos, and PSA Peugeot Citroen will recall 90,000 vehicles made at a factory managed by Toyota. In China, Toyota will recall 75,600 vehicles.
Media Blitz
Jim Lentz, president of Toyota Motor Sales USA, was scheduled to make U.S. television appearances today, starting with NBC Universal’s “Today” show. He planned to speak on the morning news and talk program before holding a conference call at 11 a.m. New York time with other media organizations. Lentz may also appear on Bloomberg Television.
The planned TV appearances would be the first for a U.S. audience. The automaker ran an informational advertisement in newspapers yesterday, and President Akio Toyoda made an apology last week in Davos, Switzerland.
“I am deeply sorry that we’re giving cause for concern to customers,” Toyoda said in an unscheduled interview on Jan. 29 with Japan’s NHK television network in Davos, posted to U.S. broadcaster ABC News’ Web site. “We’re preparing to explain the facts to our customers as soon as we can so that we can remove that anxiety.”
Toyota Caused ‘Anxiety’
Toyota has caused “anxiety” among drivers and investors as top management hasn’t been sufficiently forthcoming, Tatsuya Mizuno, director of Mizuno Credit Advisory, said before the U.S. television appearances were announced.
“They have wasted too much time without doing anything,” Mizuno said. “Toyota used to be a company with foresight, always ready to take action, but now they have fallen very far behind the curve.”
Toyoda’s 75-second remarks contrast with press conferences by Mitsubishi Motors Corp. and Panasonic Corp. where executives bowed deeply to express contrition for recalls.
“It’s great that they are doing the ‘Today’ show this week, but last week would have been better,” said Rebecca Lindland, a forecaster at IHS Global Insight Inc. in Lexington, Massachusetts.
House Hearings
The House Energy and Commerce Committee will hold a hearing Feb. 25, in part to examine the response to reports of sudden acceleration by National Highway Traffic Safety Administration involving the company’s models.
The House Committee on Oversight and Government Reform plans its own hearing on Feb. 10.
The U.S. government didn’t balk at Toyota’s approach during a meeting last week, according to a Transportation Department official, who declined to be identified. The department’s NHTSA unit, which oversees recalls, doesn’t formally approve specific remedies, the official said.
Toyota faces at least seven U.S. lawsuits by individual plaintiffs claiming deaths or injuries caused by sudden acceleration. Since November, consumers have also filed at least eight lawsuits seeking class-action status against the company.
To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net
The company is making steel plates in Japan that will be used to fill a gap in the pedals and prevent the risk of sticking that triggered the recall, said John Hanson, a spokesman for Toyota’s U.S. unit. CTS Corp., which made the original pedals, is delivering modified pedals to Toyota’s North American plants to help restart idled assembly lines, he said.
“We have very high confidence in the durability of the field remedy, that it’s as good as the factory remedy,” Hanson said. “The kits are being produced in large quantities, and dealers may start getting them as early as Friday.”
The automaker on Jan. 21 recalled 2.3 million U.S. vehicles for the pedal flaw, which may cause sudden acceleration. The action, coinciding with other sudden acceleration-related recalls of about 5.4 million vehicles, led to a halt of U.S. sales and North American production of eight models and prompted Congress to schedule hearings on the matter.
The company’s U.S. sales and assembly suspension, announced Jan. 26, includes Toyota’s top-selling Camry and Corolla cars; Avalon sedans; Matrix hatchbacks; Highlander, RAV4 and Sequoia sport-utility vehicles; and Tundra pickups. Five assembly lines in the U.S. and Canada that make the models are to be shut this week.
‘Open 24 Hours’
Hanson said he couldn’t confirm whether Toyota arranged for a North American supplier to also produce the steel plates. Since Toyota dealers will get repair kits before customers receive recall notices by mail, they’ll proceed with the fix as owners of recalled models bring their vehicles in, Hanson said.
“Some of our dealers have said they’ll stay open 24 hours a day, seven days a week to get this done,” he said.
Pedal assemblies in models that were recalled have a gap that the steel plate is designed to fill, Hanson said. The new piece relieves friction that can develop in some pedals as a result of wear and tear and condensation, and allows the pedal to spring back without sticking, he said.
Toyota last week said its North American plants were already receiving new accelerator pedals from CTS.
In Europe, the carmaker will recall as many as 1.8 million of its autos, and PSA Peugeot Citroen will recall 90,000 vehicles made at a factory managed by Toyota. In China, Toyota will recall 75,600 vehicles.
Media Blitz
Jim Lentz, president of Toyota Motor Sales USA, was scheduled to make U.S. television appearances today, starting with NBC Universal’s “Today” show. He planned to speak on the morning news and talk program before holding a conference call at 11 a.m. New York time with other media organizations. Lentz may also appear on Bloomberg Television.
The planned TV appearances would be the first for a U.S. audience. The automaker ran an informational advertisement in newspapers yesterday, and President Akio Toyoda made an apology last week in Davos, Switzerland.
“I am deeply sorry that we’re giving cause for concern to customers,” Toyoda said in an unscheduled interview on Jan. 29 with Japan’s NHK television network in Davos, posted to U.S. broadcaster ABC News’ Web site. “We’re preparing to explain the facts to our customers as soon as we can so that we can remove that anxiety.”
Toyota Caused ‘Anxiety’
Toyota has caused “anxiety” among drivers and investors as top management hasn’t been sufficiently forthcoming, Tatsuya Mizuno, director of Mizuno Credit Advisory, said before the U.S. television appearances were announced.
“They have wasted too much time without doing anything,” Mizuno said. “Toyota used to be a company with foresight, always ready to take action, but now they have fallen very far behind the curve.”
Toyoda’s 75-second remarks contrast with press conferences by Mitsubishi Motors Corp. and Panasonic Corp. where executives bowed deeply to express contrition for recalls.
“It’s great that they are doing the ‘Today’ show this week, but last week would have been better,” said Rebecca Lindland, a forecaster at IHS Global Insight Inc. in Lexington, Massachusetts.
House Hearings
The House Energy and Commerce Committee will hold a hearing Feb. 25, in part to examine the response to reports of sudden acceleration by National Highway Traffic Safety Administration involving the company’s models.
The House Committee on Oversight and Government Reform plans its own hearing on Feb. 10.
The U.S. government didn’t balk at Toyota’s approach during a meeting last week, according to a Transportation Department official, who declined to be identified. The department’s NHTSA unit, which oversees recalls, doesn’t formally approve specific remedies, the official said.
Toyota faces at least seven U.S. lawsuits by individual plaintiffs claiming deaths or injuries caused by sudden acceleration. Since November, consumers have also filed at least eight lawsuits seeking class-action status against the company.
To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net
HSBC, Santander Gain Share of U.K. Mortgages as Mutuals Shrink
HSBC Holdings Plc and Banco Santander SA are among banks gaining a bigger share of the mortgage market as Britain’s building societies post the worst contraction in lending since records began.
Customer-owned lenders reported net mortgage repayments totaling 7.4 billion pounds ($11.7 billion) in the 12 months through December 2009, the Building Societies Association said today. That’s the longest contraction since records began in 1987, said Rachel Le Brocq, a spokeswoman for the mutual lenders’ lobby group.
“Building societies may find it difficult to recoup the market share that they’ve lost over the last few months,” said Professor Chris Hamnett of King’s College London, who last year wrote an Institute for Public Policy Research report on the British housing boom and bust.
The 52 mutual lenders, which provide loans to almost 3 million British home-buyers, are struggling to offer competitive mortgages with wholesale funding costs still high following the credit crisis, according to banking analyst Neil Smith of WestLB AG. In addition, customers have withdrawn a net 5.2 billion pounds in savings since May, adding to funding pressures.
Their share of the 253.2 billion-pound a year mortgage market has fallen to 13 percent from 16.7 percent in 2003, according to data compiled by the Council of Mortgage Lenders.
‘More Resources’
HSBC and Santander, Europe’s biggest banks by market value, both said last year they increased U.K. mortgage loans, even as overall lending declined. Abbey National, a unit of Santander, increased its market share to 20.5 percent in the third quarter of 2009, from 12.5 percent the previous year. London-based HSBC said it boosted its share of U.K. mortgage sales to 9.9 percent in the third quarter, from 4.5 percent in the first half of 2008.
“The way we priced back in 2004 to 2006 made it very difficult to sell our mortgages because others were undercutting us with cheap wholesale funding,” said James Thorpe, a spokesman for HSBC. “That’s now changed.” Santander spokesman Andy Smith declined to comment.
“The big banks have got much more financial resources behind them and have been able to borrow very cheaply from government,” Hamnett said.
Lloyds Banking Group Plc, which became the U.K.’s biggest mortgage lender after acquiring HBOS Plc in 2009, said in August it “maintained” its 27 percent share of the market in the first half of 2009.
Thatcher Liberalization
Banks were restricted from selling mortgages in the U.K. until the 1980s, leaving building societies to dominate the market, Hamnett said. Before Prime Minister Margaret Thatcher liberalized lending rules, mutuals had at least an 80 percent share of the market, according to the BSA. The first English building society was formed in 1775.
“Building societies aren’t concentrating on market share at the moment, they’re concentrating on prudent lending,” said Adrian Coles, BSA director-general. Declining lending and savings may continue for another two or three years, he said.
“It will take decades of this monthly data to see them go down to zero,” Coles said. “That’s not likely to occur.”
The freeze in credit markets in 2007 and the ensuing recession prompted eight mergers between building societies, reducing the total number of mutual lenders to 52.
“Further consolidation looks almost certain,” said Jonathan MacDonald, a London-based financial services analyst at Datamonitor.
Chelsea, Dunfermline
Dunfermline Building Society had its worst-performing assets nationalized before it merged with Nationwide, the U.K.’s biggest customer-owned lender, in March last year after defaults on commercial and subprime mortgages soared. Chelsea Building Society agreed to merge with Yorkshire Building Society last month after logging 41 million pounds in provisions for suspected or proven mortgage fraud.
The “vast majority” of British building societies should reduce commercial and landlord lending by a total of 3.2 billion pounds, the Financial Services Authority said in a June paper. Any society deemed too risky would be forced to simplify lending models, the London-based regulator said.
The FSA is requiring building societies to hold more cash and government bonds in reserve, limiting the amount they can lend, the BSA’s Coles said. The U.K. watchdog is also asking mutual lenders to get more of their funding from retail deposits at a time when the savings market is the smallest it’s been for a decade, he said.
“Unprecedented Opportunity”
Mutuals are missing out on an “unprecedented opportunity” to profit from mortgages as lenders that had 11 percent of the 2007 market have withdrawn, said Mike Baxter, lead banking partner at consultant Bain & Co. Many overseas-based lenders withdrew from the U.K. mortgage market as the financial crisis meant they couldn’t sell on the loans to investors, he said.
Northern Rock Plc, which had 14 percent of the mortgage market share in 2005, and Bradford & Bingley Plc, previously the country’s biggest buy-to-let lender, were both nationalized in 2008. The two former building societies were forced to seek government aid after cheap wholesale funding dried up following the onset of the credit crisis in 2007.
The four lenders offering the cheapest mortgages in the fourth quarter of last year were all owned by banks, according to a study released this month by realpricecomparison.com, which compares mortgage products. Santander and HSBC own four of the top six brands in the study. The highest-placed mutual lender was Principality Building Society, which was placed seventh.
To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net
Customer-owned lenders reported net mortgage repayments totaling 7.4 billion pounds ($11.7 billion) in the 12 months through December 2009, the Building Societies Association said today. That’s the longest contraction since records began in 1987, said Rachel Le Brocq, a spokeswoman for the mutual lenders’ lobby group.
“Building societies may find it difficult to recoup the market share that they’ve lost over the last few months,” said Professor Chris Hamnett of King’s College London, who last year wrote an Institute for Public Policy Research report on the British housing boom and bust.
The 52 mutual lenders, which provide loans to almost 3 million British home-buyers, are struggling to offer competitive mortgages with wholesale funding costs still high following the credit crisis, according to banking analyst Neil Smith of WestLB AG. In addition, customers have withdrawn a net 5.2 billion pounds in savings since May, adding to funding pressures.
Their share of the 253.2 billion-pound a year mortgage market has fallen to 13 percent from 16.7 percent in 2003, according to data compiled by the Council of Mortgage Lenders.
‘More Resources’
HSBC and Santander, Europe’s biggest banks by market value, both said last year they increased U.K. mortgage loans, even as overall lending declined. Abbey National, a unit of Santander, increased its market share to 20.5 percent in the third quarter of 2009, from 12.5 percent the previous year. London-based HSBC said it boosted its share of U.K. mortgage sales to 9.9 percent in the third quarter, from 4.5 percent in the first half of 2008.
“The way we priced back in 2004 to 2006 made it very difficult to sell our mortgages because others were undercutting us with cheap wholesale funding,” said James Thorpe, a spokesman for HSBC. “That’s now changed.” Santander spokesman Andy Smith declined to comment.
“The big banks have got much more financial resources behind them and have been able to borrow very cheaply from government,” Hamnett said.
Lloyds Banking Group Plc, which became the U.K.’s biggest mortgage lender after acquiring HBOS Plc in 2009, said in August it “maintained” its 27 percent share of the market in the first half of 2009.
Thatcher Liberalization
Banks were restricted from selling mortgages in the U.K. until the 1980s, leaving building societies to dominate the market, Hamnett said. Before Prime Minister Margaret Thatcher liberalized lending rules, mutuals had at least an 80 percent share of the market, according to the BSA. The first English building society was formed in 1775.
“Building societies aren’t concentrating on market share at the moment, they’re concentrating on prudent lending,” said Adrian Coles, BSA director-general. Declining lending and savings may continue for another two or three years, he said.
“It will take decades of this monthly data to see them go down to zero,” Coles said. “That’s not likely to occur.”
The freeze in credit markets in 2007 and the ensuing recession prompted eight mergers between building societies, reducing the total number of mutual lenders to 52.
“Further consolidation looks almost certain,” said Jonathan MacDonald, a London-based financial services analyst at Datamonitor.
Chelsea, Dunfermline
Dunfermline Building Society had its worst-performing assets nationalized before it merged with Nationwide, the U.K.’s biggest customer-owned lender, in March last year after defaults on commercial and subprime mortgages soared. Chelsea Building Society agreed to merge with Yorkshire Building Society last month after logging 41 million pounds in provisions for suspected or proven mortgage fraud.
The “vast majority” of British building societies should reduce commercial and landlord lending by a total of 3.2 billion pounds, the Financial Services Authority said in a June paper. Any society deemed too risky would be forced to simplify lending models, the London-based regulator said.
The FSA is requiring building societies to hold more cash and government bonds in reserve, limiting the amount they can lend, the BSA’s Coles said. The U.K. watchdog is also asking mutual lenders to get more of their funding from retail deposits at a time when the savings market is the smallest it’s been for a decade, he said.
“Unprecedented Opportunity”
Mutuals are missing out on an “unprecedented opportunity” to profit from mortgages as lenders that had 11 percent of the 2007 market have withdrawn, said Mike Baxter, lead banking partner at consultant Bain & Co. Many overseas-based lenders withdrew from the U.K. mortgage market as the financial crisis meant they couldn’t sell on the loans to investors, he said.
Northern Rock Plc, which had 14 percent of the mortgage market share in 2005, and Bradford & Bingley Plc, previously the country’s biggest buy-to-let lender, were both nationalized in 2008. The two former building societies were forced to seek government aid after cheap wholesale funding dried up following the onset of the credit crisis in 2007.
The four lenders offering the cheapest mortgages in the fourth quarter of last year were all owned by banks, according to a study released this month by realpricecomparison.com, which compares mortgage products. Santander and HSBC own four of the top six brands in the study. The highest-placed mutual lender was Principality Building Society, which was placed seventh.
To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net
Bonds Beat Stocks Most in 11 Months With 10% Jobless (Update2)
For all the concern about budget deficits and the rising supply of debt, government bonds are the place to be so far in 2010, with returns topping equities and commodities by the most since February.
Sovereign securities from the U.S. to Australia gained 0.68 percent on average in January, including reinvested interest, according to the Bank of America Merrill Lynch indexes. That compares with a loss of 4.11 percent for the MSCI World Index of stocks and a decline of 3.89 percent in the Standard & Poor’s GSCI Index of 24 raw materials.
Investors expected another losing year after bonds posted the worst returns in a decade in 2009 amid record debt sales to fund efforts to pull the global economy out of the recession. Instead, the securities were January’s winners on growing concern that the recovery will slow after China clamped down on borrowing, the Obama administration proposed limiting the size of banks and Greece’s finances roiled European markets.
“We’re going through an air-pocket of risk aversion,” said Jack McIntyre, a fund manager who oversees $21 billion of international debt at Brandywine Global Investment Management in Philadelphia. “Our core view is bonds still have value. The global economy’s going to continue to grow, but there’s so much excess capacity that we don’t see inflation pressures building.”
McIntyre’s Legg Mason Brandywine Global Fixed Income Fund returned about 1.9 percent last month, better than 85 percent of its competitors, data compiled by Bloomberg show.
No Slowdown
Treasuries rallied on Jan. 29 even though the Commerce Department said the economy expanded 5.7 percent in the fourth quarter. The yield on the benchmark 3.375 percent note due November 2019 fell 5 basis points, or 0.05 percentage point, to 3.59 percent.
The yield was 3.62 percent at 6:11 a.m. in today.
