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Financial
Jeffrey Sachs on how to save Greece, July 1
"Greece can probably service its debts in the long term, without a default, if a low interest rate (at the level of today’s AAA sovereign borrowers) is locked into place and repayments are stretched out over 20 years. Simply stretching out repayments – as is now being discussed by the banks and the French Government – without permanent and significantly lower rates would not do. Nor would a “trigger” clause that raises Greece’s repayment rates when economic growth resumes. Greece can succeed only if low rates are locked into place.""Such favourable terms could conceivably arise through a spontaneous and self-confirming bout of optimism – the condition in which Greece’s greatest fear would no longer be “fear itself”, in the famous words of America’s greatest salesman of financial optimism, President Franklin Roosevelt. More realistically, we are past the point of self-confirming optimism."
"Low interest rates should instead be put in place through Europe-wide guarantees on Greece’s debt service. In effect, Greece would be enabled to finance its debts on German and French borrowing terms, as those countries and the rest of the eurozone stand behind Greek debt servicing. German Chancellor Angela Merkel has so far resisted this kind of solution, while Axel Weber, former Bundesbank President, recently hinted at such an approach."
On the French proposal for rolling over bank holdings of Greek bonds, June 30
"Greece could pay up to €101bn to borrow €30bn from European lenders under a plan put forward by the French to roll over bank holdings of Greek bonds, writes James Mackintosh in London. Under the terms suggested by the French – yet to be agreed by other banks – Greece could end up paying more than the current yield on its long bonds for the 30-year loan, if its economy recovers strongly."On the global M&A market, June 30
"Global merger and acquisition volumes fell 17.5 per cent in the second quarter compared with the first three months of 2011, according to data from Mergermarket. Some $516.1bn worth of deals was announced in the second quarter with Johnson & Johnson’s $21.2bn offer to acquire Swiss-based Synthes being the largest for the period.""Most regions including the US and Asia saw a fall in volumes, but Europe, which had previously lagged behind the pace of recovery elsewhere, saw gains. Deals there rose 19.9 per cent from the first quarter to $209bn. However, global M&A for the first half overall rose 27.7 per cent from the same period in 2010, to $1,141.5bn."
On Europe's M&A market, June 30
"European deals worth $383.4bn have been announced so far this year, up more than 54 per cent on the first half of 2010. That represents a rebalancing of activity, say bankers, after the US dominated large-scale dealmaking in the first three months of the year. However, the UK’s share of deal activity has shrunk, down to 14.8 per cent of the European market, the lowest levels since Mergermarket records began."On the private equity industry, June 30
"This first six months of the year have been the busiest for private equity in three years, with financial investors backing $131.4bn worth of deals globally, an increase of more than half from the same period of 2010, according to data from Mergermarket. This was matched by a similarly bustling activity on the sell side, where private equity groups disposed of companies worth $143.4bn, again surpassing the volume in the first six months of last year by more than half."On the IPO market, June 30
"The overall volume of global IPOs rose 25 per cent quarter-on-quarter to $56.8bn in the past three months, according to Thomson Reuters data, largely thanks to Glencore’s $10bn share sale – the largest listing on the London Stock Exchange on record – Prada’s $2.1bn listing in Hong Kong, and Vallares’ $2bn IPO. But equity capital markets bankers are despondent, pointing out that many IPOs have had to be pulled this year due to weak investor appetite, and most have priced at the lower end of indicative price ranges.""At least 720 companies, including Groupon, the online coupon group, Zynga, the social networking games developer, and Beijing Jingneng Clean Energy, have announced plans this quarter to raise more than $67bn through IPOs. That is the largest number of deals in a quarter since 794 IPOs were announced during the final three months of 2007, according to Bloomberg."
On reduced bond issuance, June 30
"Globally, companies and financial institutions have sold bonds worth $164.1bn so far this month, a drop of 55 per cent from last month, and down 28 per cent on the same month last year, when markets were recovering from the first Greece-induced freeze. Bond issuance hit a low in May last year of just $116.8bn, according to data from ThomsonReuters, amid escalating concerns over Greece."On European bank stocks, June 30
"Banks are the worst-performing sector in Europe since February. The FTSE Eurofirst 300 banking sector has fallen 20 per cent since its peak on February 17, against an 8 per cent fall in the broader index. Bank stocks are now at almost a third of their peak level of April 2007.""European banks are now valued at about 0.8 times their book value, according to Citi, against almost 2 times for non-financial groups. Relative to the broader stock market, banks have only been cheaper once in the last 30 years: at the March 2009 trough."
