>>> Asian Update

Asian Market Update: Escalation in Ukraine roils risk as Russia rolls into Crimea; China PMIs diverge as manufacturing stalls further while non-manufacturing improves

***Economic Data*** - (CN) CHINA FEB MANUFACTURING PMI: 50.2 V 50.1E (8-month low) - (CN) CHINA FEB FINAL HSBC/MARKIT MANUFACTURING PMI: 48.5 V 48.5E (7-month low) - (CN) CHINA FEB NON-MANUFACTURING PMI: 55.0 V 53.4 PRIOR (3 month high) - (JP) JAPAN Q4 CAPITAL SPENDING Y/Y: 4.0% (6-quarter high) V 4.9%E; CAPITAL SPENDING EX-SOFTWARE Y/Y: 2.8% V 4.6%E - (JP) JAPAN JAN LOANS & DISCOUNTS CORP Y/Y: 2.3% V 2.2% PRIOR - (AU) AUSTRALIA FEB TD SECURITIES INFLATION M/M: 0.2% V 0.1% PRIOR; Y/Y: 2.7% V 2.5% PRIOR (7-month high) - (AU) AUSTRALIA Q4 COMPANY OPERATING PROFIT Q/Q: 1.7% V 2.0%E; INVENTORIES Q/Q: -0.5% V 0.0%E - (AU) AUSTRALIA FEB ANZ JOB ADS M/M: 5.1% V 0.0% PRIOR (1st rise in 5 months) - (AU) AUSTRALIA JAN HIA NEW HOME SALES M/M: +0.5% V -0.4% PRIOR - (AU) AUSTRALIA FEB RPDATA/RISMARK HOUSE PRICE INDEX: 0.0% V 1.2% PRIOR - (AU) AUSTRALIA FEB AIG PERFORMANCE OF MANUFACTURING INDEX (PMI): 48.6 V 46.7 PRIOR (highest level in 4 months; 4th month of contraction) - (NZ) NEW ZEALAND Q4 TERMS OF TRADE INDEX Q/Q: 2.3% V 1.9%E (1-year low) - (KR) SOUTH KOREA FEB HSBC/MARKIT MANUFACTURING PMI: 49.8 V 50.9 PRIOR (first contraction in 5 months) - (KR) SOUTH KOREA FEB TRADE BALANCE: $0.9B V +$1.6BE PRIOR - (ID) INDONESIA FEB HSBC/MARKIT MANUFACTURING PMI: 50.5 V 51.0 PRIOR - (ID) INDONESIA FEB CPI M/M: 0.3% V 0.5%E; Y/Y: 7.8% V 7.9%E; CORE CPI Y/Y: 4.6% V 4.6%E - (ID) INDONESIA JAN TRADE BALANCE: -$0.4B V +$0.4BE - (TW) TAIWAN FEB HSBC/MARKIT MANUFACTURING PMI: 54.7 V 55.5 PRIOR - (VN) Vietnam Feb HSBC/Market Manufacturing PMI: 51.0 v 52.1 prior - (UK) UK FEB HOMETRACK HOUSING SURVEY M/M: 0.7% V 0.3% PRIOR; Y/Y: 5.4% V 4.8% PRIOR

***Highlights/Observations/Insights*** - Geopolitical Russia-Ukraine tensions washing over the Crimean peninsula are weighing heavily on market sentiment in Asia, with rapidly unfolding situation escalating progressively throughout the weekend. Russian Pres Putin secured support from Parliament to use military force to defend Russian interests in Ukraine on Saturday, and now appears to be in full control of Crimea, with military presence extending well beyond the existing naval bases. More critically, Putin appears to have also set his sights on large industrial cities in eastern Ukraine, where the pro-Russian sentiment from local Russian sympathizers spilled over into streets through skirmishes with pro-Ukrainian supporters. Ukraine govt pleaded to western leaders for assistance and also mobilized reservists, declaring a "full combat alert". Pres Obama held extended direct conversations with Putin over the weekend, but also secured commitment from the G7 in a joint condemnation of Russian violation of Ukrainian sovereignty. Russia's Putin meanwhile also held talks with Germany's Merkel, defending his intention regarding the troop movements but also agreeing to an OSCE-led "fact-finding" mission. NATO command also weighed in on the conflict, recommending dispatch of international observers to Ukraine. - China PMIs highlighted the economic data headlines outside of the Russia-Ukraine developments. Feb manufacturing PMI was just above consensus but still fell to 8-month lows, and HSBC final manuf PMI was in line at 48.5. Non-manufacturing PMI was a positive surprise, printing a 3-month high. That release also marked the low point of the day in terms of sentiment, with US equity futures coming off its session low of 1,836 to trade at 1,845, stil down 15 handles.