While gross domestic product rose at the fastest pace in six years, the report’s inflation gauge showed a 0.6 percent increase, less than the 1.3 percent median forecast of 37 economists surveyed by Bloomberg News. This week the Labor Department may say the unemployment rate held at 10 percent in January, according to the median forecast in a separate survey.
With jobless rolls stagnating and prices stable, traders are pricing in less than a 50 percent chance of a U.S. interest- rate increase before July, federal funds futures on the Chicago Board of Trade show. A month ago they saw 66 percent odds the central bank would lift its target for overnight loans between banks to at least 0.5 percent from the record low range of zero to 0.25 percent.
“The expectation was this was going to be a year of recovery,” said Michael Atkin, who helps oversee $10 billion in fixed-income assets as head of sovereign research in Boston at Putnam Investments.
Tame Inflation
Tame inflation is allowing governments to borrow at cheaper rates. Yields fell as low as 2.29 percent last week from 2.43 percent at the end of 2009 as bond prices rose, according to the Bank of America Merrill Lynch Global Sovereign Broad Market Plus Index, which tracks $16.9 trillion of debt worldwide.
Yields stayed between 2.1 percent and 2.6 percent last year. The range for Treasury 10-year note yields was 2.14 percent and 4 percent, compared with the average yield of 5.48 percent over the previous 20 years.
Treasuries returned 1.56 percent in January after posting a 3.72 percent loss last year, the largest since at least 1977, Bank of America Merrill Lynch bond indexes show. German bunds gained 1.43 percent, the most since December 2008, while U.K. gilts rose 0.77 percent and Australia bonds climbed 1.44 percent.
China, Fed
Regulators in China, which is poised to overtake Japan as the world’s second-largest economy, began restricting new loans after unprecedented credit growth of 9.59 trillion yuan ($1.4 trillion) in 2009 fanned concerns of a property bubble.
The risk is that the global economy won’t weather such moves, especially with 10 percent unemployment in the U.S. and the Federal Reserve preparing to close four programs this quarter supporting money markets and bond dealers. It’s also on schedule to stop buying mortgage-backed securities by the end of March.
That comes on top of President Barack Obama’s proposal last month to reduce proprietary trading at banks that the White House defines as not for the benefit of customers, as well as restrictions on investing in hedge funds and private companies.
“There’s a short-term dynamic and you have to ask yourself if that’s going to turn into a long-term dynamic,” Putnam’s Atkin said, referring to the flight to bonds.
Bond Bears
Bond bears point out there’s enough good news in the economy to avoid fixed-income securities. Last week’s GDP report showed that consumer spending, which comprises about 70 percent of the economy, rose at a 2 percent pace, more than forecast.
“The economy is recovering, albeit very slowly,” said James Sarni, senior managing partner at Payden & Rygel in Los Angeles, which manages $50 billion. “People are beginning to open their wallets and spend money. That, combined with the fact that we are going to see more supply means we’re probably going to see a rising trend in Treasury yields.”
Sarni forecasts 10-year Treasury yields will end 2010 in the 4.5 percent to 4.75 percent range. An investor who bought 10-year notes at the end of last week would lose about 5 percent if the high end of Sarni’s forecast is reached, according to data compiled by Bloomberg.
Public Debt
U.S. public debt rose 58 percent to $7.17 trillion from the end of 2007 as the government spent $955 billion on stimulus programs and $700 billion on a rescue package for banks. The 2010 budget deficit is forecast at $1.35 trillion by the Congressional Budget Office, after reaching a record $1.4 trillion last year.
Morgan Stanley strategists James Caron and Lawrence Mutkin reiterated at the end of last week their recommendation that investors sell bonds. The firm, which is one of the 18 primary dealers of U.S. government securities that are obligated to bid at Treasury auctions, expects 10-year U.S. yields to rise to 4.5 percent by the end of the first quarter or early in the second.
While “risks have increased, fundamentally we do not believe the prospects for global recovery have changed,” Caron and Mutkin wrote in a note to clients published Jan. 29. “We see this unwind in risk as an opportunity to add to our core views for higher rates and steeper curves.”
Greece Crises
One of the risks the Morgan Stanley strategists cited was Greece. The nation’s bonds lost about 5 percent in January on concern the government wasn’t acting quickly enough to plug a deficit that was almost 13 percent of GDP last year, more than four times the European Union’s limit.
The European Commission said Jan. 27 that Greece hasn’t done enough to tame the shortfall. Two days later, EU Monetary Affairs Commissioner Joaquin Almunia said the country won’t default and that policy makers have no “plan B” to help it.
Treasuries offer good value after 10-year yields reached 3.65 percent last week, as most investors and policy makers are not paying sufficient attention to the risks posed by sovereign credit in Europe, said Michael Cheah, who manages $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey.
“We are going through the same denial process that we did in 2008,” when policy makers allowed Lehman Brothers Holdings Inc. to collapse, intensifying the financial crisis, said Cheah, who is buying Treasuries. “The tsunami of sovereign risk is approaching us.”
Inflation Bonds
Rising consumer prices are becoming less of a concern, as measured by the difference in 10-year yields between government bonds and inflation-indexed securities.
The gap in yields, which represents traders’ expected rate of inflation for the life of the securities, narrowed by 0.21 percentage point in Germany from its highs last month to stand at 1.8 percentage points. In the U.K., the spread declined 0.14 percentage point to 2.90, and it shrank by the same amount in Australia to 2.79 percentage points. The gap fell 0.12 percentage point to 2.34 in the U.S.
“The concerns on inflation and interest rates seem to be put to rest,” said Robert Kowit, a fund manager at Federated Investors in Pittsburgh who helps manage $3 billion.
New York-based Verizon Communications Inc., coping with subscriber losses at its fixed-line phone business, said Jan. 26 it will cut about 13,000 jobs at the division this year. Finmeccanica SpA, Italy’s biggest defense contractor, said Jan. 29 it will temporarily lay off 1,500 people in aeronautics, defense electronics and aerospace.
“People started the year with a negative bias on bonds and have been caught a bit off balance,” said Gregor Macintosh, head of rates at Edinburgh-based Standard Life Investments, which has the equivalent of $196 billion under management.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
Sovereign securities from the U.S. to Australia gained 0.68 percent on average in January, including reinvested interest, according to the Bank of America Merrill Lynch indexes. That compares with a loss of 4.11 percent for the MSCI World Index of stocks and a decline of 3.89 percent in the Standard & Poor’s GSCI Index of 24 raw materials.
Investors expected another losing year after bonds posted the worst returns in a decade in 2009 amid record debt sales to fund efforts to pull the global economy out of the recession. Instead, the securities were January’s winners on growing concern that the recovery will slow after China clamped down on borrowing, the Obama administration proposed limiting the size of banks and Greece’s finances roiled European markets.
“We’re going through an air-pocket of risk aversion,” said Jack McIntyre, a fund manager who oversees $21 billion of international debt at Brandywine Global Investment Management in Philadelphia. “Our core view is bonds still have value. The global economy’s going to continue to grow, but there’s so much excess capacity that we don’t see inflation pressures building.”
McIntyre’s Legg Mason Brandywine Global Fixed Income Fund returned about 1.9 percent last month, better than 85 percent of its competitors, data compiled by Bloomberg show.
No Slowdown
Treasuries rallied on Jan. 29 even though the Commerce Department said the economy expanded 5.7 percent in the fourth quarter. The yield on the benchmark 3.375 percent note due November 2019 fell 5 basis points, or 0.05 percentage point, to 3.59 percent.
The yield was 3.62 percent at 6:11 a.m. in today.
While gross domestic product rose at the fastest pace in six years, the report’s inflation gauge showed a 0.6 percent increase, less than the 1.3 percent median forecast of 37 economists surveyed by Bloomberg News. This week the Labor Department may say the unemployment rate held at 10 percent in January, according to the median forecast in a separate survey.
With jobless rolls stagnating and prices stable, traders are pricing in less than a 50 percent chance of a U.S. interest- rate increase before July, federal funds futures on the Chicago Board of Trade show. A month ago they saw 66 percent odds the central bank would lift its target for overnight loans between banks to at least 0.5 percent from the record low range of zero to 0.25 percent.
“The expectation was this was going to be a year of recovery,” said Michael Atkin, who helps oversee $10 billion in fixed-income assets as head of sovereign research in Boston at Putnam Investments.
Tame Inflation
Tame inflation is allowing governments to borrow at cheaper rates. Yields fell as low as 2.29 percent last week from 2.43 percent at the end of 2009 as bond prices rose, according to the Bank of America Merrill Lynch Global Sovereign Broad Market Plus Index, which tracks $16.9 trillion of debt worldwide.
Yields stayed between 2.1 percent and 2.6 percent last year. The range for Treasury 10-year note yields was 2.14 percent and 4 percent, compared with the average yield of 5.48 percent over the previous 20 years.
Treasuries returned 1.56 percent in January after posting a 3.72 percent loss last year, the largest since at least 1977, Bank of America Merrill Lynch bond indexes show. German bunds gained 1.43 percent, the most since December 2008, while U.K. gilts rose 0.77 percent and Australia bonds climbed 1.44 percent.
China, Fed
Regulators in China, which is poised to overtake Japan as the world’s second-largest economy, began restricting new loans after unprecedented credit growth of 9.59 trillion yuan ($1.4 trillion) in 2009 fanned concerns of a property bubble.
The risk is that the global economy won’t weather such moves, especially with 10 percent unemployment in the U.S. and the Federal Reserve preparing to close four programs this quarter supporting money markets and bond dealers. It’s also on schedule to stop buying mortgage-backed securities by the end of March.
That comes on top of President Barack Obama’s proposal last month to reduce proprietary trading at banks that the White House defines as not for the benefit of customers, as well as restrictions on investing in hedge funds and private companies.
“There’s a short-term dynamic and you have to ask yourself if that’s going to turn into a long-term dynamic,” Putnam’s Atkin said, referring to the flight to bonds.
Bond Bears
Bond bears point out there’s enough good news in the economy to avoid fixed-income securities. Last week’s GDP report showed that consumer spending, which comprises about 70 percent of the economy, rose at a 2 percent pace, more than forecast.
“The economy is recovering, albeit very slowly,” said James Sarni, senior managing partner at Payden & Rygel in Los Angeles, which manages $50 billion. “People are beginning to open their wallets and spend money. That, combined with the fact that we are going to see more supply means we’re probably going to see a rising trend in Treasury yields.”
Sarni forecasts 10-year Treasury yields will end 2010 in the 4.5 percent to 4.75 percent range. An investor who bought 10-year notes at the end of last week would lose about 5 percent if the high end of Sarni’s forecast is reached, according to data compiled by Bloomberg.
Public Debt
U.S. public debt rose 58 percent to $7.17 trillion from the end of 2007 as the government spent $955 billion on stimulus programs and $700 billion on a rescue package for banks. The 2010 budget deficit is forecast at $1.35 trillion by the Congressional Budget Office, after reaching a record $1.4 trillion last year.
Morgan Stanley strategists James Caron and Lawrence Mutkin reiterated at the end of last week their recommendation that investors sell bonds. The firm, which is one of the 18 primary dealers of U.S. government securities that are obligated to bid at Treasury auctions, expects 10-year U.S. yields to rise to 4.5 percent by the end of the first quarter or early in the second.
While “risks have increased, fundamentally we do not believe the prospects for global recovery have changed,” Caron and Mutkin wrote in a note to clients published Jan. 29. “We see this unwind in risk as an opportunity to add to our core views for higher rates and steeper curves.”
Greece Crises
One of the risks the Morgan Stanley strategists cited was Greece. The nation’s bonds lost about 5 percent in January on concern the government wasn’t acting quickly enough to plug a deficit that was almost 13 percent of GDP last year, more than four times the European Union’s limit.
The European Commission said Jan. 27 that Greece hasn’t done enough to tame the shortfall. Two days later, EU Monetary Affairs Commissioner Joaquin Almunia said the country won’t default and that policy makers have no “plan B” to help it.
Treasuries offer good value after 10-year yields reached 3.65 percent last week, as most investors and policy makers are not paying sufficient attention to the risks posed by sovereign credit in Europe, said Michael Cheah, who manages $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey.
“We are going through the same denial process that we did in 2008,” when policy makers allowed Lehman Brothers Holdings Inc. to collapse, intensifying the financial crisis, said Cheah, who is buying Treasuries. “The tsunami of sovereign risk is approaching us.”
Inflation Bonds
Rising consumer prices are becoming less of a concern, as measured by the difference in 10-year yields between government bonds and inflation-indexed securities.
The gap in yields, which represents traders’ expected rate of inflation for the life of the securities, narrowed by 0.21 percentage point in Germany from its highs last month to stand at 1.8 percentage points. In the U.K., the spread declined 0.14 percentage point to 2.90, and it shrank by the same amount in Australia to 2.79 percentage points. The gap fell 0.12 percentage point to 2.34 in the U.S.
“The concerns on inflation and interest rates seem to be put to rest,” said Robert Kowit, a fund manager at Federated Investors in Pittsburgh who helps manage $3 billion.
New York-based Verizon Communications Inc., coping with subscriber losses at its fixed-line phone business, said Jan. 26 it will cut about 13,000 jobs at the division this year. Finmeccanica SpA, Italy’s biggest defense contractor, said Jan. 29 it will temporarily lay off 1,500 people in aeronautics, defense electronics and aerospace.
“People started the year with a negative bias on bonds and have been caught a bit off balance,” said Gregor Macintosh, head of rates at Edinburgh-based Standard Life Investments, which has the equivalent of $196 billion under management.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
Chinese Concerns Are ‘Unreasonable,’ Deripaska Says (Update1)
Russian billionaire Oleg Deripaska said investor concerns that China’s efforts to limit inflation will derail the economy are “completely unreasonable” and growth will remain the government’s priority.
“Everyone’s betting on high inflation in China,” Deripaska, whose United Co. Rusal Ltd. last month became the first Russian company to list in Hong Kong, said in a Jan. 29 Bloomberg Television interview. “More money supply may cause higher inflation but I can’t see that stopping their growth.”
China’s benchmark stock index fell to the lowest level since October on speculation steps to limit lending and contain inflation at a 13-month high will slow the world’s fastest- growing major economy. Deripaska said Chinese manufacturing customers of Rusal, the world’s largest aluminum producer, have had “no problem” in getting credit.
“In our developing world we have a different inflation sentiment,” Deripaska, 42, said in an interview at the annual meeting of the World Economic Forum in Davos, Switzerland.
Deripaska echoes Mark Mobius and Stephen Jen of BlueGold Capital Management LLP. A slowdown in lending may benefit China’s economy by reducing risks, Mobius, who oversees about $34 billion in emerging markets as chairman of Templeton Asset Management Ltd., said Jan. 27.
China’s Shanghai Composite Index sank 1.6 percent today to the lowest close since Oct. 13, adding to last week’s 4.5 percent drop. The MSCI Asia Pacific Index slid 3 percent last month amid concern central banks in nations from China to India will tighten monetary policy.
Inflation Challenge
China’s economy grew 10.7 percent during the last quarter of 2009, the fastest pace since 2007, stoking concern the government would restrict credit. China has ordered some banks to pare lending, raised the ratio banks must set aside as reserves and guided bill yields higher last month.
Managing inflation expectations is the “first challenge,” People’s Bank of China Deputy Governor Zhu Min said Jan. 30 at Davos. “We’ll continue with current accommodative fiscal and monetary policy.”
Inflation in China accelerated to 1.9 percent in December, and record credit growth of 9.59 trillion yuan ($1.4 trillion) in 2009 has fanned concerns of a property bubble. Billionaire investor George Soros said Jan. 28 that the Chinese stock market is “overheating.”
Tapping China
China accounts for 5 percent of Rusal’s sales. The Russian company aims to raise that share to 10 percent by 2015. Deripaska said in November he wants to do more business in China and tap Asian companies as partners for power and aluminum projects in Russia.
Deripaska has a similar growth outlook for South Korea.
“Japan is a different animal, but we believe in our presence on the market,” he said.
The International Monetary Fund forecasts China’s growth will accelerate this year to 10 percent, from 8.7 percent in 2009. In contrast, Japan will grow 1.35 percent, more than the euro region’s 1.2 percent yet lagging the U.S.’s 2.7 percent, median analyst estimates compiled by Bloomberg show.
Deripaska said he was “very positive” about the Russian market, even as the benchmark Micex equity index has more than doubled in the past year. The best investments in Russia are OAO Lukoil, its biggest non-state oil producer, natural-gas export monopoly OAO Gazprom, and nickel and copper mining company OAO GMK Norilsk Nickel, he said. The companies have globally competitive assets and management, Deripaska said.
Rusal owns 25 percent of Norilsk.
Russian business is “more or less back to normal” after the global financial crisis, Deripaska said. The country’s biggest challenge this year will be to cut the “high cost of credit,” which may slow economic development, he said.
To contact the reporters on this story: Yuriy Humber in Davos via the Moscow newsroom at yhumber@bloomberg.net; Ryan Chilcote in Davos at rchilcote@bloomberg.net
“Everyone’s betting on high inflation in China,” Deripaska, whose United Co. Rusal Ltd. last month became the first Russian company to list in Hong Kong, said in a Jan. 29 Bloomberg Television interview. “More money supply may cause higher inflation but I can’t see that stopping their growth.”
