TheChek News Flow

Asian Market Update: JPY rises across the board as strong Tankan diminishes prospects for more BOJ easing; China flash PMI falls to 3-month lows

***Observations/Insights*** - China flash manufacturing PMI hits 3-month lows, missing estimates. HSBC economist did note the "index stands above the average reading for 3Q, implying that the recovering trend of the manufacturing sector starting from July still holds up." - AUD relatively weaker, hitting session lows after China PMI data. Longer-term, PM Abbott informally acknowledged Australia will not meet the 3-year timeframe for return to budget surplus, pinning excessive spending on the previous Labor party regime. Australia releases Mid-Year Economic and Fiscal Outlook (MYEFO) tomorrow. - Japan quarterly Tankan PMI was stronger in terms of the current assessment but weaker in terms of outlook. Cabinet officials are cheering the strong data, while yen is rising, as dealers surmise the better data diminishes the outlook for further BOJ easing. In terms of positioning, latest CFTC net yen shorts are down for the first time in 6 weeks after hitting multi-year highs for 3 consecutive weeks. - Germany finalizes grand coalition with center-left SPD; Separately, Asmussen reported to leave the ECB and Pres Draghi reiterates the central bank has done all it can but may add to stimulus if more risks materialize.

***Economic Data*** - (CN) CHINA DEC HSBC/MARKIT FLASH MANUFACTURING PMI: 50.5 V 50.9E (3-month low) - (JP) JAPAN Q4 TANKAN LARGE MANUFACTURING INDEX: 16 V 15E (highest reading since Q4 2007); LARGE ALL INDUSTRIAL CAPEX: 4.6% V 5.5%E; LARGE MANUFACTURING OUTLOOK: 14 V 17E - (JP) JAPAN NOV TOKYO CONDOMINIUM SALES Y/Y: 22.3% V 21.4% PRIOR - (NZ) NEW ZEALAND NOV PERFORMANCE SERVICES INDEX: 56.3 V 57.7 PRIOR (first decline in 4 months) - (NZ) NEW ZEALAND Q4 WESTPAC CONSUMER CONFIDENCE: 120.1 V 115.4 PRIOR (4-year high) - (UK) UK DEC RIGHTMOVE HOUSE PRICES M/M: -1.9% V -2.4% PRIOR (2nd straight decline); Y/Y: 5.4% V 4.0% PRIOR

***Fixed Income/Commodities/Currencies*** - (CN) Daily Shibor fixings: O/N: 3.4470% v 3.4321% prior (first rise in 10 sessions); 1-week: 4.3580% v 4.3000% prior (first rise in 9 sessions) - (KR) South Korea MoF sells 10-yr govt bond; avg yield 3.655% - (JP) BOJ to buy ¥500B in CP outright on Dec 19th - SLV: iShares Silver Trust ETF daily holdings fall to 10,139 tonnes (lowest since 10,125 on July 11th) from 10,163 tonnes

- Japanese yen continued to back away from 5-year low set early on Friday, with JPY pairs down moderately across the board. USD/JPY, EUR/JPY, and AUD/JPY are all off by about 60pips at their lows from session highs below 102.70, 141.30, and 91.80 respectively. Note that the latter was within 5pips away from its multi-week trading range support. AUD was also softer against other currencies, falling as low as 0.8920 against USD immediately after the weaker than expected China flash manufacturing PMI. EUR/USD reversed its modest opening losses, rising from 1.3730 to 1.3760.