***Fixed Income/Commodities/Currencies*** - (JP) BOJ offers to buy ¥110B with JGB with maturity less than 1-yr and ¥180B with JGB with maturity over 10-yr - (CN) China 7-day repo rate declines more than 80bps to 2.69%, sharpest decline since Feb 2011 - financial press - USD/CNY: (CN) PBoC sets yuan mid point at 6.1190 v 6.1214 prior setting (highest Yuan setting since Feb 24th)

- AUD, NZD, and the Euro were sold in favor of safe-haven JPY and CHF currencies. AUD/USD fell over 40pips to $0.8890 on the lows, AUD/JPY was down nearly 100pips around ¥90.00, NZD/USD down 50pips near $0.8340, and EUR/CHF hit a 1-year low near CHF1.21, down over 30pips. EUR/USD opened down 40pips at $1.3760 before rising to $1.3780s, and USD/JPY traded as low as ¥101.25, off by over 50pips from Friday close. Spot gold rose nearly $20 but found resistance at its 4-month high of $1,345/oz.

***Speakers/Political/In the Papers*** **Ukraine** - NATO Sec-Gen Rasmussen: Russia may face G8 sanctions if it contiues with its military incursion. - US State Sec Kerry: Russia military incursion is "an incredible act of aggression"; May result in visa bans, asset freezes, trade and investment penalties, and a boycott of the G8 summit in June - Ukraine PM Yatsenyuk: Taking necessary measures, but not convinced that Russia will launch offensive; Ukraine military placed on "full combat alert" and orders a "full military mobilization" in response to crisis. - Ukraine UN ambassador: Ukraine needs diplomatic and military help; Says: "We are looking to raise the world awareness and to address the world leaders to stop this aggression when it is at the very first stage... We are preparing to defend ourselves." - Russia ambassador Churkin: Russia's response reflects actions taken by an "illegal" government in Kiev and its order to attack regional government buildings in Crimea. - German Foreign Min: Russia must clarify the goals and intention behind troop movements. - UK Foreign Min Hague: "This action is a potentially grave threat to the sovereignty, independence and territorial integrity of Ukraine. We condemn any act of aggression against Ukraine." - France Pres Hollande: Held talks with Putin, urging to abstain from military action. - Poland PM: Ukraine crisis poses a risk to future of entire Europe; West needs to apply "hard pressure" on Russia. - US State Sec Kerry to travel to Ukraine capital of Kiev on Tuesday in support of new govt; US considering sanctions on Russia banks - press

**Asia** - (CN) Separatist group in China's northwest region of Xinjiang waged attack at a Kunming train station on Sunday that left about 30 people dead and over 130 people wounded - Xinhua - (CN) Shanghai new home sales +13.5% w/w; Avg new home prices +15.5% w/w - Uwin - (CN) China National Development and Reform Commission (NDRC) economist Zhang Liqun: Based on signs of market demand and production, expect economic growth to remain steady in the future - Chinese press - (CN) PBoC eases FX controls in Shanghai FTZ, including eliminating bureaucracy for FDI - Chinese press - (CN) BOE Gov Carney: Lack of regulations for China shadow banking system poses a risk to entire global economy - German press - (JP) BOJ Gov Kuroda: Easing from Bank of Japan having the intended effect; Inflation expectations have gradually increased - addressing parliament - (JP) Magnitude 6.7 earthquake hits off the coast of Okinawa, Japan; Tsunami not expected - (JP) Japan FY13 current account balance may post a deficit - Kyodo News - (KR) North Korea said to have fired two short-range missiles; initial reports indicate missiles landed into the sea off the east coast - financial press - (KR) South Korea Fin Min Hyun: To gradually begin to tax financial derivatives - (KR) South Korea Pres Park may announce next gov of BOK this week, as expected - financial press - (TH) Thailand antigovt protestors have started to retreat around major rally locations - financial press

***Equities*** ***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 -1.8%, S&P/ASX -0.5%, Kospi -0.8%, Shanghai Composite +0.8%, Hang Seng -0.7%, Mar S&P500 -0.9% at 1,840.5, Apr gold +1.6% at $1,342.7, Apr crude oil +1.2% at $103.79/brl

US markets: - BRK.B: Reports Q4 Net EPS attributable to shareholders (Class A shares) $3,035 v $2,757 y/y