On privatisation prospects in Greece, June 29
"The austerity measures call for an independent privatisation agency to be established within weeks to handle a programme of disposals, including the sale of strategic stakes in state- owned utilities and leases in state-owned property for tourist development. Independent research suggests, however, that Greece will struggle to raise much more than a quarter of the €50bn it needs from the assets sales and privatisations unless it adds more prime land and cultural heritage to its sales list. Only €13bn of assets are ready to sell, leaving a €37bn shortfall, says a study by the Privatisation Barometer, a Milan-based institute sponsored by Fondazione Eni Enrico Mattei and KPMG. This includes €6.6bn from offloading stakes in 15 listed groups and an 'optimistic' €7bn from the sale of 70 unlisted groups, where the yields are more difficult to assess."On Latin America's buyout market, June 29
"While the last five years have been upbeat – comanies raised $8.1bn for Latin America as a whole last year and are expected to have $10bn-$11bn available for investment in Brazil alone by the end of 2011 – it has not always been this good. During the last boom in the 1990s, they raised about $6bn to invest in Brazil, according to Advent International. Then the internet bubble imploded, Brazil suffered a currency crisis and the leftist presidential candidate Luiz Inácio Lula da Silva came to power. During the early 2000s, the market plunged and the downturn was so severe that some funds returned their money to investors and turned their backs on Brazil."Laszlo Birinyi on gains made by bank stocks, June 28
"In the nine bull markets back to 1962, 48 per cent of banks’ ultimate gain was made in the first two months of the rally. In the last two bull markets, after the first two months, banks not only underperformed, they were actually down the rest of the rally."On the commercial paper market, June 28
"US issuance has risen to $1,227bn, according to the latest weekly data released by the Federal Reserve. That is the highest outstanding level of commercial paper since November 2009 and issuance has rebounded more than a third, rising $310bn from its low of $917bn in February. Overall CP issuance remains down more than 40 per cent from its peak of $2,223bn in 2007.""The rebound has been led by non-financial issuers, such as industrial companies. John Atkins at Leveraged Commentary & Data said the $136.8bn in non-financial CP from US companies was the most outstanding since the first quarter of 2009. European banks have also been significant borrowers in the market. Of the $610bn in US financial CP, $254bn is issued by foreign entities."
Asia
On China's access to the bond market, June 30
"This year alone, Chinese companies, most of them from the property sector, have raised a total of $21.5bn in international bond markets, up from $15.7bn in the whole of 2010 and an average of less than $3bn in each of the preceding 10 years, according to Dealogic. In the past month, however, following the Sino Forest allegations, only one Chinese issuer has been able to successfully issue dollar-denominated bonds. The company, Zijin Mining, was able to get the deal done because it had an unusual structure – the bonds carried a guarantee from the Bank of China. Even 'dim sum' bonds, international deals denominated in renminbi, have fallen in price this month for the first time in at least six months. But unlike the dollar market, the dim sum market has proved more hospitable to new Chinese issuers, with three companies selling such bonds this month."On credit risks in China, June 29
"Analysts disagree on the extent to which Chinese regulators have succeeded in putting a stop to the breakneck lending of the past two years. But fears linger that China will careen from the overheated pace of investment of the past two years to the opposite extreme in which companies can’t get any credit. That outcome would have dire consequences for the macro economy. But lack of credit is not yet the problem. Credit is still flowing in China, though at a slower pace and with a higher cost, thanks to non-banks in Hong Kong such as Huarong. Bank credit in Hong Kong stands at 240 per cent of gross domestic product, according to data from JPMorgan, mostly reflecting the arrival of Chinese borrowers circumventing restrictions at home. In mainland China itself the figure is 120 per cent. The current problem is just how much money is going to the high end property market, precisely because China depends so heavily on the property market for its economic growth – and how little is going to more productive small and medium enterprises."On debt levels in China, June 28
"Chinese local governments owe Rmb10,700bn ($1,650bn) in debt, according to the first national audit of regional finances published by Beijing. That amount is equivalent to about 27 per cent of China’s economy and easily outstrips central government’s officially declared debt balance of less than 20 per cent of GDP.""Barred from borrowing money, Chinese local governments have created arms-length financing vehicles in record numbers to circumvent rules. The national audit office said there were 6,576 such vehicles, holding debts of Rmb4,971bn but previous estimates put the total debt load at closer to Rmb14,000bn."
On Asia's IPO and bond markets, June 28
"Data from Dealogic shows that while the IPO market in H1 this year was largely flat compared to the first half of 2010, the bond market in Asia (ex Japan) has been on a tear. Amounts raised by dollar-denominated and local currency bonds during the first six months of the year have both hit new highs. The surge in dollar-denominated debt, which rose from about $35bn to $52.5bn, was particularly pronounced, as the chart below shows. Local currency debt hasn’t done too poorly either, with the amount raised up 7 per cent from $170.8bn to $183.2bn.""Not surprisingly, China has been a big driver of growth in both categories. Chinese companies led the pack in dollar issue with $16.5bn raised since January, compared with $15.5bn raised in the whole of 2010. Meanwhile, Agricultural Bank of China and Bank of China are among those that have raised a total of $94.5bn in renminbi-denominated bonds so far this year."
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