***Speakers/Political/In the Papers*** - (CN) China employees likely to have an average pay rise of 8.8% in 2014; Employees for state-owned enterprises (SOEs) may face salary cuts as they earn 1.9x more than employees in the private sector - Xinhua - (CN) China leadership to be cautious on rural residents' permanent move to China's cities for urbanization - Chinese press - (CN) China Stats Bureau: China pork price +0.5% in early Dec - (CN) Total worth of approx CNY30B of lock-up shares to be eligible for trade in Shanghai during the week of Dec 16th - Chinese press - (CN) China National Energy Administration (NEA): China Nov power consumption 448.5B kwh v 437.5B kwh m/m, +8.5% y/y (2nd highest level in 2013) - (CN) US Navy warship USS Cowpens was forced into evasive maneuvers to avoid hitting a Chinese naval vessel on Dec 5th in the South China Sea - press - (CN) China foreign ministry spokesperson Hong Lei: China expresses "strong dissatisfaction" with Japan PM Abe's "slanderous" comments about China's air defense identification zone - press

- (JP) Japan Chief Cabinet Sec Suga: Tankan survey greatly exceeded expectations - (JP) Japan govt may set FY14/15 real GDP target at 1.3% - Japan press - (JP) Japan govt forming a budget plan to issue about ¥180T (record high) in bonds in FY14/15, up from ¥174T issued in FY13/14 which is the current record - Nikkei - (JP) Economists estimating Japan's 2013 money supply target of ¥200T to be reached a week ahead of schedule on Dec 25th; 2012-end money supply was ¥138B - Nikkei - (JP) ASEAN and Japan leaders agree to work together to ensure freedom of overflight

- (AU) Australia PM Abbott said to have given up on govt target to return the budget to surplus in 4 years due to "profligacy" of the former Labor govt - AFR - (NZ) New Zealand Institute of Economic Research (NZIER): Sees 3.1% GDP for FY14/15

- (IR) Iran Foreign Min Zarif: To continue talking with world leaders on its nuclear program despite US move to blacklist companies not complying with sanctions - financial press - (IR) Saudi Royal family said to be seeking a role in talks with Iran - financial press interview - (DE) Germany's BDI Industrial Association expects 2013 exports at 1.5%, 2014 over 2% - German press - (EU) ECB Pres Draghi: ECB has done all it can to stimulate growth in the eurozone; Stands ready to act at a later stage - French press

- (US) House Budget Committee Chairman Ryan said to convene a meeting with House Republicans to strategize on what concessions are feasible from the Democrat side in return for raising the debt ceiling for 2014 - press citing "Fox News Sunday" interview - (US) US budget deal in Senate may be short on votes - financial press citing Senator Durbin (D-IL) - (US) WSJ's Hilsenrath: Recent economic data shows progress on employment and growth, but not inflation

***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 -1.2%, S&P/ASX -0.3%, Kospi flat, Shanghai Composite -1.4%, Hang Seng -0.7%, Mar S&P500 -0.4% at 1,760, Feb gold -0.1% at $1,234, Jan crude oil -0.6% at $96.38/brl

Notable movers by sector: - Consumer discretionary: Qantas Airways Ltd QAN.AU +3.3% (Australia PM plans to eliminate foreign ownership limits); Qingdao Doublestar 000599.CN +1.5%, Blue Star New Chemical Material 600229.CN +2.8%, Qingdao Kingking Applied Chemistry 002094.CN +6.5%, Minsheng Investment Management 000416.CN +1.5% (Qingdao applies for FTZ trial); Shuanghua Holdings 1241.HK -6.7% (FY guidance) - Industrials: China Airlines 2610.TW +0.5% (JV agreement); Daewoo Shipbuilding & Marine 042660.KR +3.7% (awarded order); Mitsubishi Heavy 7011.JP -1.6% (lawsuit settlement); Hi-Lex 7279.JP -1.0% (FY12/13 results); Aurizon Holdings AZJ.AU +0.2% (FY14 production guidance) - Financials: WesFarmers Limited WES.AU +0.4% (to sell insurance underwriting operations) - Technology: Wisesoft 002253.CN +% (awarded contract); Global Tech 143.HK +3.9^ (FY profit alert) - Energy: AWE AWE.AU +8.4% (Exec comments) - Healthcare: Guangzhou Baiyunshan Pharmaceutical 600332.CN -5.4% (vaccine recall)