Notable movers by sector: - Consumer Discretionary: Beijing Xiangeqing 002306.CN +3.1% (raised Q1 guidance); New Focus Auto Tech Holdings 360.HK -12.4% (profit warning); Raymond Industrial Ltd 229.HK -4.0% (profit warning); Sun Art Retail Group 6808.HK ++6.7% (FY13 results); Mixi Inc 2121.JP -4.5% (discovers unauthorized logins) - Consumer staples: Lam Soon Hong Kong 411.HK +7.6% (H1 results) - Financials: China Everbright International 257.HK +4.4% (talks of acquisition) - Materials: Aluminum Corporation of China 2600.HK flat (prelim FY13 results) - Energy: Shunfeng Photovoltaic International 1165.HK -1.9% (profit warning); Jutal Offshore Oil Services 3303.HK +6.2% (positive profit alert) - Industrials: Xingfa Aluminum Holdings 98.HK +20.1% (positive profit alert); Worley Parsons WOR.AU +0.9% (awarded contract) - Technology: High Tech Computer Corp 2498.TW -0.4% (Feb sales results); Yangzhou Yangjie Electronics Technology 300373.CN +10.0% (proposes special div)

AB InBev as King of Deals Builds Case for SABMiller: Real M&A

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AB InBev as King of Deals Builds Case for SABMiller: Real M&A 2014-03-03 00:00:01.1 GMT

(For a Real M&A column news alert: SALT REALMNA <GO>.)

By Clementine Fletcher and Tara Lachapelle March 3 (Bloomberg) -- Slowing growth at Anheuser-Busch InBev NV and a dearth of big takeover targets may finally drive the world’s biggest brewer to swallow its $79 billion rival, SABMiller Plc. After AB InBev boosted revenue more than fivefold in the last 10 years with the help of $91 billion of acquisitions, growth for the maker of Budweiser and Stella Artois is forecast to slow over the next decade, according to analysts’ estimates compiled by Bloomberg. Tapping into SABMiller’s presence in faster-expanding regions such as Africa would allow AB InBev to get that growth flowing again, shareholders Alpine Woods Capital Investors LLC and Henderson Global Investors said. SABMiller Chief Executive Officer Alan Clark told Bloomberg News in January that the case could be made for a tie-up, even though it would likely require divesting some U.S. operations to appease regulators. Sanford C. Bernstein & Co., which dubbed an AB InBev-SABMiller combination “MegaBrew,” estimates it would have almost half the global beer profit pool. The deal would increase earnings at AB InBev immediately if it paid a 30 percent premium for SABMiller in cash, data compiled by Bloomberg show. Cost cuts could drive profit even higher. “It’s such an obvious next -- and indeed last -- big move by the very acquisitive AB InBev,” said Matthew Beesley, head of global equities at London-based Henderson Global Investors, which oversees $125 billion, including shares of AB InBev. “There’s also clearly some strategic rationale to the deal, neatly filling all the geographic holes AB InBev talks of wanting to fill.”

Workable Deal

A representative for Leuven, Belgium-based AB InBev declined to comment on whether the company is interested in pursuing a deal with SABMiller. “You could get the numbers to work,” SABMiller CEO Clark told Bloomberg News in an interview during the Beer Summit in Scottsdale, Arizona, in January. “There would be value loss and value destruction because they’d know that they’d have to sell the U.S. though.” He declined to say whether there have been any discussions or how likely such a deal may be. Richard Farnsworth, a spokesman for London-based SABMiller, also declined to comment. AB InBev and SABMiller were built into the No. 1 and No. 2 brewers through a series of acquisitions. InBev NV bought Anheuser-Busch Cos. in 2008 for about $61 billion including net debt, the largest deal in beer history. SABMiller acquired almost 50 companies in the last decade, including Foster’s Group Ltd. for about $13 billion in 2011, according to data compiled by Bloomberg.

Sales Trends

AB InBev’s market value at the end of last week was the equivalent of $169 billion, and SABMiller’s was about half that. In 2013, AB InBev earned about 80 percent of its normalized earnings before interest, taxes, depreciation and amortization from the U.S., Canada, Brazil and Mexico, the company said last week. Normalized Ebitda excludes non-recurring income or expenses. Like competitor MillerCoors LLC, the U.S. joint venture between SABMiller and Molson Coors Brewing Co., AB InBev has been battling sluggish sales of mainstream brands in the U.S. amid economic pressures and a shift in consumer preferences toward craft beers, spirits and wine. AB InBev’s compound annual sales growth rate in the last 10 years was about 18 percent, according to data compiled by Bloomberg. Analysts estimate it will slow to about 4 percent over the next 10 years, the data show.