China’s benchmark stock index fell to the lowest level since October on speculation steps to limit lending and contain inflation at a 13-month high will slow the world’s fastest- growing major economy. Deripaska said Chinese manufacturing customers of Rusal, the world’s largest aluminum producer, have had “no problem” in getting credit.
“In our developing world we have a different inflation sentiment,” Deripaska, 42, said in an interview at the annual meeting of the World Economic Forum in Davos, Switzerland.
Deripaska echoes Mark Mobius and Stephen Jen of BlueGold Capital Management LLP. A slowdown in lending may benefit China’s economy by reducing risks, Mobius, who oversees about $34 billion in emerging markets as chairman of Templeton Asset Management Ltd., said Jan. 27.
China’s Shanghai Composite Index sank 1.6 percent today to the lowest close since Oct. 13, adding to last week’s 4.5 percent drop. The MSCI Asia Pacific Index slid 3 percent last month amid concern central banks in nations from China to India will tighten monetary policy.
Inflation Challenge
China’s economy grew 10.7 percent during the last quarter of 2009, the fastest pace since 2007, stoking concern the government would restrict credit. China has ordered some banks to pare lending, raised the ratio banks must set aside as reserves and guided bill yields higher last month.
Managing inflation expectations is the “first challenge,” People’s Bank of China Deputy Governor Zhu Min said Jan. 30 at Davos. “We’ll continue with current accommodative fiscal and monetary policy.”
Inflation in China accelerated to 1.9 percent in December, and record credit growth of 9.59 trillion yuan ($1.4 trillion) in 2009 has fanned concerns of a property bubble. Billionaire investor George Soros said Jan. 28 that the Chinese stock market is “overheating.”
Tapping China
China accounts for 5 percent of Rusal’s sales. The Russian company aims to raise that share to 10 percent by 2015. Deripaska said in November he wants to do more business in China and tap Asian companies as partners for power and aluminum projects in Russia.
Deripaska has a similar growth outlook for South Korea.
“Japan is a different animal, but we believe in our presence on the market,” he said.
The International Monetary Fund forecasts China’s growth will accelerate this year to 10 percent, from 8.7 percent in 2009. In contrast, Japan will grow 1.35 percent, more than the euro region’s 1.2 percent yet lagging the U.S.’s 2.7 percent, median analyst estimates compiled by Bloomberg show.
Deripaska said he was “very positive” about the Russian market, even as the benchmark Micex equity index has more than doubled in the past year. The best investments in Russia are OAO Lukoil, its biggest non-state oil producer, natural-gas export monopoly OAO Gazprom, and nickel and copper mining company OAO GMK Norilsk Nickel, he said. The companies have globally competitive assets and management, Deripaska said.
Rusal owns 25 percent of Norilsk.
Russian business is “more or less back to normal” after the global financial crisis, Deripaska said. The country’s biggest challenge this year will be to cut the “high cost of credit,” which may slow economic development, he said.
To contact the reporters on this story: Yuriy Humber in Davos via the Moscow newsroom at yhumber@bloomberg.net; Ryan Chilcote in Davos at rchilcote@bloomberg.net
Obama Offers $3.8 Trillion Budget With Focus on Boosting Jobs
President Barack Obama proposes a $3.8 trillion fiscal 2011 budget today that calls for $100 billion in additional stimulus spending and projects this year’s deficit will hit a record $1.6 trillion.
The plan would reduce the shortfall in part by imposing more than $800 billion in higher taxes and fees on those earning more than $250,000, banks that benefited from the financial industry bailout and the oil, gas and coal industries.
The spending blueprint being sent to Congress for the fiscal year that begins Oct. 1 reflects the administration’s struggle to boost the economy and job growth -- both top concerns of voters -- while tightening the government’s belt to reduce deficits in the years ahead.
“We’re trying to accomplish a soft landing in terms of our fiscal trajectory,” Peter Orszag, director of the White House Office of Management and Budget, said in a briefing.
The $1.6 trillion deficit forecast for the current year represents 10.6 percent of the U.S. gross domestic product, making it the biggest by that measure since World War II, according to administration figures. The deficit in 2009 was $1.4 trillion.
The White House deficit projection exceeds other forecasts. The Congressional Budget Office has forecast this year’s shortfall at $1.35 trillion. The median of 39 analysts survey by Bloomberg News is for $1.37 trillion this year and $1.10 trillion next year.
Spending Freeze
To address the shortfall, the administration wants to impose a three-year freeze in “discretionary” spending outside of defense and security. The freeze won’t be across-the-board. Some programs, such as education and research and development initiative, would get as much as 6 percent budget increase. The budget is subject to approval by Congress.
Obama’s plan also calls for creating a special debt commission to recommend steps to cut the deficit and tougher budgeting rules in Congress.
The result would be a deficit that declines next year to $1.27 trillion and to $828 billion in 2012, according to a summary provided by the administration. In subsequent years, though 2020, the annual deficit would still total between $700 billion and $1 trillion. By 2020, the publicly held debt would approximately double to $18.5 trillion, according to estimates.
Orszag said the administration intends to slowly phase in its deficit-reduction plans, saying cutting too much too soon might stifle the economic recovery.
‘Selective’ Approach
“The worst thing we could do is act too quickly and throw the economy back into recession,” Orszag said. “But we do need to be starting, and so that’s why you see this selective approach where we are beginning the process in certain components of the budget.”
The plan calls for extending several elements of last year’s economic stimulus as part of either a new jobs package or through subsequent legislation. It proposes spending $61 billion to extend for one year the administration’s “Making Work Pay” tax credit which provided $400 to individuals and $800 to couples. It is set to expire this year.
The administration’s economic forecasts for economic growth, unemployment and inflation will be released later this morning.
Obama proposes to make permanent the Build America Bonds program, in which the federal government subsidizes infrastructure projects by picking up the tab for 35 percent of the interest costs from taxable bonds issued by local governments. It calls for reducing that subsidy to 28 percent. The budget would also spend $25 billion to provide state governments with six additional months of help paying their Medicaid bills.
Higher Taxes
The bulk of the higher taxes would come by allowing tax cuts passed under former President George W. Bush for those earning more than $250,000 to lapse at the end of this year. That would raise $678 billion, according to the administration.
A fee imposed on 50 of the biggest financial firms such as JPMorgan Chase & Co. and Bank of America Corp. would raise another $90 billion. Eliminating tax breaks for fossil-fuel industries would produce another $40 billion.
Freezing some domestic programs for three years and then holding it at the rate of inflation for the rest of the next decade would save $250 billion, the administration estimates.
That would represent an abrupt shift in priorities. Non- defense discretionary spending is projected to grow this year by 7 percent not including the costs of last year’s stimulus package, according to the CBO.
Seeking Savings
The increase totals 17 percent once the stimulus package is included, according to CBO estimates. The administration’s plan also calls for 120 program terminations, reductions and other savings it estimates would save $20 billion.
It would provide $33 billion in “emergency” funding this year to help pay for the administration’s troop buildup in Afghanistan. Next year, war costs would amount to $159.3 billion. The basic defense budget would amount to $549 billion, which represents a 1.8 increase adjusted for inflation. The Department of Homeland Security would get a 2 percent increase.
The budget has more than doubled from $1.9 trillion in 2001, according the OMB’s historical data.
To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net or Brian Faler in Washington at bfaler@bloomberg.net.
The plan would reduce the shortfall in part by imposing more than $800 billion in higher taxes and fees on those earning more than $250,000, banks that benefited from the financial industry bailout and the oil, gas and coal industries.
The spending blueprint being sent to Congress for the fiscal year that begins Oct. 1 reflects the administration’s struggle to boost the economy and job growth -- both top concerns of voters -- while tightening the government’s belt to reduce deficits in the years ahead.
“We’re trying to accomplish a soft landing in terms of our fiscal trajectory,” Peter Orszag, director of the White House Office of Management and Budget, said in a briefing.
The $1.6 trillion deficit forecast for the current year represents 10.6 percent of the U.S. gross domestic product, making it the biggest by that measure since World War II, according to administration figures. The deficit in 2009 was $1.4 trillion.
The White House deficit projection exceeds other forecasts. The Congressional Budget Office has forecast this year’s shortfall at $1.35 trillion. The median of 39 analysts survey by Bloomberg News is for $1.37 trillion this year and $1.10 trillion next year.
Spending Freeze
To address the shortfall, the administration wants to impose a three-year freeze in “discretionary” spending outside of defense and security. The freeze won’t be across-the-board. Some programs, such as education and research and development initiative, would get as much as 6 percent budget increase. The budget is subject to approval by Congress.
Obama’s plan also calls for creating a special debt commission to recommend steps to cut the deficit and tougher budgeting rules in Congress.
The result would be a deficit that declines next year to $1.27 trillion and to $828 billion in 2012, according to a summary provided by the administration. In subsequent years, though 2020, the annual deficit would still total between $700 billion and $1 trillion. By 2020, the publicly held debt would approximately double to $18.5 trillion, according to estimates.
Orszag said the administration intends to slowly phase in its deficit-reduction plans, saying cutting too much too soon might stifle the economic recovery.
‘Selective’ Approach
“The worst thing we could do is act too quickly and throw the economy back into recession,” Orszag said. “But we do need to be starting, and so that’s why you see this selective approach where we are beginning the process in certain components of the budget.”
The plan calls for extending several elements of last year’s economic stimulus as part of either a new jobs package or through subsequent legislation. It proposes spending $61 billion to extend for one year the administration’s “Making Work Pay” tax credit which provided $400 to individuals and $800 to couples. It is set to expire this year.
The administration’s economic forecasts for economic growth, unemployment and inflation will be released later this morning.
Obama proposes to make permanent the Build America Bonds program, in which the federal government subsidizes infrastructure projects by picking up the tab for 35 percent of the interest costs from taxable bonds issued by local governments. It calls for reducing that subsidy to 28 percent. The budget would also spend $25 billion to provide state governments with six additional months of help paying their Medicaid bills.
Higher Taxes
The bulk of the higher taxes would come by allowing tax cuts passed under former President George W. Bush for those earning more than $250,000 to lapse at the end of this year. That would raise $678 billion, according to the administration.
A fee imposed on 50 of the biggest financial firms such as JPMorgan Chase & Co. and Bank of America Corp. would raise another $90 billion. Eliminating tax breaks for fossil-fuel industries would produce another $40 billion.
Freezing some domestic programs for three years and then holding it at the rate of inflation for the rest of the next decade would save $250 billion, the administration estimates.
That would represent an abrupt shift in priorities. Non- defense discretionary spending is projected to grow this year by 7 percent not including the costs of last year’s stimulus package, according to the CBO.
Seeking Savings
The increase totals 17 percent once the stimulus package is included, according to CBO estimates. The administration’s plan also calls for 120 program terminations, reductions and other savings it estimates would save $20 billion.
It would provide $33 billion in “emergency” funding this year to help pay for the administration’s troop buildup in Afghanistan. Next year, war costs would amount to $159.3 billion. The basic defense budget would amount to $549 billion, which represents a 1.8 increase adjusted for inflation. The Department of Homeland Security would get a 2 percent increase.
The budget has more than doubled from $1.9 trillion in 2001, according the OMB’s historical data.
To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net or Brian Faler in Washington at bfaler@bloomberg.net.
Toyota Plans Media Blitz as Stock Loses $21 Billion (Update1)
Toyota Motor Corp.’s head of U.S. sales plans to make U.S. television appearances today, starting with NBC Universal’s “Today” show, as the world’s largest automaker works to resolve its biggest recall crisis.
Jim Lentz, president of Toyota Motor Sales USA, is to speak on the morning news and talk program before holding a conference call with other media organizations, said a company official who declined to be identified because the plan isn’t public. Lentz may also appear on Bloomberg Television.
The TV appearances will be the first for a U.S. audience after the automaker ran an informational ad in newspapers today and President Akio Toyoda gave a 75-second apology last week in Davos, Switzerland, in contrast with other Japanese companies that have held news conferences after recalls.
“They have wasted too much time without doing anything,” said Tatsuya Mizuno, director of Mizuno Credit Advisory. “Toyota used to be a company with foresight, always ready to take action, but now they have fallen very far behind the curve.”
The company’s stock plummeted 14 percent last week, the worst five-day performance since October 2008, wiping out 1.9 trillion yen ($21 billion) in market value. The shares fell 1.2 percent to a two-month low of 3,450 yen today.
Toyoda’s remarks contrast with press conferences by Mitsubishi Motors Corp. and Panasonic Corp. where executives bowed deeply to express contrition for recalls. Toyota has caused “anxiety” in drivers and investors as top management hasn’t been more forthcoming, Mizuno said before the U.S. television appearances were announced.
Week Late
“This has been the problem: There really hasn’t been a face of Toyota for the consumer,” said Rebecca Lindland, a forecaster at IHS Global Insight Inc. in Lexington, Massachusetts. “It’s great that they are doing the ‘Today’ show this week, but last week would have been better.”
The automaker last month recalled 2.3 million vehicles in the U.S. over a pedal defect linked to sudden acceleration. That action, coinciding with other recalls related to sudden acceleration covering about 5.4 million vehicles, led to the halting of U.S. sales and North American production of eight models and prompted Congress to schedule hearings on the matter.
The automaker has said at least 1.7 million U.S. vehicles are being recalled for both issues.
In Europe, it will recall as many as 1.8 million of its cars and PSA Peugeot Citroen will recall 90,000 of its cars made at a factory managed by Toyota. In China, the company will recall 75,600 cars.
Announcement Close
“We believe we are close to announcing an effective remedy,” the Toyota City, Japan-based automaker said in an advertisement in more than 20 U.S. newspapers yesterday.
“I am deeply sorry that we’re giving cause for concern to customers,” Toyoda said in an unscheduled interview on Jan. 29 with Japan’s NHK television network in Davos, posted to U.S. broadcaster ABC News’ Web site. “We’re preparing to explain the facts to our customers as soon as we can so that we can remove that anxiety.”
The House Energy and Commerce Committee will hold a hearing Feb. 25, in part to examine the response to reports of sudden acceleration by National Highway Traffic Safety Administration involving the company’s models.
“Incidents of sticking accelerators have been ongoing with Toyota vehicles for up to a decade, and have led to a disproportionately high number of deaths,” said Representative Bart Stupak of Michigan, the Democratic chairman of the subcommittee on oversight and investigations.
The House Committee on Oversight and Government Reform plans its own hearing on Feb. 10.
Safety Talks
The U.S. government didn’t balk at Toyota’s approach during a meeting last week, according to a Transportation Department official, who declined to be identified discussing the session with company representatives. The department’s NHTSA unit, which oversees recalls, doesn’t formally approve specific remedies, the official said.
The carmaker’s suspension of sales of eight models probably helped General Motors Co., Ford Motor Co. and Chrysler Group LLC gain market share in the U.S. last month. Toyota stopped sales of the Camry and Corolla, its two best-selling models, leaving it the smallest share of the U.S. market since March 2006, researcher Edmunds.com projected.
The supplier of the accelerator pedals, Elkhart, Indiana- based CTS Corp., has said the parts were made to Toyota’s specifications and that it doesn’t believe it bears liability for the flaw.
“Once Toyota approved the specification CTS delivered and used on its products, they can’t blame CTS,” said Koji Endo, managing director of Advanced Research Japan.
U.S. Lawsuits
Toyota faces at least seven lawsuits by individual plaintiffs claiming deaths or injuries caused by sudden acceleration. Since November, consumers have also filed at least eight lawsuits seeking class-action status against the company.
Toyoda, 53, has been more expressive in the past. In October, he told journalists in Tokyo the company, founded by his grandfather, had to make better cars and listen to its customers. The carmaker should be given more time, said Yuuki Sakurai, chief executive officer of Fukoku Capital Management.
“Toyota may be taking time to check everything over and waiting for a chance for Akio Toyoda to give a formal comment,” said Sakurai. “They will explain things when the time comes.”
The company has said it doesn’t plan to call back autos in Japan, where it uses pedals made by Denso Corp.
The carmaker needs to make sure there is no perception of a disparity in quality based on where its vehicles are built, said Takeshi Miyao, a supply-chain analyst for auto consultant Carnorama in Tokyo.
“It’ll be a problem if people start to think that Toyotas made in Japan are good, but the quality of those made overseas is iffy,” he said.
To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net; Tetsuya Komatsu in Tokyo at tekomatsu@bloomberg.net
Jim Lentz, president of Toyota Motor Sales USA, is to speak on the morning news and talk program before holding a conference call with other media organizations, said a company official who declined to be identified because the plan isn’t public. Lentz may also appear on Bloomberg Television.
The TV appearances will be the first for a U.S. audience after the automaker ran an informational ad in newspapers today and President Akio Toyoda gave a 75-second apology last week in Davos, Switzerland, in contrast with other Japanese companies that have held news conferences after recalls.
“They have wasted too much time without doing anything,” said Tatsuya Mizuno, director of Mizuno Credit Advisory. “Toyota used to be a company with foresight, always ready to take action, but now they have fallen very far behind the curve.”
The company’s stock plummeted 14 percent last week, the worst five-day performance since October 2008, wiping out 1.9 trillion yen ($21 billion) in market value. The shares fell 1.2 percent to a two-month low of 3,450 yen today.
Toyoda’s remarks contrast with press conferences by Mitsubishi Motors Corp. and Panasonic Corp. where executives bowed deeply to express contrition for recalls. Toyota has caused “anxiety” in drivers and investors as top management hasn’t been more forthcoming, Mizuno said before the U.S. television appearances were announced.