US Market closed slightly postive, but still negative on the month, S&P-1,7% and Russel 2000 -3,1%, volume still light with 627mil shares traded...VIX @ 15,77 +1,48%...highest level since mid October...see demand for protection ahead fo next week FED meeting

- Chinese spacecraft landed on the moon, - Germany's SPD backs coalition with Merkel's CDU - German Union Rejects EU Stance on Merkel Energy Policy: Bild - Italy’s Deficit Very Close to 3% of GDP This Year: Saccomanni

Keep an eye on : - ALO FP : Alstom rejects Siemens as partner for Transport division; TMH (Russian) still a possibility - Challenges - BMW GY : BMW North America Recalls 76,000 Cars Over Air Bag Defect: NHTSA - BOL FP : Bollore Awarded London Electric Car Charging Contract: Parisien - AM FP : Dassault Aviation Said to miss out on a $4B fighter jet contract with Brazil due to high costs - DTE GY / TMUS US : Sprint Working Toward Bid for T-Mobile US, Dow Jones Says - EAD FP : EADS’s Astrium Unit Wins Order for 18 Ariane 5 ECA Rockets - EVO GY :Evonik shareholder RAG-Stiftung plans to lower stake to 25% in long term (from 67,9%) - GE US : raised dvd by 16% (payable 27/01), annual outlook meeting next week, big focus on manufacturing M&A. - JNJ US : J&J Said to Get 3 Diagnostics Bids of at Least $4 Billion Each - KCO GY : Kloeckner Considering Acquisitions, to focus on North America because of low energy cost, could shut down unprofitable business, Co coould return to profitability in 2014, could allow to pay dvd again in 2014, CEO Ruehl Tells Welt - MB IM : Generali Cuts Mediobanca Stake Below 2%, Consob Says - ML FP : Michelin North America Recalling as Many as 1.2m Tires: NHTSA - MONC IM : Moncler Combined IPO Offering About 27 Times (97mil shares demand) Oversubscribed ( Retail 14 times) - start trading on Monday, priced @ E10,20/share--> value the Co @ 2.55bil Euros (cuccinelli oversub. 17 times) - ORC FP : Orco Property’s Hungarian Units Start Insolvency Proceedings - UG FP : Peugeot shareholding may not be resolved until late January - PVA SM : Pescanova Investors Propose 90% Debt Write-Off, Cinco Dias Says - Red Bull : Red Bull Granted License in China, Plans Drink Sales, Krone Says - RSA LN : Zurich Ins. Or Allianz could be interested in all or part of RSA - FT - Taittinger : Taittinger preparing for acquisitions the French champagne house owned by banking group Credit Agricole and the Taittinger family, is interested in acquiring winemakers operating in the Burgundy and Bordeaux regions. - TIT IM : Telefonica CEO Alierta Steps Down From Telecom Italia’s Board - TKA AV : New Austria Govt Aims to Sell Company Stakes, Austria’s three big listed company stakes are: 53% of Austrian Post,28% of Telekom Austria, 32% of OMV - VIE FP : Veolia French Water Unit Chief Sees EU150m of Additional Revenue - VOS GY : Vossloh May Cut Dividend Again, CEO Andree Tells Boersen-Zeitung

As Bitcoin Transaction Volume Triples Since October, Europe Prepares To Regulate, Tax The Digital Currency

Representing numbers that would put the adoption curve of Obamacare to shame, the Bitcoin equivalents of Paypal, BitPay, announced last week that it has now processed over $100 million in BTC transactions in 2013, has increased its merchant base to over 15,500 approved merchants in over 200 countries, but most importantly, has seen a surge in the number of merchants using its BTC payment pricing plan, by 50% since October while the volume of transactions has tripled. While the surge in the currency adoption has matched the explosive rise in the USD-value of the currency, the news should comfort any lingering doubts whether Bitcoin is a credible payment system.