Branching Out

An acquisition of SABMiller would give AB InBev more than $7 billion of revenue in Africa with brands including Castle and almost $4 billion of sales in Asia, reducing AB InBev’s dependence on the Americas and Brazil, data compiled by Bloomberg show. With Latin America representing SABMiller’s biggest market, a deal would also broaden AB InBev’s presence in countries such as Colombia, Ecuador and Peru. Its Latin American brands include Cristal and Aguila. “SAB has a lot of emerging-market assets, and in particular, in areas where AB InBev doesn’t necessarily have too much influence,” Bryan Keane, a money manager at Alpine Woods, said in a phone interview. “Right now, AB InBev does not have a lot of business in Africa and SAB is a large player there. That’s one of the areas where beer consumption is growing, and it would allow AB InBev to further diversify the business.” Purchase, New York-based Alpine Woods owns AB InBev stock among the $4.5 billion of assets it oversees.

‘Incredible Undertaking’

While AB InBev and SABMiller operate in largely separate markets, antitrust authorities probably would require SABMiller to sell its stake in MillerCoors and possibly its stake in a Chinese joint venture, according to Jonathan Fyfe, an analyst at Mirabaud in London. SABMiller also has pre-existing sales agreements globally that may have to be renegotiated, such as its joint venture with Groupe Castel in Africa, Fyfe said in a phone interview. “It’d be an incredible undertaking,” he said. Even so, investors have cheered the prospect of a merger in the past. A report by Brazilian news website IG in October 2011 that said the two companies were in deal talks triggered the biggest gain in SABMiller shares in three years. SABMiller’s stock price has been weighed down this year, falling 5.6 percent through last week, amid concern that growth in developing markets won’t be as strong as expected and headwinds from currencies including the South African rand and Colombian peso.

Earnings Bump

Any offer to create “MegaBrew” now could reach about $120 billion, including SABMiller’s $16 billion of net debt, said Trevor Stirling, an analyst at Sanford C. Bernstein in London. That translates to about a 30 percent premium to its stock price last week. At that price, earnings per share could climb by about 3 percent this year and 9 percent in 2015, according to data compiled by Bloomberg. Even at a 50 percent premium, a deal now would boost earnings in 2015, the data show. That’s without assuming potential synergies. “Whereas a deal has been strategically sensible, for a while, it’s been financially impossible,” said Beesley of Henderson Global. “We are now in the financially possible zone, although maybe not quite yet the financially optimal zone.” AB InBev could probably strip out costs and improve profitability after the transaction closes, though there’s less “low-hanging fruit” than in previous deals such as Anheuser- Busch, said Stirling of Sanford C. Bernstein. Given the size of the transaction, it would be “a stretch, and massively complex,” though still feasible, he said.

Acquisition Opportunities

AB InBev already has $39 billion of net debt, which is 2.3 times its trailing 12-month earnings before interest, taxes, depreciation and amortization, data compiled by Bloomberg show. Felipe Dutra, the company’s chief financial officer, said last week that after it pays down debt and reduces its leverage ratio to 2, “you should expect us to be combining a dividend and buyback to keep capital structure around the optimum level, provided there is no M&A, which we can never predict.” Acquisitions remain “a core competency, and we will always be ready to look at opportunities when and if they arise,” Dutra said. While a deal may not happen immediately, it’s possible in three to five years as beer makers such as AB InBev look for ways to continue growing, Keane of Alpine Woods said. “For the most part, the global beer market is not a high- growth business,” he said. You have pockets of strength, which is more on the emerging markets side of the world. But if these businesses are looking for growth, consolidation is one way they can do it.’’

For Related News and Information: AB InBev Sees Improving Beer Market Trends in U.S., Brazil NSN N1LT0J6VDKHX <GO> Light Beer Brands Victims of Big Brewer Push Into Craft: Retail NSN MZV0BF6VDKHW <GO> Slower Earnings Growth May Accelerate Beverage M&A, Nomura Says NSN MZHERD6TTDS5 <GO> Merger Calculator: MRGC <GO> Bloomberg Industries - Beverages: BI BEVG <GO> Real M&A columns: NI REALMNA <GO> Bloomberg Industries, beverages: BI BEVG <GO>

--With assistance from Duane D. Stanford in Atlanta. Editors: Beth Williams, Whitney Kisling

To contact the reporters on this story: Clementine Fletcher in London at +44-20-7330-7285 or cfletcher5@bloomberg.net; Tara Lachapelle in New York at +1-212-617-8911 or tlachapelle@bloomberg.net

To contact the editors responsible for this story: Beth Williams at +1-212-617-2307 or bewilliams@bloomberg.net; Celeste Perri at +31-20-589-8505 or cperri@bloomberg.net

RTR - China's state planning body grows more assertive as revamp looms

China's state planning body grows more assertive as revamp looms

(Reuters) - China will present proposals to revamp its behemoth economic planning agency at an annual session of parliament this week, sources said, but the organisation's role as an antitrust regulator could eventually be enhanced.