Week Late
“This has been the problem: There really hasn’t been a face of Toyota for the consumer,” said Rebecca Lindland, a forecaster at IHS Global Insight Inc. in Lexington, Massachusetts. “It’s great that they are doing the ‘Today’ show this week, but last week would have been better.”
The automaker last month recalled 2.3 million vehicles in the U.S. over a pedal defect linked to sudden acceleration. That action, coinciding with other recalls related to sudden acceleration covering about 5.4 million vehicles, led to the halting of U.S. sales and North American production of eight models and prompted Congress to schedule hearings on the matter.
The automaker has said at least 1.7 million U.S. vehicles are being recalled for both issues.
In Europe, it will recall as many as 1.8 million of its cars and PSA Peugeot Citroen will recall 90,000 of its cars made at a factory managed by Toyota. In China, the company will recall 75,600 cars.
Announcement Close
“We believe we are close to announcing an effective remedy,” the Toyota City, Japan-based automaker said in an advertisement in more than 20 U.S. newspapers yesterday.
“I am deeply sorry that we’re giving cause for concern to customers,” Toyoda said in an unscheduled interview on Jan. 29 with Japan’s NHK television network in Davos, posted to U.S. broadcaster ABC News’ Web site. “We’re preparing to explain the facts to our customers as soon as we can so that we can remove that anxiety.”
The House Energy and Commerce Committee will hold a hearing Feb. 25, in part to examine the response to reports of sudden acceleration by National Highway Traffic Safety Administration involving the company’s models.
“Incidents of sticking accelerators have been ongoing with Toyota vehicles for up to a decade, and have led to a disproportionately high number of deaths,” said Representative Bart Stupak of Michigan, the Democratic chairman of the subcommittee on oversight and investigations.
The House Committee on Oversight and Government Reform plans its own hearing on Feb. 10.
Safety Talks
The U.S. government didn’t balk at Toyota’s approach during a meeting last week, according to a Transportation Department official, who declined to be identified discussing the session with company representatives. The department’s NHTSA unit, which oversees recalls, doesn’t formally approve specific remedies, the official said.
The carmaker’s suspension of sales of eight models probably helped General Motors Co., Ford Motor Co. and Chrysler Group LLC gain market share in the U.S. last month. Toyota stopped sales of the Camry and Corolla, its two best-selling models, leaving it the smallest share of the U.S. market since March 2006, researcher Edmunds.com projected.
The supplier of the accelerator pedals, Elkhart, Indiana- based CTS Corp., has said the parts were made to Toyota’s specifications and that it doesn’t believe it bears liability for the flaw.
“Once Toyota approved the specification CTS delivered and used on its products, they can’t blame CTS,” said Koji Endo, managing director of Advanced Research Japan.
U.S. Lawsuits
Toyota faces at least seven lawsuits by individual plaintiffs claiming deaths or injuries caused by sudden acceleration. Since November, consumers have also filed at least eight lawsuits seeking class-action status against the company.
Toyoda, 53, has been more expressive in the past. In October, he told journalists in Tokyo the company, founded by his grandfather, had to make better cars and listen to its customers. The carmaker should be given more time, said Yuuki Sakurai, chief executive officer of Fukoku Capital Management.
“Toyota may be taking time to check everything over and waiting for a chance for Akio Toyoda to give a formal comment,” said Sakurai. “They will explain things when the time comes.”
The company has said it doesn’t plan to call back autos in Japan, where it uses pedals made by Denso Corp.
The carmaker needs to make sure there is no perception of a disparity in quality based on where its vehicles are built, said Takeshi Miyao, a supply-chain analyst for auto consultant Carnorama in Tokyo.
“It’ll be a problem if people start to think that Toyotas made in Japan are good, but the quality of those made overseas is iffy,” he said.
To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net; Tetsuya Komatsu in Tokyo at tekomatsu@bloomberg.net
Wal-Mart-Like Shares Top S&P 500 With Dividends (Update1)
The highest dividend yields since 2001 are luring investors to consumer companies, convinced their profits will provide a haven from the biggest stock decline in 11 months.
Wal-Mart Stores Inc., one of two Dow Jones Industrial Average shares that rose in 2008, trades at the cheapest level in at least 20 years while offering a record dividend, data compiled by Bloomberg show. David Einhorn’s Greenlight Capital Inc. bought a stake in Vodafone Group Plc, the world’s biggest mobile-phone company, after its annual payout rose to twice the average of Europe’s Dow Jones Stoxx 600 Index last quarter.
Money managers around the world are buying equities with the highest payouts and fewest links to the economy after the MSCI World Index’s biggest monthly drop since February 2009. While billionaire investor Kenneth Fisher says the market will rebound, Einhorn, Natixis Asset Management’s Dominique Sabassier and City National Bank’s Richard Weiss are acting to head off more losses.
“People who believe that the crisis is over are wrong,” said Sabassier, the chief investment officer at Natixis, which oversees the equivalent of $418 billion in Paris. “The dividend is an increasing part of your total return,” he said. “People have tended to see dividends as the cherry on the cake, but I think they are much more than that.”
China, Obama
The MSCI World Index of equities from 23 developed nations has fallen 7.3 percent since reaching a 15-month high on Jan. 14 after China set higher reserves for lenders and U.S. President Barack Obama said he plans to bar proprietary trading at banks. Raw-material producers, which pay out less than 2 percent in dividends, led the gauge down 2.6 percent last week, capping the longest retreat since July. The iShares Dow Jones Select Dividend Index Fund of 100 companies slipped 1.3 percent.
The MSCI World dropped 0.1 percent as of 10:30 a.m. in London today, headed for its ninth straight retreat, the longest losing streak in 11 months. Futures on the S&P 500 added 0.5 percent.
History shows that buying shares when yields are highest can produce market-beating gains. An index of grocers, tobacco companies and household-product makers jumped 50 percent in the year after their payouts peaked in March 2000, while the S&P 500 lost 12 percent, according to data compiled by Bloomberg.
Dividends are recovering from the worst year on record in the U.S., where 804 companies reduced payouts by a combined $58 billion, according to data compiled by S&P. Yields to investors may rise 18 percent through 2012, analysts’ estimates compiled by Bloomberg show.
Reducing Payouts
The first global recession since World War II prompted Fairfield, Connecticut-based General Electric Co. to pare its payout last year for the first time since 1938, to 10 cents from 31 cents.
Dow Chemical Co. lowered its dividend in February 2009 to 15 cents from 42 cents, snapping a string of 389 consecutive quarters since 1912 without a reduction at the Midland, Michigan-based company. Anglo American Plc, the London-based owner of stakes in the world’s biggest platinum producers, suspended payments the same month.
Investors who buy so-called defensive stocks such as household-product providers, telephone companies, utilities and drugmakers may risk trailing the market should the economy extend its recovery. Those groups posted the smallest returns during the stock market rally that began in March, averaging gains of 32 percent during the advance that lifted the S&P 500 59 percent, data compiled by Bloomberg show. They are the cheapest in the index on the basis of earnings.
Mobile Phones
Einhorn, the 41-year-old hedge-fund manager who bet against Lehman Brothers Holdings Inc. four months before its collapse, said he purchased a “significant” stake in Vodafone during the fourth quarter on speculation the shares are cheap, according to a letter to clients dated Jan. 19. The holding is among the six largest for New York-based Greenlight, which has returned an average of 22 percent a year for investors since May 1996.
“The portfolio continues to be conservatively postured into 2010 because the market appears to be discounting a rather rosy outcome,” he wrote. Einhorn bought Vodafone shares at an average of 138 pence ($2.20), 2.6 percent above its price now, and says he expects the company’s wireless venture with Verizon Communications Inc. of New York to rise in value.
“In the meantime, we collect a nice dividend,” he wrote. Einhorn declined to comment, according to Mary Beth Grover, a spokeswoman for Greenlight.
Consumer Goods
Vodafone’s dividend is 6.5 percent of its share price, compared with an average of 2.7 percent for the Newbury, England-based company during the past 18 years, data compiled by Bloomberg show. Telephone companies in the MSCI World pay a dividend yield of 5.5 percent on average, 2.9 percentage points more than the global index’s average, close to the biggest premium since 1995.
Companies in the S&P 500 that sell consumer goods pay out 3 percent of their share prices on average, the most since July 2001 relative to the U.S. equity benchmark’s 2.2 percent, the data show. The industry in the MSCI World has a dividend yield of 2.8 percent, the highest relative to the index since 2006.
Weiss, who oversees about $50 billion as chief investment officer at City National Bank, is buying Walmart because the Bentonville, Arkansas-based retailer trades at 15 times profit from the past year, the biggest discount to the S&P 500 since at least 1990. Walmart’s dividend is 2 percent of its share price, the highest ever relative to the S&P 500.
Bull Market
“The argument in favor of high-dividend, value-oriented stocks this year is a very strong and compelling one,” Weiss said in an interview from Beverly Hills, California. “There are so many investors out there who are hungry for more income.”
Corporate bonds are beating stocks by the biggest margin since February as investors prefer the securities’ fixed payments, data compiled by Bloomberg show. While the MSCI World has lost 4.1 percent including reinvested dividends in January, the Bank of America Merrill Lynch Global Broad Market Corporate Index gained 1.8 percentage points. In December, stocks outperformed bonds by 2.4 percentage points.
‘Up Year’
Fisher, who oversees $36 billion as chairman of Fisher Investments Inc. in Woodside, California, is avoiding defensive stocks. He says raw-material producers, industrial companies and technology providers are better bets than makers of household goods because the economy will rebound faster than economists forecast.
U.S. gross domestic product increased in the fourth quarter at the fastest pace in six years, rising at an annual rate of 5.7 percent. That beat the median forecast of 84 economists in a Bloomberg survey, according to a report on Jan. 29 from the Commerce Department in Washington. The economy will grow 2.7 percent this year, the most since 2006, a Bloomberg survey shows.
“If we’re going to have a nice up year this year, I wouldn’t expect dividend-yielding stocks to lead,” said Fisher. “Both revenues and earnings will be stronger than what people think.”
A record nine-quarter earnings slump for S&P 500 companies is projected to have ended in the final three months of 2009 with a 76 percent increase in profits. Almost 80 percent of the results released since Jan. 11 topped the average forecasts of Wall Street estimates, data compiled by Bloomberg show.
Failed Advice
Wall Street advice to buy defensive shares didn’t work in 2009. Citigroup Inc. and Bank of America Corp. led more than a dozen firms that told clients a year ago to purchase European energy producers and U.S. drugmakers while selling banks and retailers, according to combined rankings compiled by Bloomberg. Financial companies led the advance beginning in March with a 114 percent return while energy producers and health-care stocks were the third- and fourth-worst performing industries in the MSCI World, climbing an average of 42 percent.
Analysts are most bullish now on computer and software makers, according to ratings compiled by Bloomberg. The MSCI World Index Information Technology Index pays a dividend yield of 1.1 percent, data compiled by Bloomberg show.
Dividends History
Forecasts from Wall Street equity analysts show the S&P 500 may yield 2.6 percent in 2012, up from 2.2 percent now. Even though S&P data shows the payments account for 40 percent of the return in the index since 1926, they reduced the 57 percent tumble during the last bear market by just 1.5 percentage points, according to data compiled by Bloomberg.
U.S. equities returned 6 percent a year on average since 1900, inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG show. Take away dividends and the annual gain drops to 1.7 percent, compared with 2.1 percent for long-term Treasury bonds, based on a February 2009 report.
Matthew McCormick, a fund manager for Bahl & Gaynor Investment Counsel Inc., said he bought shares of New Brunswick, New Jersey-based Johnson & Johnson and Abbott Laboratories in Abbott Park, Illinois, on speculation investors will favor stocks with consistent earnings.
J&J, whose dividend yields 3.1 percent, will likely boost the payment in April to 3.3 percent, according to Bloomberg data. Abbott may lift its dividend next month to yield 3.3 percent relative to its share price, from 3 percent now, the data show.
“What worked last year doesn’t necessarily work this year,” said McCormick, whose firm manages $2.7 billion in Cincinnati. “Dividend stocks are the place to be in 2010.”
To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net; Francesca Cinelli in Milan at fcinelli@bloomberg.net.
Wal-Mart Stores Inc., one of two Dow Jones Industrial Average shares that rose in 2008, trades at the cheapest level in at least 20 years while offering a record dividend, data compiled by Bloomberg show. David Einhorn’s Greenlight Capital Inc. bought a stake in Vodafone Group Plc, the world’s biggest mobile-phone company, after its annual payout rose to twice the average of Europe’s Dow Jones Stoxx 600 Index last quarter.
Money managers around the world are buying equities with the highest payouts and fewest links to the economy after the MSCI World Index’s biggest monthly drop since February 2009. While billionaire investor Kenneth Fisher says the market will rebound, Einhorn, Natixis Asset Management’s Dominique Sabassier and City National Bank’s Richard Weiss are acting to head off more losses.
“People who believe that the crisis is over are wrong,” said Sabassier, the chief investment officer at Natixis, which oversees the equivalent of $418 billion in Paris. “The dividend is an increasing part of your total return,” he said. “People have tended to see dividends as the cherry on the cake, but I think they are much more than that.”
China, Obama
The MSCI World Index of equities from 23 developed nations has fallen 7.3 percent since reaching a 15-month high on Jan. 14 after China set higher reserves for lenders and U.S. President Barack Obama said he plans to bar proprietary trading at banks. Raw-material producers, which pay out less than 2 percent in dividends, led the gauge down 2.6 percent last week, capping the longest retreat since July. The iShares Dow Jones Select Dividend Index Fund of 100 companies slipped 1.3 percent.
The MSCI World dropped 0.1 percent as of 10:30 a.m. in London today, headed for its ninth straight retreat, the longest losing streak in 11 months. Futures on the S&P 500 added 0.5 percent.
History shows that buying shares when yields are highest can produce market-beating gains. An index of grocers, tobacco companies and household-product makers jumped 50 percent in the year after their payouts peaked in March 2000, while the S&P 500 lost 12 percent, according to data compiled by Bloomberg.
Dividends are recovering from the worst year on record in the U.S., where 804 companies reduced payouts by a combined $58 billion, according to data compiled by S&P. Yields to investors may rise 18 percent through 2012, analysts’ estimates compiled by Bloomberg show.
Reducing Payouts
The first global recession since World War II prompted Fairfield, Connecticut-based General Electric Co. to pare its payout last year for the first time since 1938, to 10 cents from 31 cents.
Dow Chemical Co. lowered its dividend in February 2009 to 15 cents from 42 cents, snapping a string of 389 consecutive quarters since 1912 without a reduction at the Midland, Michigan-based company. Anglo American Plc, the London-based owner of stakes in the world’s biggest platinum producers, suspended payments the same month.
Investors who buy so-called defensive stocks such as household-product providers, telephone companies, utilities and drugmakers may risk trailing the market should the economy extend its recovery. Those groups posted the smallest returns during the stock market rally that began in March, averaging gains of 32 percent during the advance that lifted the S&P 500 59 percent, data compiled by Bloomberg show. They are the cheapest in the index on the basis of earnings.
Mobile Phones
Einhorn, the 41-year-old hedge-fund manager who bet against Lehman Brothers Holdings Inc. four months before its collapse, said he purchased a “significant” stake in Vodafone during the fourth quarter on speculation the shares are cheap, according to a letter to clients dated Jan. 19. The holding is among the six largest for New York-based Greenlight, which has returned an average of 22 percent a year for investors since May 1996.
“The portfolio continues to be conservatively postured into 2010 because the market appears to be discounting a rather rosy outcome,” he wrote. Einhorn bought Vodafone shares at an average of 138 pence ($2.20), 2.6 percent above its price now, and says he expects the company’s wireless venture with Verizon Communications Inc. of New York to rise in value.
“In the meantime, we collect a nice dividend,” he wrote. Einhorn declined to comment, according to Mary Beth Grover, a spokeswoman for Greenlight.
Consumer Goods
Vodafone’s dividend is 6.5 percent of its share price, compared with an average of 2.7 percent for the Newbury, England-based company during the past 18 years, data compiled by Bloomberg show. Telephone companies in the MSCI World pay a dividend yield of 5.5 percent on average, 2.9 percentage points more than the global index’s average, close to the biggest premium since 1995.
Companies in the S&P 500 that sell consumer goods pay out 3 percent of their share prices on average, the most since July 2001 relative to the U.S. equity benchmark’s 2.2 percent, the data show. The industry in the MSCI World has a dividend yield of 2.8 percent, the highest relative to the index since 2006.
Weiss, who oversees about $50 billion as chief investment officer at City National Bank, is buying Walmart because the Bentonville, Arkansas-based retailer trades at 15 times profit from the past year, the biggest discount to the S&P 500 since at least 1990. Walmart’s dividend is 2 percent of its share price, the highest ever relative to the S&P 500.
Bull Market
“The argument in favor of high-dividend, value-oriented stocks this year is a very strong and compelling one,” Weiss said in an interview from Beverly Hills, California. “There are so many investors out there who are hungry for more income.”
Corporate bonds are beating stocks by the biggest margin since February as investors prefer the securities’ fixed payments, data compiled by Bloomberg show. While the MSCI World has lost 4.1 percent including reinvested dividends in January, the Bank of America Merrill Lynch Global Broad Market Corporate Index gained 1.8 percentage points. In December, stocks outperformed bonds by 2.4 percentage points.