From the BitPay press release:

BitPay Inc, the world leader in business solutions for virtual currencies, announces it has processed over $100 million in transactions this year, and has increased its merchant base to over 15,500 approved merchants in 200 countries. Since the announcement of the new All Inclusive Pricing Plan in October, along with the integration with Shopify in November, the number of new merchants has increased over 50% and the transaction volume has tripled.

"This year, the 2013 holiday season was Adafruit's biggest ever. We are delighted to offer bitcoin payments via BitPay to our community and customers. It was fast and easy, hundreds of orders and happy customers getting educational electronics, using bitcoin!" shared Limor Fried, Founder and Engineer with Adafruit.

Bitcoin has "clear potential for growth and could become a major means of payment for online transactions" a Bank of America analyst told CNBC. As the number of Bitcoin users continues to increase, merchants such as Adafruit, BTCTrip, Alliance Virtual Offices, and Clearly Canadian, see the value of working with BitPay to help expand their business. Which explains why Europe, which over a year was the first entity to cry foul about Bitcoin (recall from November 2012: "The ECB Explains What A Ponzi Scheme Is; Awkward Silence Follows") when the USD-price of one BTC was still in the double digits, is doubling down in its fight against the fiat alternative, this time as the European Union's top banking regulator is preparing to actively supervise the virtual currency. From Bloomberg:

Trading Bitcoins could bleed you dry, the European Union’s top banking regulator said as it weighs whether to regulate virtual currencies. Thefts from digital wallets have exceeded $1 million in some cases and traders aren’t protected against losses if their virtual exchange collapses, the European Banking Authority said today in a report warning consumers about the risks of cybermoney.

Virtual currencies such as Bitcoin have come under increased scrutiny from regulators and prosecutors around the globe. China’s central bank barred financial institutions from handling Bitcoin transactions last week and German police arrested two suspects in a fraud probe into illegally generated Bitcoins worth 700,000 euros ($963,000).

"The technology is still relatively immature and lacks the infrastructure, regulation and understanding of the risks that are taken for granted in conventional financial systems," Matt Rees, assistant director at Ernst & Young LLP, said in an e-mail. "It is not surprising then that thefts, frauds and other deceptions are currently commonplace."

Since Bitcoins exist as software, the virtual currency isn’t controlled by any government or central bank. The digital money emerged in 2008, designed by a programmer or group of programmers going under the name of Satoshi Nakamoto, whose real identity remains unknown.

The virtual currency gained credibility last month after law enforcement and securities agencies said in U.S. Senate hearings that it could be a legitimate means of exchange. The price of Bitcoins topped $1,000 as speculators anticipated broader use of digital money. Because, you see, it is the possibility of theft that has regulators worried, not that alternative currencies could undermine the fiat system (especially in Europe where the artificially common currency is not exactly the world's most admired construct) the world is so hooked on.

So what does Europe propose? Simple: do more of what it truly excels at: tax stuff.

People holding virtual currencies may be subject to value-added or capital gains taxes, the EBA said.

The government of Norway, Scandinavia’s richest nation, said it would treat Bitcoins as an asset and levy capital gains tax on them.

"Bitcoins don’t fall under the usual definition of money or currency," Hans Christian Holte, director general of taxation in Norway, said in an interview.

For virtual currencies to be regulated in the EU, the EBA would have to get approval from the European Commission, the 28-nation bloc’s executive arm.

We "support the EBA warning to consumers on the risks associated with virtual currencies," Michel Barnier, the EU’s financial services commissioner, said in an e-mail. In other words, it is only a matter of time before Europe does all it can to make the use of Bitcoin even more prohibitive, which in a Europe that is flooded with bad debt, with a banking sector whose credibility is non-existent resulting in loan "creation" plunging at a record pace, and a banking union "resolution mechanism" that is as improbable now as it has ever been, means more deposit bail-ins in a form that "fall under the usual definition of money" are just a matter of time.