Chinese and foreign companies, including U.S. technology firms Qualcomm Inc. and InterDigital Inc., have fallen afoul of the National Development and Reform Commission (NDRC) in recent months as its anti-monopoly arm has become more assertive.

The mammoth agency, which has several thousand employees and has sweeping powers to decide on investment, prices and other issues in the world's second-biggest economy, is striving to retain as much power as possible as it undergoes restructuring. The crackdown on price-fixing and monopolistic practices should become more pronounced as the NDRC has said it is ramping up staffing in its antitrust division.

Academics and senior officials have forecast a streamlining of the NDRC since President Xi Jinping vowed to make the economy more responsive to market forces and shift to consumer-focused investment from a state-led model.

Two sources close to senior leaders said proposals have been readied to restructure the NDRC and these will be discussed at the National People's Congress annual session beginning on Wednesday.

It was not immediately clear if any decisions would be taken.

But the NDRC's role as one of three national antitrust regulators - along with the Commerce Ministry and the State Administration for Industry and Commerce - is set in the country's five-year-old Anti-Monopoly Law that is unlikely to be cut back or revised soon.

"The NDRC is getting ready for a new role. This corresponds with the flurry of antitrust actions," said a Beijing-based foreign diplomat who asked not to be named.

Xu Kunlin, the head of the NDRC's price supervision and anti-monopoly bureau, has hinted at more unified antitrust powers, underlining speculation that the agency is seeking for primacy among the three regulators.

"Having a relatively independent, authoritative or strong and unified antitrust body is a trend. Many antitrust structures around the world are under one roof," Xu said last month.

Xu's comments could be part of the NDRC's attempt to focus on the antitrust role, and stay relevant as its broader powers are slashed, said Yee Wah Chin, a New York-based antitrust expert at law firm Ingram, Yuzek, Gainen, Carroll and Bertolotti.

"The NDRC will continue to expand its AML (anti-monopoly law) enforcement scope by the investigations it conducts, and it is entirely possible that some formal restructuring of AML enforcement will be made after several more years," Chin said.

FINES, INVESTIGATIONS

Last year, the NDRC slapped Chinese and foreign companies with investigations and fines after high-profile pricing probes. In August, the regulator fined six infant formula manufacturers, including Mead Johnson Nutrition Co, Danone and Fonterra, a record $110 million after a probe into price fixing and anti-competitive practices.

The agency confirmed last month it had opened anti-monopoly investigations into Qualcomm and InterDigital, saying it had received complaints that the companies charged discriminatory high prices in China.

Adam Dunnett, secretary general of the European Union Chamber of Commerce in China, said he expects the pricing investigations to maintain their momentum in the medium term.

"The European Chamber has encouraged its members to review their own practices and closely monitor further developments," he said, adding that the anti-monopoly law would play an important role in a more market-oriented China if evenly enforced.

At the moment, the NDRC sets policy for strategic industries, approves big investments and has the authority to influence prices for everything from liquor to gasoline. Its powers are so sweeping that it is often called the mini cabinet.

Beijing has promised to reduce its involvement in matters like the approval of new industrial projects, allowing it instead to focus on improving rules and regulations.

According to one proposal, the agency would be renamed the National Development, Reform and Planning Commission and fold in functions of other departments, including the Development Research Centre, a cabinet think-tank.

"Eventually, the NDRC will just be a think-tank. Its main functions will be to formulate (policies) and conduct research on macro (economic) planning," one source with ties to the leadership said on condition of anonymity.

"The views of various ministries and provincial governments have been solicited," a second source said.

The party announced after a conclave last November that a high-powered committee would be created to oversee the gamut of China's reforms, including coordination between ministries. President Xi heads the group which experts have said could signal changes to the NDRC's discretionary powers.

"I do expect the NDRC's wings to get clipped," said Scott Kennedy, director of the Research Centre for Chinese Politics and Business at Indiana University.

"The creation of the leading group on economic reform is already a big signal that the NDRC's powers will be cut," he said.

The NDRC did not respond to Reuters questions sent by fax.

However, a rapid transition is unlikely within such a huge bureaucracy.

"The government has been cutting red tape but we cannot see any signs of downsizing," an NDRC researcher told Reuters on condition of anonymity, noting that there would be stiff federal-level employees.