‘Up Year’
Fisher, who oversees $36 billion as chairman of Fisher Investments Inc. in Woodside, California, is avoiding defensive stocks. He says raw-material producers, industrial companies and technology providers are better bets than makers of household goods because the economy will rebound faster than economists forecast.
U.S. gross domestic product increased in the fourth quarter at the fastest pace in six years, rising at an annual rate of 5.7 percent. That beat the median forecast of 84 economists in a Bloomberg survey, according to a report on Jan. 29 from the Commerce Department in Washington. The economy will grow 2.7 percent this year, the most since 2006, a Bloomberg survey shows.
“If we’re going to have a nice up year this year, I wouldn’t expect dividend-yielding stocks to lead,” said Fisher. “Both revenues and earnings will be stronger than what people think.”
A record nine-quarter earnings slump for S&P 500 companies is projected to have ended in the final three months of 2009 with a 76 percent increase in profits. Almost 80 percent of the results released since Jan. 11 topped the average forecasts of Wall Street estimates, data compiled by Bloomberg show.
Failed Advice
Wall Street advice to buy defensive shares didn’t work in 2009. Citigroup Inc. and Bank of America Corp. led more than a dozen firms that told clients a year ago to purchase European energy producers and U.S. drugmakers while selling banks and retailers, according to combined rankings compiled by Bloomberg. Financial companies led the advance beginning in March with a 114 percent return while energy producers and health-care stocks were the third- and fourth-worst performing industries in the MSCI World, climbing an average of 42 percent.
Analysts are most bullish now on computer and software makers, according to ratings compiled by Bloomberg. The MSCI World Index Information Technology Index pays a dividend yield of 1.1 percent, data compiled by Bloomberg show.
Dividends History
Forecasts from Wall Street equity analysts show the S&P 500 may yield 2.6 percent in 2012, up from 2.2 percent now. Even though S&P data shows the payments account for 40 percent of the return in the index since 1926, they reduced the 57 percent tumble during the last bear market by just 1.5 percentage points, according to data compiled by Bloomberg.
U.S. equities returned 6 percent a year on average since 1900, inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG show. Take away dividends and the annual gain drops to 1.7 percent, compared with 2.1 percent for long-term Treasury bonds, based on a February 2009 report.
Matthew McCormick, a fund manager for Bahl & Gaynor Investment Counsel Inc., said he bought shares of New Brunswick, New Jersey-based Johnson & Johnson and Abbott Laboratories in Abbott Park, Illinois, on speculation investors will favor stocks with consistent earnings.
J&J, whose dividend yields 3.1 percent, will likely boost the payment in April to 3.3 percent, according to Bloomberg data. Abbott may lift its dividend next month to yield 3.3 percent relative to its share price, from 3 percent now, the data show.
“What worked last year doesn’t necessarily work this year,” said McCormick, whose firm manages $2.7 billion in Cincinnati. “Dividend stocks are the place to be in 2010.”
To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net; Francesca Cinelli in Milan at fcinelli@bloomberg.net.
U.S. Stock Futures Rise on Manufacturing Rebound, Euro Rallies
U.S. stock-index futures advanced and the euro snapped a four-day decline versus the dollar on speculation manufacturing is recovering around the world.
Futures on the Standard & Poor’s 500 Index rose 0.5 percent at 10:10 a.m. in London. The euro strengthened 0.3 percent against the dollar and 0.4 percent compared with the yen. The zloty climbed as much as 1.3 percent to its highest in a year against the euro and the rand gained 0.6 percent against the dollar as factory production rose in Poland and South Africa.
U.S. manufacturing probably expanded in January for a sixth month, the Institute for Supply Management may say today, adding to evidence the recovery in the world’s biggest economy is gaining momentum. Indexes of manufacturing in the euro region and the U.K. rose more than economists forecast.
“We look for a further leg up in equities, which could be driven by positive economic and earnings news,” JPMorgan Asset Management strategists David Shairp and Rekha Sharma wrote in a report today. The prospect of central banks withdrawing stimulus may mean that “markets will be periodically challenged and volatility will be on the rise,” they wrote.
The MSCI World Index of 23 developed nations’ stocks slipped 0.1 percent as Asian stocks dropped on concern China will take more steps to prevent its economy from overheating. Toshiba Corp. declined 6 percent in Tokyo after cutting its revenue forecast. Honda Motor Co. slid 2.5 after saying it’s recalling some cars in North America and the U.K.
European Movers
Europe’s Dow Jones Stoxx 600 Index fell 0.3 percent, paring earlier losses of as much as 0.8 percent. Vivendi SA, the owner of the world’s largest music company, slid 2.6 percent in Paris after a U.S. jury ruled it misled investors. Ryanair Holdings Plc advanced 5.1 percent in Dublin after Europe’s biggest discount airline raised its profit forecast.
Northumbrian Water Group Plc led shares of utility companies higher, jumping as much as 13 percent in London, after the Sunday Times reported that Ontario Teachers’ Pension Plan may bid 1.7 billion pounds ($2.7 billion) for the company.
The gain in U.S. futures indicated the S&P 500 may rebound from a three-month low. The U.S. Institute for Supply Management’s factory index, due at 10 a.m. in New York, rose to 55.5 last month from 54.9 in December, according to the median forecast of 62 economists surveyed by Bloomberg News. Readings greater than 50 signal expansion. Other reports may show personal spending rose and construction fell.
Earnings Rebound
A record nine-quarter earnings slump for S&P 500 companies is projected to have ended in the final three months of 2009 with a 76 percent increase in profits. Almost 80 percent of the results released since Jan. 11 topped the average forecasts of Wall Street estimates, data compiled by Bloomberg show. Exxon Mobil Corp. is among companies reporting earnings today.
The Dubai Financial Market General Index climbed 1.5 percent after Aabar Investments PJSC, the Abu Dhabi fund that’s the biggest shareholder in Daimler AG, said full-year profit more than doubled. The MSCI Emerging Markets Index fell 0.4 percent, extending its drop since Jan. 11 to as much as 10 percent. The ruble weakened 0.4 percent to a six-week low against the dollar.
The euro advanced against 11 of its 16 most-traded counterparts tracked by Bloomberg, rising most versus the South Korean won with a 1 percent gain. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, ended a four-day advance, dropping 0.2 percent. Treasuries fell for the first time in three days, with the yield on the 10-year note rising 3 basis points to 3.62 percent.
Copper for delivery in three months fell as much as 2.2 percent to $6,600 a metric ton in London, the lowest compared with intraday prices since Nov. 16. Tin retreated 5.2 percent to $16,300 a ton, the lowest since Dec. 24. Gold for immediate delivery added 0.3 percent to $1,083.55 an ounce and crude oil added 0.2 percent to $73.02 a barrel in New York.
To contact the reporter on this story: Justin Carrigan in Copenhagen at swallace6@bloomberg.net
Futures on the Standard & Poor’s 500 Index rose 0.5 percent at 10:10 a.m. in London. The euro strengthened 0.3 percent against the dollar and 0.4 percent compared with the yen. The zloty climbed as much as 1.3 percent to its highest in a year against the euro and the rand gained 0.6 percent against the dollar as factory production rose in Poland and South Africa.
U.S. manufacturing probably expanded in January for a sixth month, the Institute for Supply Management may say today, adding to evidence the recovery in the world’s biggest economy is gaining momentum. Indexes of manufacturing in the euro region and the U.K. rose more than economists forecast.
“We look for a further leg up in equities, which could be driven by positive economic and earnings news,” JPMorgan Asset Management strategists David Shairp and Rekha Sharma wrote in a report today. The prospect of central banks withdrawing stimulus may mean that “markets will be periodically challenged and volatility will be on the rise,” they wrote.
The MSCI World Index of 23 developed nations’ stocks slipped 0.1 percent as Asian stocks dropped on concern China will take more steps to prevent its economy from overheating. Toshiba Corp. declined 6 percent in Tokyo after cutting its revenue forecast. Honda Motor Co. slid 2.5 after saying it’s recalling some cars in North America and the U.K.
European Movers
Europe’s Dow Jones Stoxx 600 Index fell 0.3 percent, paring earlier losses of as much as 0.8 percent. Vivendi SA, the owner of the world’s largest music company, slid 2.6 percent in Paris after a U.S. jury ruled it misled investors. Ryanair Holdings Plc advanced 5.1 percent in Dublin after Europe’s biggest discount airline raised its profit forecast.
Northumbrian Water Group Plc led shares of utility companies higher, jumping as much as 13 percent in London, after the Sunday Times reported that Ontario Teachers’ Pension Plan may bid 1.7 billion pounds ($2.7 billion) for the company.
The gain in U.S. futures indicated the S&P 500 may rebound from a three-month low. The U.S. Institute for Supply Management’s factory index, due at 10 a.m. in New York, rose to 55.5 last month from 54.9 in December, according to the median forecast of 62 economists surveyed by Bloomberg News. Readings greater than 50 signal expansion. Other reports may show personal spending rose and construction fell.
Earnings Rebound
A record nine-quarter earnings slump for S&P 500 companies is projected to have ended in the final three months of 2009 with a 76 percent increase in profits. Almost 80 percent of the results released since Jan. 11 topped the average forecasts of Wall Street estimates, data compiled by Bloomberg show. Exxon Mobil Corp. is among companies reporting earnings today.
The Dubai Financial Market General Index climbed 1.5 percent after Aabar Investments PJSC, the Abu Dhabi fund that’s the biggest shareholder in Daimler AG, said full-year profit more than doubled. The MSCI Emerging Markets Index fell 0.4 percent, extending its drop since Jan. 11 to as much as 10 percent. The ruble weakened 0.4 percent to a six-week low against the dollar.
The euro advanced against 11 of its 16 most-traded counterparts tracked by Bloomberg, rising most versus the South Korean won with a 1 percent gain. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, ended a four-day advance, dropping 0.2 percent. Treasuries fell for the first time in three days, with the yield on the 10-year note rising 3 basis points to 3.62 percent.
Copper for delivery in three months fell as much as 2.2 percent to $6,600 a metric ton in London, the lowest compared with intraday prices since Nov. 16. Tin retreated 5.2 percent to $16,300 a ton, the lowest since Dec. 24. Gold for immediate delivery added 0.3 percent to $1,083.55 an ounce and crude oil added 0.2 percent to $73.02 a barrel in New York.
To contact the reporter on this story: Justin Carrigan in Copenhagen at swallace6@bloomberg.net
Sugar Prices May Not Be ‘Normal’ Until Yearend, Bunge CEO Says
Sugar prices may not return to “normal” until the end of the year as buyers compete for limited supplies from Brazil, the world’s largest grower, according to Bunge Ltd. Chief Executive Officer Alberto Weisser.
Raw-sugar prices that climbed to 30.4 cents a pound in New York today, the highest in 29 years, are “double a normal price” and “could even go further up,” Weisser said in an interview on Jan. 30 in Davos. Prices doubled last year and are up another 12 percent this year after bad weather disrupted crops in Brazil and India, the world’s second-largest grower.
“We should see still strong prices during this year but weakening during the year,” said Weisser, whose company is the world’s third-largest exporter of sugar from Brazil. A “normal” price of 15 or 16 cents may return by the end of this year, “perhaps at the beginning of next year,” he said.
Raw sugar for March delivery was at 30.05 cents a pound at 9:23 a.m. London time on ICE Futures U.S. in New York. White, or refined, sugar for May delivery climbed $1.40 to $745.20 a metric ton on the Liffe exchange in London. Refined sugar prices have doubled in a year.
Brazil’s next sugar-cane harvest may not start until May. About 70 sugar mills stayed open into last month to process cane from last year after production was disrupted because of excessive rain, according to the industry association Unica. In India, imports will more than double to 6 million tons, the highest since at least 1960, according to the U.S. Department of Agriculture.
Relying on Brazil
“The world is relying on the sugar mainly from Brazil at the moment and the South American crop will only start in April, so we will see high prices in sugar for a couple of months,” Weisser said. “We should continue seeing these high prices for a while because last year the crop in India was very, very low.”
Cargill Inc. and Sucres et Denrees SA are the largest shippers of sugar from Brazil, according to Sucden analyst Karim Salamon in Paris. Bunge, based in White Plains, New York, also makes fertilizer and animal feed, crushes oilseeds for biofuels, makes mayonnaise and margarine and mills wheat and corn for bakeries.
Sugar output in Brazil for the 2009/10 season is estimated at 35.75 million tons, or 82 percent of South America’s total output of 43.83 million tons, according to the USDA.
Farmers in Brazil need 15 cents a pound to break even, so “we should not see lower prices than 15, 16,” Weisser said.
Prices of soybeans may be “a little bit weaker,” and “we think corn is similar,” Weisser said. In wheat, “the supply/demand is in balance, so we don’t expect any significant issues in terms of higher prices.”
Soybeans futures fell 13 percent last month, corn declined 14 percent and wheat dropped 12 percent after the USDA raised its estimates of supplies.
To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Juan Pablo Spinetto in London at jspinetto@bloomberg.net
Raw-sugar prices that climbed to 30.4 cents a pound in New York today, the highest in 29 years, are “double a normal price” and “could even go further up,” Weisser said in an interview on Jan. 30 in Davos. Prices doubled last year and are up another 12 percent this year after bad weather disrupted crops in Brazil and India, the world’s second-largest grower.
“We should see still strong prices during this year but weakening during the year,” said Weisser, whose company is the world’s third-largest exporter of sugar from Brazil. A “normal” price of 15 or 16 cents may return by the end of this year, “perhaps at the beginning of next year,” he said.
Raw sugar for March delivery was at 30.05 cents a pound at 9:23 a.m. London time on ICE Futures U.S. in New York. White, or refined, sugar for May delivery climbed $1.40 to $745.20 a metric ton on the Liffe exchange in London. Refined sugar prices have doubled in a year.
Brazil’s next sugar-cane harvest may not start until May. About 70 sugar mills stayed open into last month to process cane from last year after production was disrupted because of excessive rain, according to the industry association Unica. In India, imports will more than double to 6 million tons, the highest since at least 1960, according to the U.S. Department of Agriculture.
Relying on Brazil
“The world is relying on the sugar mainly from Brazil at the moment and the South American crop will only start in April, so we will see high prices in sugar for a couple of months,” Weisser said. “We should continue seeing these high prices for a while because last year the crop in India was very, very low.”
Cargill Inc. and Sucres et Denrees SA are the largest shippers of sugar from Brazil, according to Sucden analyst Karim Salamon in Paris. Bunge, based in White Plains, New York, also makes fertilizer and animal feed, crushes oilseeds for biofuels, makes mayonnaise and margarine and mills wheat and corn for bakeries.
Sugar output in Brazil for the 2009/10 season is estimated at 35.75 million tons, or 82 percent of South America’s total output of 43.83 million tons, according to the USDA.
Farmers in Brazil need 15 cents a pound to break even, so “we should not see lower prices than 15, 16,” Weisser said.
Prices of soybeans may be “a little bit weaker,” and “we think corn is similar,” Weisser said. In wheat, “the supply/demand is in balance, so we don’t expect any significant issues in terms of higher prices.”
Soybeans futures fell 13 percent last month, corn declined 14 percent and wheat dropped 12 percent after the USDA raised its estimates of supplies.
To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Juan Pablo Spinetto in London at jspinetto@bloomberg.net
European Manufacturing Growth Accelerated in January (Update2)
Expansion in Europe’s manufacturing industry accelerated more than estimated in January as reviving global demand prompted companies to step up output.
An index of manufacturing in the 16-nation euro region increased to 52.4 from 51.6 in December, London-based Markit Economics said today. That’s above an initial estimate of 52 published on Jan. 21. The gauge is based on a survey of purchasing managers and a reading above 50 indicates expansion.
European companies are increasing production as a global economic recovery spurs exports. China, the world’s third- largest economy, sustained its manufacturing expansion in January, data showed today. Germany’s Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars, said on Jan. 29 that it expects full-year earnings to rise.
“Manufacturers took the biggest hit and are now catching up,” said Christoph Weil, a senior economist at Commerzbank AG in Frankfurt. “The recovery will continue for another couple of months.”
Manufacturing in the U.S., the world’s biggest economy, probably expanded in January for a sixth month, economists said before a report due later today from the Institute for Supply Management.
The euro rose after the European manufacturing report, trading at $1.3906 at 9:56 a.m. in London, compared with $1.3863 on Jan. 29. The single currency has shed 2.9 percent against the dollar so far this year.
A gauge of services in the euro-area economy fell to 52.3 last month from 53.6 in December and a composite index of the manufacturing and service industries declined to 53.6 from 54.2, according to Markit’s initial estimate released last month. Markit is scheduled to publish the final report for January on Feb. 3.
To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net
An index of manufacturing in the 16-nation euro region increased to 52.4 from 51.6 in December, London-based Markit Economics said today. That’s above an initial estimate of 52 published on Jan. 21. The gauge is based on a survey of purchasing managers and a reading above 50 indicates expansion.
European companies are increasing production as a global economic recovery spurs exports. China, the world’s third- largest economy, sustained its manufacturing expansion in January, data showed today. Germany’s Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars, said on Jan. 29 that it expects full-year earnings to rise.
“Manufacturers took the biggest hit and are now catching up,” said Christoph Weil, a senior economist at Commerzbank AG in Frankfurt. “The recovery will continue for another couple of months.”
Manufacturing in the U.S., the world’s biggest economy, probably expanded in January for a sixth month, economists said before a report due later today from the Institute for Supply Management.