China foreign ministry spokesperson Hong Lei: China expresses "strong dissatisfaction" with Japan PM Abe's "slanderous" comments about China's air defense identification zone - press - Says: "The one that has unilaterally changed the status quo over the Diaoyu islands is none other than Japan itself... In this regard, China has taken lawful and necessary measures to safeguard its sovereign territory and is fully justified and blameless."

**NOTE Dec 13th: (JP) Japan PM Abe asks for support from ASEAN nations against China's unilateral announcement of air defense zone over East China Sea - Nikkei

England stands out as most generous country for divorcing spouses

Divorcing spouses in England are more likely to receive generous maintenance payments over a longer period than in 13 other countries because judges can take more factors into account, according to research. A study by law firm Withers examined spousal maintenance payments in jurisdictions in Europe, the US, South Africa and New Zealand and concluded that England and Wales stood out because of the broad range of issues the judge could take into consideration.

London has gained a reputation for being the divorce capital of the world in recent years after a series of generous awards to ex-wives. These have included ex-Beatle Sir Paul McCartney, who was ordered to pay Heather Mills £24.3m after four years of marriage, and the £48m awarded to Beverley Charman, former wife of John Charman, the insurance magnate. In the most recent high-profile case, Michelle Youngwas last month awarded a £20m lump sum after divorcing her husband Scot Young, a one-time fixer for Russian oligarchs. In the bitter dispute, he had claimed he was penniless and could not afford to pay anything. She alleged he was worth millions. In another case in August, an unnamed Russian businessman, identified as M, was ordered to pay £38m to his ex-wife and transfer UK properties to her. The complex case involved tracing the husband’s assets across the world. The judge, Mrs Justice Eleanor King, described the litigation as "a fantastic charade, with the husband a shady puppet master in the background", and said that those representing the wife "have crossed and recrossed the globe in an attempt to trace the husband’s assets, every penny of which has been acquired during the course of the marriage". Court orders were obtained in Cyprus, the British Virgin Islands and Seychelles, after which the husband was "one step ahead", transferring assets across the Caribbean Sea to Belize and eventually using a Panamanian intermediary. The English courts have also shown themselves willing to be tough against those who refuse to obey court orders to disclose documents during proceedings, or to pay up.Mr Young was jailed for contempt of court for failure to comply with court orders. Suzanne Kingston, partner at Withers, said the discretion of judges most frequently came into play in England when the amount and duration of maintenance payments to divorcing spouses was decided. This compared with other countries where awards were often more formula-based The German court often uses official guidelines, notably the Düsseldorf table, which provides certainty in maintenance calculations. Although many jurisdictions gave judges discretion to make awards, Withers found that England and Wales stood out for the broad judicial discretion they applied to all aspects of each case. In some countries, notably Cyprus, Germany and Switzerland, the term for maintenance can be strictly limited. Some jurisdictions still use the concept of "fault-based divorce" and include factors such as adultery, unreasonable behaviour or desertion as grounds to refuse a claim for maintenance. Ms Kingston said: "France maintains this as a discretionary point but Malta considers it an important question when considering maintenance awards." The study found that Malta remained one of the few jurisdictions in which conduct of the divorcing parties was genuinely taken into account; the right to maintenance is forfeited if the recipient "caused the breakdown of the marriage for reasons of adultery, cruelty or grievous injury or desertion for two years or more without good cause". In France, the court also had discretion to refuse to award spousal support in cases of fault-based divorce, the study noted. Catherine Thomas, lawyer for law firm Vardags, who represented Ms Young, said the English courts did not distinguish between the breadwinner and the homemaker in a longstanding marriage – making London an attractive place for divorcing wives. She said: "There is a wide discretion and judges here will look at individual factors and cases. This can sometimes make the decisions less easy to predict and can lead to more litigation." She added that the complexity of many international divorce cases and spouses with assets around the world in various tax havens had led to an influx of City lawyers into family law. "Family law used to be seen as quite soft and less intellectually demanding than corporate law, but now it has attracted City lawyers who use their skills in family law and that is seen as quite normal."