"The NDRC will still approve investment plans involving state spending. It will still be responsible for coordinating economic policies," the researcher said.

>>> Dubai thinking about listing assets including Emirates

Dubai thinking about listing assets including Emirates

The government of Dubai is thinking about listing assets including Emirates Airline, The Sunday Telegraph reported. The newspaper quoted the CEO of the Investment Corporation of Dubai, Mohammed al-Shaibani, who said the government could list stakes in state-controlled companies in London.

Shaibani said Emirates, Dubai Airports, Fly Dubai and Dubai’s aluminium smelting business are all candidates for flotations in the future.

The CEO added that Dubai considers the UK to be strategically important for investment in the future, according to the report. Secondary issues, including on the London Stock Exchange, are a possibility, Shaibani said.

The article noted that Emirates has annual revenues of more than USD 21bn (EUR 15.20bn). The airline is Dubai’s most prized asset, and would sell at a substantial premium in a partial listing, the report said.

Shaibani said Dubai cannot list Emirates now as the airline has value yet to be created, and the government does not want to give up that future value.

Ideally, the Dubai government would prefer to list in Dubai, but with a possible secondary listing in London, according to the report.


Source Sunday Telegraph

>>> Japan FY13 current account balance may post a deficit - Kyodo News

Japan FY13 current account balance may post a deficit - Kyodo News
- This would mark the first deficit in 33 years. - Japan had a current account surplus of ¥1.7T in Apr-Dec last year, although the balance was in deficit for three straight months from Oct. 
- In Jan, the current accont deficit is likely to expand over ¥1T, and could continue to increase through March. 
- Some economists, however, still forecast a FY13 current account surplus of approx ¥1-2T. **Note: In FY1980 Japan registered a current account deficit of ¥1.59T amid oil shock. 

**Reminder: Japan Jan current account balance to be released Mar 10th.

FT : US fund groups caught out by European bonus rules

US fund groups caught out by European bonus rules

EU wins Nobel Peace Prize for advancement of democracy©EPA
A landmark European agreement designed to curb excessive pay in the fund industry has caught US groups offguard by the strict bonus rules.
The restrictions will create a legal and tax headache for fund companies and could deter US nationals in the US and Europe from managing European funds.

Declan O’Sullivan, a Dublin-based partner at Dechert, a law firm, said he had spoken to several US fund companies who are “very upset” about the pay curbs.
Large fund houses including BlackRock, Pimco and Aberdeen could be affected.
The new rules, which are set to enter European law in 2016, mean fund managers will be paid half of their bonuses in units of the funds they manage. They will also have to defer 40 per cent of bonuses for at least three years, or 60 per cent for very high bonuses.
Sean Tuffy, vice-president of investor services at Brown Brothers Harriman, the investment bank, in Dublin, said: “I don’t see how Asian or US managers will be able to escape these rules. This was lobbied pretty intently, but obviously to no avail.”
The requirement for managers to receive half of their bonuses in units of the fund they manage is particularly problematic as US nationals cannot own shares of Ucits funds.
The final rules, which are part of the Ucits V directive, were agreed last week between the European Council and European Parliament following months of political wrangling.
Last-minute amendments to the directive state that the rules should apply to “any third parties to whom functions have been delegated”, including non-EU-based investment advisers to Ucits funds.
Sean Donovan-Smith, a partner at K&L Gates, the law firm, said the rules could deter US fund staff from managing mainstream European funds. “This would mean a smaller pool of US managers willing to work with Ucits,” he said.
US fund groups had hoped that they would be able to pay bonuses in shares of the parent company, but last week’s agreement ruled that out.
Mr O’Sullivan said: “This will be troubling for US managers who are pretty much precluded from investing in Ucits. They could [receive bonuses via] a note or derivative linked to the performance of the fund, but this would be hugely complicated and an annoyance.”
Listed fund groups are also concerned that the rules incentivise staff to focus on fund performance alone rather than growth of the wider business, potentially damaging returns for shareholders, according to Tim Wright, a partner in the rewards practice of PwC, the professional services firm.
The European Securities and Markets Authority will publish guidelines on the scope of the directive in the next six months.
These guidelines could soften the blow for non-European fund managers, but Europe’s parliament and council have stated the guidelines should “prevent circumvention of the provisions on remuneration”.

FT : Deflation fears drive down eurozone borrowing costs

Deflation fears drive down eurozone borrowing costs

Financial market bets that the European Central Bank will be forced to start buying government bonds to stem the threat of eurozone deflation are driving sovereign borrowing costs lower across the region, according to trading strategists.
Yields on eurozone government bonds, which move inversely with prices, have tumbled recently as investors have sought havens from tensions in Ukraine and other emerging market turmoil. Weak economic growth and inflation data – as well as the easing of the eurozone debt crisis – have also pushed yields lower.