The euro rose after the European manufacturing report, trading at $1.3906 at 9:56 a.m. in London, compared with $1.3863 on Jan. 29. The single currency has shed 2.9 percent against the dollar so far this year.
A gauge of services in the euro-area economy fell to 52.3 last month from 53.6 in December and a composite index of the manufacturing and service industries declined to 53.6 from 54.2, according to Markit’s initial estimate released last month. Markit is scheduled to publish the final report for January on Feb. 3.
To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net
Russia Suffered Record Economic Contraction in 2009 (Update2)
Russia’s economy shrank the most on record in 2009 after the price of oil slumped 77 percent from peak to trough and left businesses to start the year trying to adjust to smaller profits as banks cut off credit.
Gross domestic product fell 7.9 percent in 2009 after rising 5.6 percent the previous year, the State Statistics Service said on its Web site today, citing preliminary figures. The median forecast of 18 economists in a Bloomberg survey was for an 8.5 percent contraction, in line with the government’s prediction.
President Dmitry Medvedev has called 2009 the “hardest year” since Russia’s 1998 default. Banks withheld credit and companies were forced to restructure debts as 12 consecutive months of contracting industrial output depleted earnings. The sudden drop in Urals crude, the country’s chief export, to $32 in December 2008 from a peak of $143 in July that year ended a decade of growth in the world’s biggest energy exporter.
“Among the largest economies, growth collapsed the most” in Russia, Tatiana Orlova, an economist at ING Bank NV in Moscow, said before the report. “The economy was impacted by its high oil dependence and was vulnerable when external capital markets shut down.”
Oil Rebound
At the same time, oil’s 83 percent rebound last year helped to buoy the economy toward recovery, resulting in a smaller contraction than the government forecast.
“The most important factor was obviously the reversal of the trend in global markets and the rise in commodities prices,” said UralSib economist Vladimir Tikhomirov. “This was very important for the bounce-back in the fourth quarter.”
Household spending shrank 8.1 percent last year, the office said. Net exports, or exports minus imports, grew 58 percent in 2009 while fixed capital investment fell 18.2 percent, according to the report. Russia has yet to publish official fourth quarter GDP figures.
The ruble was 0.2 percent weaker against the dollar at 30.3315 as of 12:36 p.m. in Moscow, after falling as much as 0.5 percent earlier. The benchmark Micex Index was down 0.6 percent at 1,410.75.
GDP slumped a record 10.9 percent in the second quarter, underscoring what Medvedev in his “Go Russia” open letter called a “humiliating” reliance on commodities. Even as the contraction slowed to 8.9 percent in the third quarter, Russia’s performance lagged its emerging market peers. Brazil’s GDP fell 1.2 percent that quarter, while China’s grew 10.7 percent in the fourth and India’s increased 7.9 percent in the third.
‘Quick Return’
The economy will expand about 3.1 percent this year and there may be a “quick return to a growth trajectory” of 5 percent to 6 percent, the government said in a Dec. 30 report.
The government exceeded its budget revenue target for the year by 9.3 percent and ratings companies Standard & Poor’s and Fitch Ratings raised their outlooks, citing improving finances.
That means the Finance Ministry’s foreign borrowing need won’t be “anywhere close” to the maximum $17.8 billion set out in this year’s budget, economists at Troika Dialog, Russia’s oldest investment bank, said in a Jan. 27 note.
After 10 central bank interest rate cuts since April, lending may increase 20 percent this year, compared with 0.2 percent in 2009, helping the economy to grow 5 percent this year, Central Bank First Deputy Chairman Alexei Ulyukayev said on Jan. 20. At the same time, the recovery risks spurring speculative capital inflows, creating ruble volatility that may result in overheating, he warned.
Inflation
“Inflationary risks are possible in the second half of the year,” and Bank Rossii may need to raise rates, Ulyukayev said.
Though 2009’s 83 percent rebound in the price of Urals crude has helped propel Russia toward recovery, policy makers warned the economic outlook may be as unsustainable as the last growth wave because of the country’s continued reliance on commodities.
“The economy will return to the quantitative parameters of its pre-crisis development quite quickly. But I don’t think this is necessarily a good thing,” Ulyukayev said. “Our pre-crisis development lacked quality, it was overheated development.” He said Russia needs institutional reform to manage its oil revenue.
“We are in the middle between Norway and Nigeria in this sense.”
To contact the reporter on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net.
Gross domestic product fell 7.9 percent in 2009 after rising 5.6 percent the previous year, the State Statistics Service said on its Web site today, citing preliminary figures. The median forecast of 18 economists in a Bloomberg survey was for an 8.5 percent contraction, in line with the government’s prediction.
President Dmitry Medvedev has called 2009 the “hardest year” since Russia’s 1998 default. Banks withheld credit and companies were forced to restructure debts as 12 consecutive months of contracting industrial output depleted earnings. The sudden drop in Urals crude, the country’s chief export, to $32 in December 2008 from a peak of $143 in July that year ended a decade of growth in the world’s biggest energy exporter.
“Among the largest economies, growth collapsed the most” in Russia, Tatiana Orlova, an economist at ING Bank NV in Moscow, said before the report. “The economy was impacted by its high oil dependence and was vulnerable when external capital markets shut down.”
Oil Rebound
At the same time, oil’s 83 percent rebound last year helped to buoy the economy toward recovery, resulting in a smaller contraction than the government forecast.
“The most important factor was obviously the reversal of the trend in global markets and the rise in commodities prices,” said UralSib economist Vladimir Tikhomirov. “This was very important for the bounce-back in the fourth quarter.”
Household spending shrank 8.1 percent last year, the office said. Net exports, or exports minus imports, grew 58 percent in 2009 while fixed capital investment fell 18.2 percent, according to the report. Russia has yet to publish official fourth quarter GDP figures.
The ruble was 0.2 percent weaker against the dollar at 30.3315 as of 12:36 p.m. in Moscow, after falling as much as 0.5 percent earlier. The benchmark Micex Index was down 0.6 percent at 1,410.75.
GDP slumped a record 10.9 percent in the second quarter, underscoring what Medvedev in his “Go Russia” open letter called a “humiliating” reliance on commodities. Even as the contraction slowed to 8.9 percent in the third quarter, Russia’s performance lagged its emerging market peers. Brazil’s GDP fell 1.2 percent that quarter, while China’s grew 10.7 percent in the fourth and India’s increased 7.9 percent in the third.
‘Quick Return’
The economy will expand about 3.1 percent this year and there may be a “quick return to a growth trajectory” of 5 percent to 6 percent, the government said in a Dec. 30 report.
The government exceeded its budget revenue target for the year by 9.3 percent and ratings companies Standard & Poor’s and Fitch Ratings raised their outlooks, citing improving finances.
That means the Finance Ministry’s foreign borrowing need won’t be “anywhere close” to the maximum $17.8 billion set out in this year’s budget, economists at Troika Dialog, Russia’s oldest investment bank, said in a Jan. 27 note.
After 10 central bank interest rate cuts since April, lending may increase 20 percent this year, compared with 0.2 percent in 2009, helping the economy to grow 5 percent this year, Central Bank First Deputy Chairman Alexei Ulyukayev said on Jan. 20. At the same time, the recovery risks spurring speculative capital inflows, creating ruble volatility that may result in overheating, he warned.
Inflation
“Inflationary risks are possible in the second half of the year,” and Bank Rossii may need to raise rates, Ulyukayev said.
Though 2009’s 83 percent rebound in the price of Urals crude has helped propel Russia toward recovery, policy makers warned the economic outlook may be as unsustainable as the last growth wave because of the country’s continued reliance on commodities.
“The economy will return to the quantitative parameters of its pre-crisis development quite quickly. But I don’t think this is necessarily a good thing,” Ulyukayev said. “Our pre-crisis development lacked quality, it was overheated development.” He said Russia needs institutional reform to manage its oil revenue.
“We are in the middle between Norway and Nigeria in this sense.”
To contact the reporter on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net.
China Sustains Expansion as Inflation Pressures Grow (Update3)
China, the world’s third-biggest economy, sustained its manufacturing expansion in January as export orders jumped and inflation pressures grew, two surveys showed today.
A purchasing managers’ index released by HSBC Holdings Plc and Markit Economics rose to a record. A second survey, by the Federation of Logistics and Purchasing, recorded the second- fastest growth since 2008. India reported an acceleration of manufacturing today and Australia posted an expansion.
Asian stocks tumbled as China’s reports spurred concern that the government will have to escalate efforts to rein in the credit growth that has fueled the nation’s infrastructure spending surge. Policy makers may raise interest rates by the end of June, after already increasing banks’ reserve requirements and targeting reduced credit growth, according to the median estimate in a Bloomberg News survey of economists.
“These numbers should reinforce the case for policy tightening in the months ahead, including a move towards a stronger yuan,” said Brian Jackson, a Hong Kong-based emerging markets strategist at Royal Bank of Canada.
The benchmark Shanghai Composite Index of stocks fell 1.5 percent as of 2:47 p.m. local time, extending this year’s slide to 10.2 percent. Twelve-month non-deliverable yuan forwards indicated that traders expect the Chinese currency to appreciate 2.8 percent in the next year against the dollar. The yuan has been pegged to the U.S. currency for the past 18 months.
Growth Priority
Russian billionaire Oleg Deripaska said concerns that Chinese efforts to contain inflation may derail the economy are “unreasonable” and growth will remain officials’ priority. “More money supply may cause higher inflation, but I can’t see that stopping their growth,” Deripaska, whose United Co. Rusal Ltd. last month became the first Russian company to list in Hong Kong, said in a Jan. 29 Bloomberg Television interview.
The HSBC index rose to a seasonally adjusted 57.4 from 56.1 in December and the survey showed the biggest gains in input and output prices since July 2008. Export sales rose at a “near- record rate,” a statement on Markit’s Web site said, without giving numbers.
The government-backed Purchasing Managers’ Index fell to a seasonally adjusted 55.8 from 56.6 in December, an e-mailed statement showed. Growth in output and orders slowed. Export demand quickened and an index of input prices rose to the highest since July 2008.
Weather Effect
The figures may partly reflect disruptions from cold weather and snowstorms, JPMorgan Chase & Co. and UBS AG. said. Credit Suisse AG cited “credit tightening” for smaller gains in orders.
The credit boom has added to the risk of surging inflation and asset bubbles in the economy that Nomura Holdings Inc. says will contribute a third of global growth this year.
Chinese central bank adviser Fan Gang said today in Beijing that while inflation is a concern, asset bubbles are the “real worry” as inflows of capital add to excessive liquidity in the financial system.
Banks lent almost 1.6 trillion yuan ($234 billion) last month, the Economic Information Daily reported today on its Web site. That’s more than a fifth of the banking regulator’s target for lending this year.
Asia’s Rise
China’s growth accelerated to 10.7 percent, the fastest pace since 2007, in the fourth quarter of 2009 on a 4 trillion yuan ($586 billion) stimulus package and record lending. Across Asia, South Korea reported today the biggest gain in exports in more than 20 years and Indonesia, Thailand and South Korea said inflation accelerated.
The logistics federation’s figure for Chinese manufacturing was less than the median 56.5 estimate in a Bloomberg News survey of 16 economists, declining for the first time in eight months. The output index fell to 60.5 from 61.4 in December. The export-orders index rose to 53.2 from 52.6.
“China’s economy is at a crucial stage of moving from rebounding to stabilizing” with exports set to make a bigger contribution to growth, said Zhang Liqun, a researcher at the State Council Development and Research Center. “In the meantime, companies may face a tougher environment with rising costs and intensified competition.”
Profit Gains
Companies benefiting from the nation’s rebound include Chongqing Changan Automobile Co., which said Jan. 27 that 2009 profit may have climbed more than 4000 percent on higher sales and cost controls. China Railway Construction Co. said the same day that profit likely increased more than 50 percent from 3.6 billion yuan a year earlier because of the nation’s extra infrastructure spending.
The economy may gain momentum this quarter as exports surge 30 percent, making an interest-rate increase more likely as inflation rises, according to China International Capital Corp. China’s 10.5 percent expansion this year will compare with the global economy’s 4.2 percent, Nomura forecasts.
The nation’s growth may accelerate to 12 percent this quarter, triggering a rate increase as early as this month as inflation rises to 3 percent, according to Sun Mingchun, an economist at Nomura in Hong Kong.
China is pursuing a “proactive fiscal policy” and moderately loose monetary policy,” Vice Premier Li Keqiang reaffirmed in a speech on Jan. 28 at the World Economic Forum in Davos, Switzerland.
The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives at more than 730 companies in 20 industries. It started in 2005.
The official PMI surveys mainly large and state-owned companies, while HSBC’s sample of more than 400 is weighted more toward smaller businesses and export-related companies, said Xing Ziqiang, an economist at China International Capital Corp. It began in 2004.
To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net
A purchasing managers’ index released by HSBC Holdings Plc and Markit Economics rose to a record. A second survey, by the Federation of Logistics and Purchasing, recorded the second- fastest growth since 2008. India reported an acceleration of manufacturing today and Australia posted an expansion.
Asian stocks tumbled as China’s reports spurred concern that the government will have to escalate efforts to rein in the credit growth that has fueled the nation’s infrastructure spending surge. Policy makers may raise interest rates by the end of June, after already increasing banks’ reserve requirements and targeting reduced credit growth, according to the median estimate in a Bloomberg News survey of economists.
“These numbers should reinforce the case for policy tightening in the months ahead, including a move towards a stronger yuan,” said Brian Jackson, a Hong Kong-based emerging markets strategist at Royal Bank of Canada.
The benchmark Shanghai Composite Index of stocks fell 1.5 percent as of 2:47 p.m. local time, extending this year’s slide to 10.2 percent. Twelve-month non-deliverable yuan forwards indicated that traders expect the Chinese currency to appreciate 2.8 percent in the next year against the dollar. The yuan has been pegged to the U.S. currency for the past 18 months.
Growth Priority
Russian billionaire Oleg Deripaska said concerns that Chinese efforts to contain inflation may derail the economy are “unreasonable” and growth will remain officials’ priority. “More money supply may cause higher inflation, but I can’t see that stopping their growth,” Deripaska, whose United Co. Rusal Ltd. last month became the first Russian company to list in Hong Kong, said in a Jan. 29 Bloomberg Television interview.
The HSBC index rose to a seasonally adjusted 57.4 from 56.1 in December and the survey showed the biggest gains in input and output prices since July 2008. Export sales rose at a “near- record rate,” a statement on Markit’s Web site said, without giving numbers.
The government-backed Purchasing Managers’ Index fell to a seasonally adjusted 55.8 from 56.6 in December, an e-mailed statement showed. Growth in output and orders slowed. Export demand quickened and an index of input prices rose to the highest since July 2008.
Weather Effect
The figures may partly reflect disruptions from cold weather and snowstorms, JPMorgan Chase & Co. and UBS AG. said. Credit Suisse AG cited “credit tightening” for smaller gains in orders.
The credit boom has added to the risk of surging inflation and asset bubbles in the economy that Nomura Holdings Inc. says will contribute a third of global growth this year.
Chinese central bank adviser Fan Gang said today in Beijing that while inflation is a concern, asset bubbles are the “real worry” as inflows of capital add to excessive liquidity in the financial system.
Banks lent almost 1.6 trillion yuan ($234 billion) last month, the Economic Information Daily reported today on its Web site. That’s more than a fifth of the banking regulator’s target for lending this year.
Asia’s Rise
China’s growth accelerated to 10.7 percent, the fastest pace since 2007, in the fourth quarter of 2009 on a 4 trillion yuan ($586 billion) stimulus package and record lending. Across Asia, South Korea reported today the biggest gain in exports in more than 20 years and Indonesia, Thailand and South Korea said inflation accelerated.
The logistics federation’s figure for Chinese manufacturing was less than the median 56.5 estimate in a Bloomberg News survey of 16 economists, declining for the first time in eight months. The output index fell to 60.5 from 61.4 in December. The export-orders index rose to 53.2 from 52.6.
“China’s economy is at a crucial stage of moving from rebounding to stabilizing” with exports set to make a bigger contribution to growth, said Zhang Liqun, a researcher at the State Council Development and Research Center. “In the meantime, companies may face a tougher environment with rising costs and intensified competition.”
Profit Gains
Companies benefiting from the nation’s rebound include Chongqing Changan Automobile Co., which said Jan. 27 that 2009 profit may have climbed more than 4000 percent on higher sales and cost controls. China Railway Construction Co. said the same day that profit likely increased more than 50 percent from 3.6 billion yuan a year earlier because of the nation’s extra infrastructure spending.
The economy may gain momentum this quarter as exports surge 30 percent, making an interest-rate increase more likely as inflation rises, according to China International Capital Corp. China’s 10.5 percent expansion this year will compare with the global economy’s 4.2 percent, Nomura forecasts.
The nation’s growth may accelerate to 12 percent this quarter, triggering a rate increase as early as this month as inflation rises to 3 percent, according to Sun Mingchun, an economist at Nomura in Hong Kong.
China is pursuing a “proactive fiscal policy” and moderately loose monetary policy,” Vice Premier Li Keqiang reaffirmed in a speech on Jan. 28 at the World Economic Forum in Davos, Switzerland.
The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives at more than 730 companies in 20 industries. It started in 2005.
The official PMI surveys mainly large and state-owned companies, while HSBC’s sample of more than 400 is weighted more toward smaller businesses and export-related companies, said Xing Ziqiang, an economist at China International Capital Corp. It began in 2004.