Republicans are gearing up for a new fight with President Barack Obama over the need to lift America’s borrowing limit early next year, raising concerns that the fiscal truce established in last week’s bipartisan budget deal may be shortlived. Paul Ryan, Republican chairman of the House budget committee, said his party planned to demand concessions from the White House in exchange for raising the country’s debt ceiling. Republicans would meet in January to discuss the options.

"We don’t want [to get] nothing out of this debt limit. We’re going to decide what it is we’re going to accomplish out of this debt limit fight," Mr Ryan said on Sunday. The budget deal he crafted with Patty Murray, a Democratic senator, dramatically reduces the threat of a government shutdown over the next two years and unwinds some of the budget cuts introduced in March under "sequestration". Many view the pact as marking the end of three years of vicious fiscal battles on Capitol Hill, but Mr Ryan’s comments suggest that tensions could flare up again soon and dealing a blow to the global economy as early as the first quarter of next year. The budget deal was passed overwhelmingly by the House of Representatives last week but faces its final hurdle in the Senate this week. It is expected to clear the upper chamber, but opposition from a number of high-profile Republican senators in recent days has left some uncertainty about the outcome. "I feel we’ll have a good strong showing from the Democratic side, but we need bipartisan support to pass it," Dick Durbin, a senior Democratic senator, told CBS on Sunday. He noted that some Republicans vying for the presidential nomination in 2016 and others were still worried about a backlash from the Tea Party, which could cause problems. "This is very difficult," he added. Renewed uncertainty over the debt ceiling comes as Federal Reserve officials prepare to decide on Wednesday whether to begin tapering – or slowing – the pace of their asset purchases in support of the US recovery. A strong jobs report for November increased the likelihood that the Fed might initiate a small reduction in the rate of bond buys, as did news of the budget agreement reached last week. But Mr Ryan’s comments might temper any enthusiasm among Fed officials about the fiscal environment on Capitol Hill. The US Treasury has signalled that the debt limit will have to be raised by February or early March at the latest to avoid a possible default, though some analysts believe there might be more breathing room. In August 2011 and October 2013, the US narrowly escaped running out of cash to pay its bills in two crises driven by political brinkmanship. Obama administration officials and many Democrats insist that raising the debt limit should not be the subject of negotiations because the new borrowing helps cover payments for past tax and spending decisions made by Congress. But Republicans have tried to force their agenda for deep spending cuts and reforms of big social programmes in conjunction with rises in the debt limit. "The right answer is they should just extend the debt limit way in advance and not have any sense of crisis at all. I hope that will happen," Jack Lew, US Treasury secretary, said last month. Mr Ryan’s comments on the debt ceiling follow days of open warfare between Republican leaders in Congress and outside conservative groups who opposed the compromise budget deal for increasing spending in the short term. John Boehner, the Republican House speaker, said last week that they had "lost all credibility" after forcing a government shutdown to try to defund the 2010 health law, a plan that backfired politically for their party. In a separate NBC interview aired on Sunday, Mr Ryan sought to play down divisions among Republicans, saying Mr Boehner "just got his Irish up" in frustration, and that he would "prefer to keep those conversations within the family". Taking a tough line on the borrowing limit would patch up the split between the Republican party leadership and conservative groups, but would also reignite tensions with business allies who have been pleased with the shift towards compromise in the budget deal. In the past, Republicans have asked for deep spending cuts in exchange for debt ceiling rises, but they may also revive their demands for changes to the 2010 healthcare law, given the flaws in the scheme’s rollout. Some Republicans may also argue for a framework for tax reform to be tied to a debt ceiling increase.