But expectations are also building that the ECB – whose governing council meets on Thursday – could soon launch a large-scale asset purchase programme, or “quantitative easing”, to prevent the eurozone falling into a damaging deflationary slump. That could include buying government bonds.
While bond yields have fallen globally this year, “the recent moves in Europe have been more about discounting potential QE rather than global macro themes,” said Laurence Mutkin, head of global rates strategy at BNP Paribas. “They have been about something euro-centric, rather than a ‘risk-off’ trade or a recalibration of economic growth expectations.”
Mario Draghi, president of the ECB, has signalled this week’s meeting will be crucial to determine monetary policy strategy, with the central bank for the first time publishing an inflation forecast for 2016
While most ECB watchers still believe the central bank is some way from launching QE, “the market is getting ahead of the analysts,” said Huw Worthington, European interest rate strategist at Barclays. “There is the possibility of yields going back higher if the ECB does nothing.”
When the Bank of England and US Federal Reserve launched QE programmes, “a lot of the action came ahead of the announcement – people anticipated it – and a certain amount of that may be going on now,” added Mr Worthington.
Highlighting European markets’ increased sensitivity to news about inflation, eurozone yields on Friday reversed some of their recent falls after official data showed eurozone inflation was higher than expected in February. But at only 0.8 per cent, inflation was still far beneath the ECB’s target of an annual rate “below but close” to 2 per cent.
Whether markets are yet pricing in ECB asset purchases is unclear, however. “The market is at most pricing in a small possibility of QE happening,” said Anton Heese, co-head of European rates strategy at Morgan Stanley.
“The hurdles for the ECB to embark on full scale QE continue to look high to us, and QE is not priced in – if it was, yields would be lower still,” said Peter Goves, European rates strategist at Citigroup.
As well as government debt, the ECB could consider buying private-sector assets, including packages of bank loans to business.
Yields on 10-year German Bunds have recently fallen faster than on equivalent US Treasuries and last week they dipped to 1.55 per cent, the lowest since mid-2013
The differences, or “spreads,” between Spanish, Italian and Portuguese bonds and German equivalents have also narrowed. Spanish 10-year yields last week fell to the lowest since February 2006. Greek 10-year bond yields last week fell to less than 7 per cent for the first time since early 2010.

FT : S&P’s rise underpinned by borrowed money

S&P’s rise underpinned by borrowed money

US stocks are being propelled to fresh highs by investors borrowing a record amount of money in a high stakes gamble that is raising concerns over the potential for a sharp correction in the five-year bull run.
With the S&P 500 registering a fresh closing peak of 1,859.45 last week, margin debt – money borrowed to buy stocks – hit a record level in January, according to data from the New York Stock Exchange.

Peaks in the use of borrowed money have in the past been a precursor to big bear markets and is viewed as a warning sign. Though margin debt has been hitting record high in recent months, it now stands at $451bn on the NYSE, a rise of more than 20 per cent over the past year and above 2007’s peak of $381bn. Five years ago it hit a low of $173bn.
In past market peaks, excessive levels of margin debt exacerbated the subsequent slide in stocks, as investors were forced to quickly sell their holdings as prices fell, sparking a nasty downward spiral.
The rise in margin debt comes as questions are being asked about heady valuations, notably in biotechnology – where the Nasdaq Biotech Index is up 16.4 per cent since the start of the year – and in corners of the technology sector, which has seen Facebook spend $19bn on WhatsApp.
However, investors are not yet alarmed enough to sell out despite the S&P’s 22 per cent rise over the past year.
“We are beginning to see signs of froth; it’s a yellow flag of caution and the market can move higher from here,” said Kate Warne, investment strategist at Edward Jones. “It’s not the time to move to the sidelines, you frequently get good returns in the final stages of a bull run.”
Many investors also expect the US economy will rebound this spring after a harsh winter that has weighed on activity, prompting a sharp snapback in stock prices during February. After stocks slipped during January on soft data and emerging market turmoil, the subsequent rebound has vindicated investors who bought on the dip in prices.
“If we see the economy bounce back and grow near 3 per cent, the S&P can rise further,” said Steven Boyd, principal at Halyard Asset Management. He said the greater use of margin debt was a sign of confidence that the recent soft tone in data is attributable to cold weather and that pent up demand will drive a rebound in the coming months.
Mr Boyd said the record use of margin would be a concern if valuations for the S&P were around a forward earnings multiple of 20 times, rather than the current 17 times.
After the S&P’s 30 per cent rise last year, most analysts and investors remain confident that the market can climb further this year as the Federal Reserve continues to reduce its monthly bond purchases and the economy and corporate profits grow.
Since the equity market bottomed in March 2009, the S&P, including the reinvestment of dividends, has risen more than 200 per cent.