To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net
Dubai Bailout Rally Evaporates on Standstill Silence (Update1)
Dubai’s failure to reassure investors its restructuring plan will succeed is causing the emirate’s benchmark stock index to drop the most in the world and forcing companies to scrap bond sales.
The Dubai Financial Market General Index lost 14 percent since Dec. 14, wiping out a rally sparked by Abu Dhabi’s bailout of Dubai World that day. Bonds of the state-owned company’s property developer Nakheel PJSC sank to 56 cents on the dollar from 67.5 cents, while credit default swaps on Dubai government debt trade at 493 basis points, the highest level since Abu Dhabi’s fund injection.
Dubai World, in talks to reschedule $22 billion of debt, failed to present an offer in a meeting with lenders in December and declined to say when a deal may be struck. Dubai Electricity & Water Authority said Jan. 17 it delayed a $1.5 billion bond sale as borrowing costs were too high.
Lack of clarity on Dubai World’s restructuring plan “is creating uncertainty that is weighing heavily on the market,” said Rami Sidani, the Dubai-based head of Middle East and North Africa investment at Schroder Investment Management Ltd., which oversees about $230 billion worldwide. “We’re not out of the woods yet and we know Dubai will continue to struggle with a debt burden.”
Real-Estate Crash
Dubai stocks and bonds tumbled in November after the government said Dubai World would seek to delay payments to creditors until at least May 30. Investors speculated that Nakheel, which is building palm tree-shaped islands off the emirate’s coast, would default after Dubai companies lost access to cheap financing because of the global credit crunch and a 50 percent slump in Dubai home prices.
Abu Dhabi’s $10 billion bailout on Dec. 14 ensured that Nakheel would have the $4.1 billion it needed to repay an Islamic bond due that day. Dubai is the second-biggest of seven states that make up the United Arab Emirates, whose capital Abu Dhabi holds 8 percent of global oil reserves. Dubai and its state-owned companies borrowed at least $80 billion until 2008 to transform the emirate into a tourism and financial hub.
The Dubai stock index jumped 10 percent and bond prices soared on the day Abu Dhabi provided the funds. Dubai credit default swaps, which measure the cost of protecting against the default of government debt, sank to 430 basis points from 540.
Biggest Decline
The Dubai stock index has since posted the biggest decline among benchmark equity gauges in the world’s 70 largest markets. While global stocks have retreated on concern China will take steps to curb economic growth, the Dubai measure’s 14 percent loss compares with a 4.2 percent decline in the MSCI AC World Index.
Nakheel’s $750 million of 2.75 percent bonds due 2011 lost 17 percent during the period, according to Citigroup Inc. prices on Bloomberg, while credit default swaps jumped 63 basis points. A basis point on a credit-default swap contract to protect against the default of $10 million of debt for five years is equivalent to $1,000 a year.
The Dubai stock index climbed 1.3 percent to 1,610.96 at 1:20 p.m. in Dubai and the Nakheel 2011 bonds gained to 56 cents from 55.75 cents on Jan. 29.
“The Dubai World restructuring is going to be a long and tedious process,” said Shehab Gargash, a managing director at Dubai-based Daman Investments who’s holding half of his $1.5 billion under management in cash. “That’s the main reason we decided to stay out” of Dubai’s “bear market rally,” he said.
Worst Is Over
Templeton Asset Management Ltd.’s Mark Mobius says the Abu Dhabi bailout ensured the worst of the emirate’s debt crisis is over. The manager of $34 billion in emerging market assets said in an interview there’s “value and opportunity” in Dubai markets and that Templeton bought shares during the selloff in November and early December.
“There has to be more revelations about what is being done and how, but the panic is over,” Mobius, the chairman of Templeton Asset Management, said in the Jan. 28 interview in Melbourne. “We are trying to buy at a good price given the fact that transparency isn’t complete.”
The Dubai stock index trades for 5.2 times analysts’ 2010 earnings estimates, the cheapest level worldwide after Nigeria’s All Share Index, according to data compiled by Bloomberg.
While investors speculate on the recovery values of Dubai debt, the lifeline from Abu Dhabi is helping the state-owned companies meet their interest payments. Nakheel paid a $10.3 million coupon last month on its 2011 bond. Dubai Holding Commercial Operations Group LLC, the investment company owned by Dubai’s ruler, made about $100 million of scheduled payments last month on three bonds.
Refinancing Needs
Dubai-based firms have to refinance $7.3 billion in syndicated loans and $2.8 billion in maturing bonds this year, according to Deutsche Bank AG estimates. Some of the biggest debt maturities include a $1.25 billion loan due in June by Dubai International Capital LLC, an investment company owned by Dubai’s ruler, and $1.5 billion in two floating-rate dollar notes issued by Emirates NBD PJSC.
Emirates Telecommunications Corp., the U.A.E.’s biggest phone company, has deferred plans to issue the equivalent of $490 million bonds as it has enough cash for expansion plans, Ahmed bin Ali, a spokesman for the company, said Jan. 28.
IPOs Dry Up
The Dubai government’s $1.93 billion Islamic bond issued in October was the last sale of bonds from the emirate. Drake & Scull International PJSC, a Dubai-based construction-engineering contractor that raised about 1.2 billion dirhams ($327 million) from its initial public offering in 2008, was the last stock sale from a Dubai-based company, according to Bloomberg data.
“It makes very little sense for a Dubai corporate issuer to go out now and just try to force the issue in the market,” said Abdul Kadir Hussain, chief executive officer of fund manager Mashreq Capital DIFC Ltd. “Right now the market is waiting for a strategy. How are we going to reduce the absolute debt level in Dubai and how quickly is this going to happen. Investors are taking a very conservative attitude toward the U.A.E.”
To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.netMichael Patterson in London at mpatterson10@bloomberg.net. Vivian Salama in Abu Dhabi at vsalama@bloomberg.net
The Dubai Financial Market General Index lost 14 percent since Dec. 14, wiping out a rally sparked by Abu Dhabi’s bailout of Dubai World that day. Bonds of the state-owned company’s property developer Nakheel PJSC sank to 56 cents on the dollar from 67.5 cents, while credit default swaps on Dubai government debt trade at 493 basis points, the highest level since Abu Dhabi’s fund injection.
Dubai World, in talks to reschedule $22 billion of debt, failed to present an offer in a meeting with lenders in December and declined to say when a deal may be struck. Dubai Electricity & Water Authority said Jan. 17 it delayed a $1.5 billion bond sale as borrowing costs were too high.
Lack of clarity on Dubai World’s restructuring plan “is creating uncertainty that is weighing heavily on the market,” said Rami Sidani, the Dubai-based head of Middle East and North Africa investment at Schroder Investment Management Ltd., which oversees about $230 billion worldwide. “We’re not out of the woods yet and we know Dubai will continue to struggle with a debt burden.”
Real-Estate Crash
Dubai stocks and bonds tumbled in November after the government said Dubai World would seek to delay payments to creditors until at least May 30. Investors speculated that Nakheel, which is building palm tree-shaped islands off the emirate’s coast, would default after Dubai companies lost access to cheap financing because of the global credit crunch and a 50 percent slump in Dubai home prices.
Abu Dhabi’s $10 billion bailout on Dec. 14 ensured that Nakheel would have the $4.1 billion it needed to repay an Islamic bond due that day. Dubai is the second-biggest of seven states that make up the United Arab Emirates, whose capital Abu Dhabi holds 8 percent of global oil reserves. Dubai and its state-owned companies borrowed at least $80 billion until 2008 to transform the emirate into a tourism and financial hub.
The Dubai stock index jumped 10 percent and bond prices soared on the day Abu Dhabi provided the funds. Dubai credit default swaps, which measure the cost of protecting against the default of government debt, sank to 430 basis points from 540.
Biggest Decline
The Dubai stock index has since posted the biggest decline among benchmark equity gauges in the world’s 70 largest markets. While global stocks have retreated on concern China will take steps to curb economic growth, the Dubai measure’s 14 percent loss compares with a 4.2 percent decline in the MSCI AC World Index.
Nakheel’s $750 million of 2.75 percent bonds due 2011 lost 17 percent during the period, according to Citigroup Inc. prices on Bloomberg, while credit default swaps jumped 63 basis points. A basis point on a credit-default swap contract to protect against the default of $10 million of debt for five years is equivalent to $1,000 a year.
The Dubai stock index climbed 1.3 percent to 1,610.96 at 1:20 p.m. in Dubai and the Nakheel 2011 bonds gained to 56 cents from 55.75 cents on Jan. 29.
“The Dubai World restructuring is going to be a long and tedious process,” said Shehab Gargash, a managing director at Dubai-based Daman Investments who’s holding half of his $1.5 billion under management in cash. “That’s the main reason we decided to stay out” of Dubai’s “bear market rally,” he said.
Worst Is Over
Templeton Asset Management Ltd.’s Mark Mobius says the Abu Dhabi bailout ensured the worst of the emirate’s debt crisis is over. The manager of $34 billion in emerging market assets said in an interview there’s “value and opportunity” in Dubai markets and that Templeton bought shares during the selloff in November and early December.
“There has to be more revelations about what is being done and how, but the panic is over,” Mobius, the chairman of Templeton Asset Management, said in the Jan. 28 interview in Melbourne. “We are trying to buy at a good price given the fact that transparency isn’t complete.”
The Dubai stock index trades for 5.2 times analysts’ 2010 earnings estimates, the cheapest level worldwide after Nigeria’s All Share Index, according to data compiled by Bloomberg.
While investors speculate on the recovery values of Dubai debt, the lifeline from Abu Dhabi is helping the state-owned companies meet their interest payments. Nakheel paid a $10.3 million coupon last month on its 2011 bond. Dubai Holding Commercial Operations Group LLC, the investment company owned by Dubai’s ruler, made about $100 million of scheduled payments last month on three bonds.
Refinancing Needs
Dubai-based firms have to refinance $7.3 billion in syndicated loans and $2.8 billion in maturing bonds this year, according to Deutsche Bank AG estimates. Some of the biggest debt maturities include a $1.25 billion loan due in June by Dubai International Capital LLC, an investment company owned by Dubai’s ruler, and $1.5 billion in two floating-rate dollar notes issued by Emirates NBD PJSC.
Emirates Telecommunications Corp., the U.A.E.’s biggest phone company, has deferred plans to issue the equivalent of $490 million bonds as it has enough cash for expansion plans, Ahmed bin Ali, a spokesman for the company, said Jan. 28.
IPOs Dry Up
The Dubai government’s $1.93 billion Islamic bond issued in October was the last sale of bonds from the emirate. Drake & Scull International PJSC, a Dubai-based construction-engineering contractor that raised about 1.2 billion dirhams ($327 million) from its initial public offering in 2008, was the last stock sale from a Dubai-based company, according to Bloomberg data.
“It makes very little sense for a Dubai corporate issuer to go out now and just try to force the issue in the market,” said Abdul Kadir Hussain, chief executive officer of fund manager Mashreq Capital DIFC Ltd. “Right now the market is waiting for a strategy. How are we going to reduce the absolute debt level in Dubai and how quickly is this going to happen. Investors are taking a very conservative attitude toward the U.A.E.”
To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.netMichael Patterson in London at mpatterson10@bloomberg.net. Vivian Salama in Abu Dhabi at vsalama@bloomberg.net
IMS Health to Sell Debt as Junk Spreads Widen: New Issue Alert
IMS Health Inc., the provider of prescription data to drugmakers and analysts, plans to issue high-yield, high-risk debt to finance its leveraged buyout as the junk-bond market shows signs of weakening.
IMS, based in Norwalk, Connecticut, is selling $1 billion of eight-year senior unsecured notes to help fund a $5.2 billion leveraged buyout by investment funds managed by TPG and the CPP Investment Board, according to Standard & Poor’s. The transaction, agreed to in November, is expected to close in the first quarter of this year, S&P said in a Jan. 28 report.
IMS is seeking to fund the biggest leveraged buyout of 2009 after high-yield bond mutual funds, a proxy of investor appetite for the debt, had their first outflows in 23 weeks, according to Lipper FMI data. Monthly yields on junk bonds rose in January relative to benchmark rates, after declining in the prior month.
“This year I think you’re going to have more ups and downs,” said Martin Fridson, chief executive officer of New York-based money-management firm Fridson Investment Advisors.
Sales of high-yield bonds dropped 51 percent last week to $2.07 billion, according to data compiled by Bloomberg. Even with the decline, junk-bond sales had their busiest January on record last month, with companies issuing $16.3 billion of the debt. High-yield, or junk, bonds are rated less than Baa3 by Moody’s Investors Service and BBB- by S&P.
High-yield bond spreads widened 10 basis points last week to 6.46 percentage points, the third straight weekly increase, according to Bank of America Merrill Lynch’s U.S. High Yield Master II index. The gap expanded 7 basis points for the month as of Jan. 29. A basis point is 0.01 percentage point.
High-Yield Outflows
Investors withdrew $75 million, or 0.1 percent of assets, from high-yield mutual funds, the first outflow since August 2009, Lipper data show.
The U.S. economy expanded 5.7 percent in the fourth quarter, the fastest pace in six years, according to data released Jan. 29 by the Commerce Department. U.S. stocks fell last week as Microsoft Corp. Chief Financial Officer Peter Klein said the Redmond, Washington-based company had yet to see a recovery in spending on enterprise software, undermining confidence in the strength of the U.S. economic recovery.
There’s still demand for high-yield debt in spite of recent signs of weakness, said Kingman Penniman, president of research company KDP Investment Advisors in Montpelier, Vermont.
“Cash flows will continue to come in to satisfy the new issue market,” Penniman said.
‘Still Intact’
Fridson said “the basic thesis supporting tighter spreads at the end of the year and above average return for the year is still intact.”
Yields on investment-grade bonds narrowed seven basis points relative to benchmark rates last month to 183 basis points as of Jan. 29, according to Bank of America Merrill Lynch’s U.S. Corporate Master index. Spreads widened three basis points from the previous week.
Corporate borrowers sold $11.1 billion of investment-grade bonds last week, compared with $19.4 billion in the prior period, Bloomberg data show.
This year’s corporate debt sales total of about $115 billion, compare with $131.6 billion in the same period last year, Bloomberg data show. Following is a description of at least $5.63 billion of pending sales of dollar-denominated bonds in the U.S.
Investment Grade
KOREA HYDRO & NUCLEAR POWER CO., a unit of state-run Korea Electric Power Corp., hired five banks to help it sell dollar- denominated notes, according to two people with direct knowledge of the matter. The sale will be managed by Bank of America Merrill Lynch, Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc and UBS AG, said the people, who declined to be identified before a public announcement. Korea Hydro may sell $500 million in five-year bonds, according to one of the people.
Not Rated
SENSIENT TECHNOLOGIES CORP. said it entered into an agreement with a group of financial institutions for the issuance of $110 million in fixed-rate, senior notes, according to a Nov. 19 statement distributed by Business Wire.
PT BAKRIE & BROTHERS appointed Credit Suisse Group AG and Nomura Holdings Inc. to arrange the sale of equity-linked notes of $150 million to $200 million, Bisnis Indonesia said, citing Finance Director Eddy Soeparno. The notes may be sold by the end of March to help pay debt and fund investment, the report said.
High Yield
COMMUNITY EDUCATION CENTERS INC. plans to sell $210 million of 6-year notes, according to a person familiar with the offering. Proceeds from the sale may be used to repay debt, said the person, who declined to be identified because terms aren’t set.
IMS HEALTH INC. plans to issue $1 billion of senior secured notes due 2018, according to Moody’s Investors Service and Standard & Poor’s. Proceeds from the sale of senior notes will partially fund a leveraged buyout agreed to in November, the ratings companies said in separate reports. IMS agreed to be acquired by funds managed by TPG and the Canada Pension Plan Investment Board for about $5.2 billion. Moody’s rated the eight-year notes B3, and S&P assigned a B rating.
HUDSON PRODUCTS HOLDINGS INC. plans to sell $250 million of six-year senior secured second-lien notes, according to a person with knowledge of the transaction. The bonds are callable after three years. The company hired UBS AG and BNP Paribas SA to manage the sale of high-yield notes. Standard & Poor’s gave the notes a B- rating.
MCCLATCHY CO., the publisher of the Miami Herald, plans to sell $875 million of senior secured first-lien notes due in 2017 next week, the company said in a statement distributed by PR Newswire. The notes may be issued as soon as Feb. 4, said a person familiar with the transaction who declined to be identified because terms aren’t set. The Sacramento, California- based company will use proceeds to refinance $190 million in bonds due in 2011 and 2014 and $614 million in bank debt, it said in the statement. Moody’s ranked the new notes B1.
MEDIA GENERAL INC. plans to sell $350 million of senior secured notes due in 2017, the Richmond, Virginia-based company said in a statement distributed by PR Newswire. Proceeds will be used to refinance debt from a revolving credit facility, according to the statement.
REGENT SEVEN SEAS CRUISES UK LTD. plans to sell $200 million of seven-year dollar-denominated senior secured notes, according to a person familiar with the transaction. The notes may yield about 12 percent, said the person, who declined to be identified because terms aren’t set. Moody’s Investors Service assigned the debt a rating of B3.