Peugeot shareholding may not be resolved until late January The exact picture of shareholding reshuffles at French car giant Peugeot Citroen [EPA:UG] is unlikely to be clarified until a good month into 2014, according to the Journal du Dimanche. An unsourced item in the French-language weekly noted that with General Motors last week pulling out of its holding in the automaker, the subsequent actions by the Peugeot family and Chinese counterpart Dongfeng may not come about until shortly before Peugeot makes public its accounts for the year in February.

Without sourcing the projections, the JDD noted that between them the French state and the Wuhan-based automotive group could end up with a 50% holding.

The Peugeot descendants today hold a 38% of voting rights and 25% of tshares, the JDD noted. Those percentages could fall to 15% and 12%, the item noted , suggesting the French authorities are keen on such an outcome. Again without sourcing, the item noted that the group could turn to the markets for further capital. It could also call on the family to kick in up to EUR 250m into company coffers.

Michigan based GM on Thursday announced the intention to sell its entire 7% stake in PSA Peugeot Citroen through a private placement, as reported. The US company netted EUR 250m from the divestment, as reported.

Source Journal du Dimanche

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Shell Exiting Woodside Seen Opening Door to China Bids: Real M&A 2013-12-15 19:00:00.0 GMT

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

By Angus Whitley and James Paton Dec. 16 (Bloomberg) -- Royal Dutch Shell Plc’s long-awaited sale of its $6.4 billion stake in Woodside Petroleum Ltd. may open the door for Asian buyers to grab a slice of Australia’s second-largest oil and gas producer, or even the whole company. Shell, which said last month it was entering “a divestment phase,” may exit its 23 percent holding in Woodside as soon as 2014 as its importance to Europe’s largest oil company fades, said Nomura Holdings Inc. While Shell may opt to sell the stock back to Woodside and institutional investors, China’s Cnooc Ltd. and China Petroleum & Chemical Corp. might pursue the stake or a full takeover, Morningstar Inc. said. Woodside, which has a market value of $28 billion, offers buyers six of Australia’s seven LNG processing plants as China- led demand for liquefied natural gas is forecast to almost double worldwide by 2030. Government opposition to a foreign takeover may have eased since Shell was blocked in 2001, said E.I.M. Capital Managers Pty. The company also is more affordable after its multiple to cash flow more than halved since 2011, according to data compiled by Bloomberg. A sale of Shell’s stake in Woodside “opens it up for somebody,” John Robertson, a Melbourne-based investor at E.I.M. Capital who owns shares in Woodside, said in a phone interview. “There’s going to be rising energy demand throughout Asia, particularly in China.”

Not Strategic

Shell, Woodside’s largest shareholder, said last year the asset didn’t fit into The Hague-based company’s long-term plans. Then, in May, Shell Chief Financial Officer Simon Henry said the company “eventually would sell the stake,” describing the investment as “no longer strategic.” The stake is “increasingly non-core” to Shell as Perth, Australia-based Woodside expands overseas, Theepan Jothilingam, a London-based analyst at Nomura, said in a Dec. 3 report. As Shell cuts costs, selling the Woodside stake would free up cash for incoming Chief Executive Officer Ben van Beurden, who replaces Peter Voser in January, said Evan Lucas, Melbourne- based strategist at IG Markets Ltd. Institutional investors, as well as Chinese, Japanese or South Korean companies, may be interested in buying the shares, Lucas said by phone. Woodside would be “very interesting” to Cnooc, China’s biggest offshore oil and gas producer, and China Petroleum & Chemical, better known as Sinopec, said Mark Taylor, an analyst at Morningstar in Sydney. Neither is likely to be blocked by the Australian government, Taylor said.