FT : £350m rights issue for Premier Foods

£350m rights issue for Premier Foods

Premier Foods is putting the finishing touches to a £750m-plus deal likely to be announced this week that, if successful, would amount to a radical turnround for a company whose debts brought it to the brink of collapse during the recession.
The maker of some of the UK’s best known food brands, including Hovis bread, Oxo stock cubes and Mr Kipling cakes, is expected to announce a rights issue of just over £350m – more than its stock market value of £345m.

It is also preparing a corporate bond issue of about £400m to help tackle its net debt, which stood at £890m at the end of June 2013.
The balance sheet restructuring is aimed at securing an investment grade rating by slashing the group’s high leverage.
Net debt is estimated by analysts to have fallen to £860m at the end of last year, which is about 5 times earnings before interest, tax, depreciation and amortisation. This would need to drop to 3 times for an investment grade rating.
Premier is also expected to announce a deal with pension trustees over its £395m pension deficit. The group, which has pension liabilities of £3.65bn, is close to securing an agreement to reschedule its payments and make reduced contributions over the next few years.
Shares in Premier have risen 57 per cent over the past 12 months on expectation of a turnround and re-rating after the appointment of Gavin Darby as chief executive a year ago.
The former head of Cable & Wireless Worldwide and Coca-Cola executive, pledged to turn Premier into a “normal” company. It was seen as a Great British corporate disaster in the late 2000s when it overstretched itself through a series of highly-leveraged acquisitions.
The restructuring has been made easier by the buoyancy of financial markets and a greater risk appetite by investors. The group’s two biggest shareholders are Warburg Pincus and Paulson, which between them hold a 28 per cent stake. Franklin Resources and Standard Life hold another 13 per cent.
It also follows January’s deal to hive off the Hovis bread business, which struggled to break even, into a joint venture. US private equity outfit Gores Group agreed to take a controlling 51 per cent stake in Hovis for £30m with Premier retaining 49 per cent.
That made it easier to turn to shareholders for new equity on the basis of Premier’s grocery business, which enjoys operating profit margins of 17-18 per cent against 1 per cent for bread.
Premier declined to comment.

JDD : EDF : Astronomical invoice nuclear

Link to article in French : {http://bit.ly/1kof8Dk}
Link to google translation : {http://bit.ly/1lt5W0R}

EXCLUSIVE - EDF forecasts estimate that 300 billion over fifty years the cost of the renovation and construction of new plants.

Pursue nuclear will be expensive, very expensive. An internal document EDF, the JDD procured, presents estimates of future costs for maintenance and renewal of the French nuclear fleet. The numbers are dizzy.

Nearly € 300 billion will be invested in the next fifty years if current plants are rebuilt identically. However, a difficult to hold to fulfill the objective of reducing from 75% to 50% the share of nuclear power generation in the French case. For several months, EDF amounts to € 55 billion cost of the work required to extend the life of 58 French reactors from forty to fifty years. Except that "major overhaul" is scheduled for the period between 2015 and 2025. Between 2025 and 2047, EDF will spend about € 35 billion to maintain the plants until they are closed, according to estimates by Greenpeace. A heavy but normal investment. Between 2002 and 2012, "only" 10 billion was spent on maintenance, a level deemed sufficient to ensure safety. A total of 100 billion euros will thus for the renovation of the 19 French plants.

Grist environmentalists
But the most breathtaking yet to come. A mountain of investments stands in case of renewal of the existing fleet. EDF document illustrates more than 200 billion euros needed between 2030 and 2067 to rebuild 58 reactors. Interviewed Thursday by deputies, the number 2 EDF, Hervé Machenaud, acknowledged that the cost could reach € 240 billion by choosing EPR reactors. "This is an image to give an order of magnitude, he explained. This shows the interest to extend the plants to see this investment."

These figures give grist to environmentalists. And EDF knows. "One hundred billion to extend the power of only ten years, the same price it had cost the construction of the entire park," said Denis Baupin, leader of the Greens in the Assembly. The total cost of 300 billion equivalent especially that the output of nuclear replaced by renewables. "The amounts are the same, thereby leaving the myth that nuclear power is free," the Green MP. With or without nuclear, energy costs will be heavy.