SONGA OFFSHORE SE hired Citigroup Inc. to issue $200 million of seven-year bonds, according to a person familiar with the transaction who declined to be identified because terms aren’t set. The company is issuing the notes to repay existing debt and for general corporate purposes, it said in a statement. After the offer is completed, Songa Offshore expects to exchange its outstanding fixed-rate bonds due 2011 and floating-rate notes due 2012 for additional notes, according to the statement.
CROSSTEX ENERGY LP and Crosstex Energy Inc. said in a press release that the partnership and its subsidiary, Crosstex Energy Finance Corp., intend to sell $700 million of senior unsecured notes due 2018 in a private placement. Moody’s Investors Service assigned the notes a rating of B3, and S&P assigned them a B+.
READER’S DIGEST ASSOCIATION INC. plans to sell $525 million of 7-year floating-rate notes as soon as this week, according to a person familiar with the offering who declined to be identified because terms aren’t set. The company intends to issue notes to refinance loans as part of its exit from bankruptcy, according to a court document.
CNG HOLDINGS INC., a check cashing service in the U.S. and U.K., plans to sell $200 million of five-year senior secured notes, according to a person familiar with the offering. Proceeds will be used to repay debt and for general corporate purposes, said the person, who declined to be identified because terms aren’t set. The debt was rated B by S&P, according to a Jan. 25 report.
PT CILIANDRA PERKASA, an Indonesian palm-oil company, may sell dollar bonds, a person familiar with the matter said. Ciliandra is a unit of Singapore-based First Resources Ltd.
PT CHANDRA ASRI, the Indonesian petrochemical company, is considering selling bonds this year after scrapping a bond sale plan last year “due to unfavorable market conditions,” said Agustino Sudjono, an executive at the parent company. The Indonesian petrochemical company planned to sell up to $250 million of five-year dollar bonds, two people with direct knowledge of the matter said in October. Chandra is rated B+ at S&P.
AO ASTANA FINANCE will offer senior creditors $350 million of new bonds, as well as recovery notes and 58.9 percent of voting shares, the lender said in a statement published through the Kazakhstan Stock Exchange. Holders of Astana Finance’s domestic notes will be offered 20-year tenge-denominated bonds with an 8 percent coupon, the lender said in the statement, which was dated Oct. 16.
The DOMINICAN REPUBLIC may sell as much as $600 million of bonds, said Roberto Cabanas, head of general financing at the Public Credit Office. The government hired Barclays Plc and Citigroup Inc. to arrange the country’s first international dollar bond sale in more than three years. The country is rated B2 by Moody’s and B by S&P.
Offerings in Pipeline
LITHUANIA hired banks for a series of meetings with investors for the country’s second bond offering in less than four months, according to a banker with knowledge of the roadshow. The Baltic republic hired Barclays Capital, HSBC Holdings Plc and Royal Bank of Scotland Group Plc to organize meetings starting Jan. 29, said the banker who declined to be identified because the roadshow isn’t complete.
BAHRAIN, the smallest oil producer among the six Gulf Arab states, plans to issue a $1 billion 10-year conventional bond. It’s too early to appoint managers for the sale, which will help the country finance its budget, a spokeswoman for the country’s central bank said.
KRAFT FOODS INC., which Moody’s said will likely keep its investment-grade ratings based on the agreed-upon terms of its acquisition of Cadbury Plc, will “no doubt” soon sell new bonds in the U.S. and Europe, that will probably be “very successful” in the current environment, Gary Jenkins, head of credit strategy at Evolution Securities Ltd. in London, said in a Jan. 20 note to clients.
WILLIAMS PARTNERS LP is planning a private debt offering to help fund its $3.5 billion purchase of gas pipeline assets from parent Williams Cos., the company said in a Jan. 19 press release. The Tulsa, Oklahoma-based company said it expects the offering to be completed in the first quarter of 2010.
PUGET SOUND ENERGY INC., a unit of Puget Energy Inc., plans to sell $800 million of senior notes, the Bellevue, Washington- based company said in a Securities and Exchange Commission filing. The filing didn’t specify the maturity or yield of the debt.
BIRCH COMMUNICATIONS INC. is offering $100 million of senior secured notes due in 2015, with proceeds going toward refinancing debt, buying outstanding warrants for its common stock and general corporate purposes, including acquisitions, the Atlanta-based company said Nov. 30 in a statement. Birch is rated B- by S&P, the ratings company wrote Dec. 4 in a statement. “We’re currently holding discussions with interested parties and expect to finalize our offering in the near term,” Greg Corwin, director of marketing for Birch, said in a Jan. 11 telephone interview.
(Updated Jan. 11. See http://www.birch.com/about/)
VIETNAM SHIPBUILDING INDUSTRY GROUP, the state-owned company known as Vinashin, won government approval to sell as much as $600 million of bonds overseas to fund construction of ships. Vinashin plans to raise between $400 million and $600 million in a dollar-denominated bond sale, “hopefully” in the first quarter “and with a government guarantee,” Chief Business Officer Nguyen Quoc Anh said in a phone interview from the northern port province of Quang Ninh.
ANGOLA, which vies with Nigeria as Africa’s biggest oil producer, is seeking to raise $4 billion from a sale of bonds. The debt will be sold in two parts in December and in June 2010, according to John Coulter, chief executive officer of JPMorgan Chase & Co.’s South African unit, which is managing the deal. Angola will seek a credit rating after the first portion is sold, Finance Minister Eduardo Severim de Morais said Dec. 14.
ALROSA, Russia’s diamond monopoly, may sell as much as $1 billion in foreign-currency bonds in the second half of 2010, RIA Novosti reported, citing Chief Executive Officer Fyodor Andreyev. The company is rated Ba3 by Moody’s.
-- With assistance from Bob Willis and Timothy R. Homan in Washington, Elizabeth Stanton, Tim Catts and Sapna Maheshwari in New York, Editors: Alan Goldstein, Andrew Reierson
To contact the reporters on this story: Annalouise Jackson in New York at ajackson33@bloomberg.netGabrielle Coppola in New York at gcoppola@bloomberg.net
IMS, based in Norwalk, Connecticut, is selling $1 billion of eight-year senior unsecured notes to help fund a $5.2 billion leveraged buyout by investment funds managed by TPG and the CPP Investment Board, according to Standard & Poor’s. The transaction, agreed to in November, is expected to close in the first quarter of this year, S&P said in a Jan. 28 report.
IMS is seeking to fund the biggest leveraged buyout of 2009 after high-yield bond mutual funds, a proxy of investor appetite for the debt, had their first outflows in 23 weeks, according to Lipper FMI data. Monthly yields on junk bonds rose in January relative to benchmark rates, after declining in the prior month.
“This year I think you’re going to have more ups and downs,” said Martin Fridson, chief executive officer of New York-based money-management firm Fridson Investment Advisors.
Sales of high-yield bonds dropped 51 percent last week to $2.07 billion, according to data compiled by Bloomberg. Even with the decline, junk-bond sales had their busiest January on record last month, with companies issuing $16.3 billion of the debt. High-yield, or junk, bonds are rated less than Baa3 by Moody’s Investors Service and BBB- by S&P.
High-yield bond spreads widened 10 basis points last week to 6.46 percentage points, the third straight weekly increase, according to Bank of America Merrill Lynch’s U.S. High Yield Master II index. The gap expanded 7 basis points for the month as of Jan. 29. A basis point is 0.01 percentage point.
High-Yield Outflows
Investors withdrew $75 million, or 0.1 percent of assets, from high-yield mutual funds, the first outflow since August 2009, Lipper data show.
The U.S. economy expanded 5.7 percent in the fourth quarter, the fastest pace in six years, according to data released Jan. 29 by the Commerce Department. U.S. stocks fell last week as Microsoft Corp. Chief Financial Officer Peter Klein said the Redmond, Washington-based company had yet to see a recovery in spending on enterprise software, undermining confidence in the strength of the U.S. economic recovery.
There’s still demand for high-yield debt in spite of recent signs of weakness, said Kingman Penniman, president of research company KDP Investment Advisors in Montpelier, Vermont.
“Cash flows will continue to come in to satisfy the new issue market,” Penniman said.
‘Still Intact’
Fridson said “the basic thesis supporting tighter spreads at the end of the year and above average return for the year is still intact.”
Yields on investment-grade bonds narrowed seven basis points relative to benchmark rates last month to 183 basis points as of Jan. 29, according to Bank of America Merrill Lynch’s U.S. Corporate Master index. Spreads widened three basis points from the previous week.
Corporate borrowers sold $11.1 billion of investment-grade bonds last week, compared with $19.4 billion in the prior period, Bloomberg data show.
This year’s corporate debt sales total of about $115 billion, compare with $131.6 billion in the same period last year, Bloomberg data show. Following is a description of at least $5.63 billion of pending sales of dollar-denominated bonds in the U.S.
Investment Grade
KOREA HYDRO & NUCLEAR POWER CO., a unit of state-run Korea Electric Power Corp., hired five banks to help it sell dollar- denominated notes, according to two people with direct knowledge of the matter. The sale will be managed by Bank of America Merrill Lynch, Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc and UBS AG, said the people, who declined to be identified before a public announcement. Korea Hydro may sell $500 million in five-year bonds, according to one of the people.
Not Rated
SENSIENT TECHNOLOGIES CORP. said it entered into an agreement with a group of financial institutions for the issuance of $110 million in fixed-rate, senior notes, according to a Nov. 19 statement distributed by Business Wire.
PT BAKRIE & BROTHERS appointed Credit Suisse Group AG and Nomura Holdings Inc. to arrange the sale of equity-linked notes of $150 million to $200 million, Bisnis Indonesia said, citing Finance Director Eddy Soeparno. The notes may be sold by the end of March to help pay debt and fund investment, the report said.
High Yield
COMMUNITY EDUCATION CENTERS INC. plans to sell $210 million of 6-year notes, according to a person familiar with the offering. Proceeds from the sale may be used to repay debt, said the person, who declined to be identified because terms aren’t set.
IMS HEALTH INC. plans to issue $1 billion of senior secured notes due 2018, according to Moody’s Investors Service and Standard & Poor’s. Proceeds from the sale of senior notes will partially fund a leveraged buyout agreed to in November, the ratings companies said in separate reports. IMS agreed to be acquired by funds managed by TPG and the Canada Pension Plan Investment Board for about $5.2 billion. Moody’s rated the eight-year notes B3, and S&P assigned a B rating.
HUDSON PRODUCTS HOLDINGS INC. plans to sell $250 million of six-year senior secured second-lien notes, according to a person with knowledge of the transaction. The bonds are callable after three years. The company hired UBS AG and BNP Paribas SA to manage the sale of high-yield notes. Standard & Poor’s gave the notes a B- rating.
MCCLATCHY CO., the publisher of the Miami Herald, plans to sell $875 million of senior secured first-lien notes due in 2017 next week, the company said in a statement distributed by PR Newswire. The notes may be issued as soon as Feb. 4, said a person familiar with the transaction who declined to be identified because terms aren’t set. The Sacramento, California- based company will use proceeds to refinance $190 million in bonds due in 2011 and 2014 and $614 million in bank debt, it said in the statement. Moody’s ranked the new notes B1.
MEDIA GENERAL INC. plans to sell $350 million of senior secured notes due in 2017, the Richmond, Virginia-based company said in a statement distributed by PR Newswire. Proceeds will be used to refinance debt from a revolving credit facility, according to the statement.
REGENT SEVEN SEAS CRUISES UK LTD. plans to sell $200 million of seven-year dollar-denominated senior secured notes, according to a person familiar with the transaction. The notes may yield about 12 percent, said the person, who declined to be identified because terms aren’t set. Moody’s Investors Service assigned the debt a rating of B3.
SONGA OFFSHORE SE hired Citigroup Inc. to issue $200 million of seven-year bonds, according to a person familiar with the transaction who declined to be identified because terms aren’t set. The company is issuing the notes to repay existing debt and for general corporate purposes, it said in a statement. After the offer is completed, Songa Offshore expects to exchange its outstanding fixed-rate bonds due 2011 and floating-rate notes due 2012 for additional notes, according to the statement.
CROSSTEX ENERGY LP and Crosstex Energy Inc. said in a press release that the partnership and its subsidiary, Crosstex Energy Finance Corp., intend to sell $700 million of senior unsecured notes due 2018 in a private placement. Moody’s Investors Service assigned the notes a rating of B3, and S&P assigned them a B+.
READER’S DIGEST ASSOCIATION INC. plans to sell $525 million of 7-year floating-rate notes as soon as this week, according to a person familiar with the offering who declined to be identified because terms aren’t set. The company intends to issue notes to refinance loans as part of its exit from bankruptcy, according to a court document.
CNG HOLDINGS INC., a check cashing service in the U.S. and U.K., plans to sell $200 million of five-year senior secured notes, according to a person familiar with the offering. Proceeds will be used to repay debt and for general corporate purposes, said the person, who declined to be identified because terms aren’t set. The debt was rated B by S&P, according to a Jan. 25 report.
PT CILIANDRA PERKASA, an Indonesian palm-oil company, may sell dollar bonds, a person familiar with the matter said. Ciliandra is a unit of Singapore-based First Resources Ltd.
PT CHANDRA ASRI, the Indonesian petrochemical company, is considering selling bonds this year after scrapping a bond sale plan last year “due to unfavorable market conditions,” said Agustino Sudjono, an executive at the parent company. The Indonesian petrochemical company planned to sell up to $250 million of five-year dollar bonds, two people with direct knowledge of the matter said in October. Chandra is rated B+ at S&P.
AO ASTANA FINANCE will offer senior creditors $350 million of new bonds, as well as recovery notes and 58.9 percent of voting shares, the lender said in a statement published through the Kazakhstan Stock Exchange. Holders of Astana Finance’s domestic notes will be offered 20-year tenge-denominated bonds with an 8 percent coupon, the lender said in the statement, which was dated Oct. 16.
The DOMINICAN REPUBLIC may sell as much as $600 million of bonds, said Roberto Cabanas, head of general financing at the Public Credit Office. The government hired Barclays Plc and Citigroup Inc. to arrange the country’s first international dollar bond sale in more than three years. The country is rated B2 by Moody’s and B by S&P.
Offerings in Pipeline
LITHUANIA hired banks for a series of meetings with investors for the country’s second bond offering in less than four months, according to a banker with knowledge of the roadshow. The Baltic republic hired Barclays Capital, HSBC Holdings Plc and Royal Bank of Scotland Group Plc to organize meetings starting Jan. 29, said the banker who declined to be identified because the roadshow isn’t complete.
BAHRAIN, the smallest oil producer among the six Gulf Arab states, plans to issue a $1 billion 10-year conventional bond. It’s too early to appoint managers for the sale, which will help the country finance its budget, a spokeswoman for the country’s central bank said.
KRAFT FOODS INC., which Moody’s said will likely keep its investment-grade ratings based on the agreed-upon terms of its acquisition of Cadbury Plc, will “no doubt” soon sell new bonds in the U.S. and Europe, that will probably be “very successful” in the current environment, Gary Jenkins, head of credit strategy at Evolution Securities Ltd. in London, said in a Jan. 20 note to clients.
WILLIAMS PARTNERS LP is planning a private debt offering to help fund its $3.5 billion purchase of gas pipeline assets from parent Williams Cos., the company said in a Jan. 19 press release. The Tulsa, Oklahoma-based company said it expects the offering to be completed in the first quarter of 2010.
PUGET SOUND ENERGY INC., a unit of Puget Energy Inc., plans to sell $800 million of senior notes, the Bellevue, Washington- based company said in a Securities and Exchange Commission filing. The filing didn’t specify the maturity or yield of the debt.
BIRCH COMMUNICATIONS INC. is offering $100 million of senior secured notes due in 2015, with proceeds going toward refinancing debt, buying outstanding warrants for its common stock and general corporate purposes, including acquisitions, the Atlanta-based company said Nov. 30 in a statement. Birch is rated B- by S&P, the ratings company wrote Dec. 4 in a statement. “We’re currently holding discussions with interested parties and expect to finalize our offering in the near term,” Greg Corwin, director of marketing for Birch, said in a Jan. 11 telephone interview.
(Updated Jan. 11. See http://www.birch.com/about/)
VIETNAM SHIPBUILDING INDUSTRY GROUP, the state-owned company known as Vinashin, won government approval to sell as much as $600 million of bonds overseas to fund construction of ships. Vinashin plans to raise between $400 million and $600 million in a dollar-denominated bond sale, “hopefully” in the first quarter “and with a government guarantee,” Chief Business Officer Nguyen Quoc Anh said in a phone interview from the northern port province of Quang Ninh.
ANGOLA, which vies with Nigeria as Africa’s biggest oil producer, is seeking to raise $4 billion from a sale of bonds. The debt will be sold in two parts in December and in June 2010, according to John Coulter, chief executive officer of JPMorgan Chase & Co.’s South African unit, which is managing the deal. Angola will seek a credit rating after the first portion is sold, Finance Minister Eduardo Severim de Morais said Dec. 14.
ALROSA, Russia’s diamond monopoly, may sell as much as $1 billion in foreign-currency bonds in the second half of 2010, RIA Novosti reported, citing Chief Executive Officer Fyodor Andreyev. The company is rated Ba3 by Moody’s.
-- With assistance from Bob Willis and Timothy R. Homan in Washington, Elizabeth Stanton, Tim Catts and Sapna Maheshwari in New York, Editors: Alan Goldstein, Andrew Reierson
To contact the reporters on this story: Annalouise Jackson in New York at ajackson33@bloomberg.netGabrielle Coppola in New York at gcoppola@bloomberg.net
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