Blocked Bid

“Woodside is not the only LNG exporter,” he said in a phone interview. “It doesn’t have the same national significance anymore.” In April 2001, then-Australian Treasurer Peter Costello blocked Shell’s bid for Woodside. At the time, Woodside ran Australia’s only liquefied natural gas plant and the government was concerned Shell would slow Woodside’s expansion by prioritizing other investments in Asia. A logical domestic acquirer, Melbourne-based BHP Billiton Ltd., the world’s biggest mining company, is now more focused on cutting costs than takeovers, said Taylor. Kate Gauntlett, a spokeswoman for Woodside, declined to comment on Shell’s stake or potential buyers, and Sarah Bradley, a spokeswoman for Shell, also wouldn’t comment. Michelle Zhang, a spokeswoman for Cnooc, declined to comment. Calls to Sinopec’s Beijing-based spokesman Lv Dapeng weren’t answered during normal business hours.

Profit Growth

Formed in 1954, Woodside endured a decade of fruitless exploration in southern Australia before discovering gas off the west coast, according to the company’s website. Woodside’s Pluto project, which started in 2012, and its North West Shelf development in Western Australia will help boost profit 14 percent to $2.16 billion next year, according to analysts’ estimates compiled by Bloomberg. Woodside plans to expand in Israel and expects to decide in 2015 whether to develop the Browse LNG project off Western Australia with Shell. Woodside closed last week in Sydney at A$37.75 a share, leaving the A$31 billion ($28 billion) company trading at about 8 times its cash flow, according to data compiled by Bloomberg. That’s less than half the figure in April 2011. Shell already sold 10 percent of Woodside stock for A$42.23 a share in November 2010. The shares haven’t traded higher than A$40 since 2011.

Gas Demand

The price has sagged partly due to expectations of a pending sale by Shell, said Lucas at IG. Should that take place, there would be fresh demand for the stock, he said. “It makes your big hedge funds wake up to the fact that Woodside is clear,” he said. Central to Woodside’s appeal to a corporate buyer is rising demand for gas throughout Asia, said Robertson, the fund manager at E.I.M. Capital. Chinese or Japanese energy companies might attempt to buy a stake as a path toward a takeover, a move that may not be opposed by Treasurer Joe Hockey, he said. “Right now the government is going through some soul- searching about what its view is toward national assets,” Robertson said. “There have been some interesting decisions which throw up the question as to whether the same decision Costello took more than 10 years ago would be taken today.” Australia ruled this month that China’s state-controlled Yanzhou Coal Mining Co. didn’t need to cut its stake in its Australian business to less than 70 percent, instead allowing it to move toward full ownership. And even as Hockey blocked Archer-Daniels-Midland Co.’s $2 billion takeover of GrainCorp Ltd. last month, he said he would allow the U.S. company to raise its stake to almost 25 percent to work toward “potentially greater participation.” Shell is still more likely to sell its Woodside shares to institutional investors or to Woodside itself, said Vincent Pisani, a Melbourne-based analyst at Shaw Stockbroking Ltd. That may not deter foreign suitors from trying to buy the stake, said Robertson at E.I.M. Capital. “Someone might say, ‘OK, if we bought the Shell stake, that might be a stepping stone to going the whole way,’” he said.

For Related News and Information: Gas Buyers Poised to Commit on South Korea Atomic Shift: Energy NSN MUR8MR6KLVRL <GO> Woodside Sees Israel Deal Alternatives With Decision in 2014 NSN MXKV856S972F <GO> Highest-Paid Workforce Driving Shell Offshore Australia: Energy NSN MLUUCO0YHQ0X <GO> Woodside deal news: WPL AU <Equity> TCNI MNA <GO> Real M&A columns: NI REALMNA <GO> Top deal news: TOP DEAL <GO>

--With assistance from Benjamin Haas in Hong Kong and Eduard Gismatullin in London. Editors: Sarah Rabil, Beth Williams

To contact the reporters on this story: Angus Whitley in Sydney at +61-2-9777-8643 or awhitley1@bloomberg.net; James Paton in Sydney at +61-2-9777-8698 or jpaton4@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at +1-212-617-5992 or srabil@bloomberg.net; Jason Rogers at +65-6231-3673 or jrogers73@bloomberg.net