Fitch: Recovery taking hold but risks to global sovereign outlook remain- Most Euro Zone sovereign ratings seen unchanged in 2014 - Will aim to resolve the US rating watch negative outlook in Q1
--> +ve for Anglo American, Lonmin
Regulators warn on insurance accounting
Insurers’ accounting practices are so opaque there is a danger their financial disclosures are failing to show the damage done by persistently low interest rates, top European regulators have warned.
Supervisors have raised fresh concerns about insurers’ bookkeeping across much of the continent, as a 15-year effort to reform the sector’s accounting rules remains held back by disagreements between the industry and watchdogs.
“There is a real risk that firms could build up hidden problems,” said the European Insurance and Occupational Pensions Authority on Thursday in a report on financial stability.
The warning came as industry-wide figures stressed the difficulties low interest rates are causing insurance companies. The problems are especially acute for life assurers that need to generate investment returns to meet promises made to policyholders.
EIOPA disclosed that investment returns for typical European life assurers – whose portfolios are dominated by conservative fixed income assets – have dropped more than two-fifths over the past year, to 2.8 per cent.
This means some companies in the sector are earning less from their investment portfolios than the returns – of as much as 4 per cent a year – they have guaranteed policyholders.
The problems associated with low interest rates may be slow to emerge on insurers’ books, however, EIOPA said.
In most jurisdictions insurance liabilities are valued using discount rates calculated at the time policies were written, rather than reflecting prevailing market conditions.
“The fact that the effects of low interest rates are slow to emerge in balance sheet terms does not mean the problem is not there,” EIOPA said. “The low interest yield environment is still the most prominent risk” for the sector, it added.
Leading accountants have estimated the bookkeeping shortcomings could mean insurance companies’ disclosures may underestimate their liabilities by billions of euros, but that the effect is difficult – if not impossible – to quantify.
EIOPA added that the levels of capital held by insurers under the so-called Solvency I regulatory requirements, which are being phased out, were “dropping” but nevertheless remained “very healthy”.
Even so, the authority – which is planning to conduct stress tests of European insurers next year – indicated that if calculated using the forthcoming Solvency II regulations, the companies’ financial positions may not appear to be so strong.
The International Accounting Standards Board has been trying for years to make insurers’ accounts more comprehensible to investors and in June drew up a fresh set of proposals to satisfy the industry.
Since then insurers have told the regulators they are broadly supportive of the principle that their accounts should reflect market conditions. But they remain concerned about how the plans will work in practice and worry the proposals will make their profitability appear artificially volatile.
The IASB is considering their responses to a consultation it held in recent months.
The reforms are unlikely to be introduced before 2018.
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FirstGroup deflects spin-off call
FirstGroup’s rejection of break-up proposals from an activist shareholder has received widespread support from analysts.
Sandell Asset Management, a US hedge fund set up by billionaire Tom Sandell, called on Monday for FirstGroup to spin off its US student and contract businesses and sell Greyhound, the US intercity coach business.
It wants proceeds to go towards repaying the debt of the UK-listed transport group and to be reinvested in its UK bus and rail businesses, allowing it to boost returns to shareholders.
But analysts have questioned the proposals from Sandell, which has been building a position in FirstGroup since the summer and currently holds a 3.1 per cent stake.
“It’s difficult to understand why paying down more debt in a standalone Firstgroup UK business is the right thing to do. And actually finding natural buyers for the US businesses may prove more challenging than Sandell anticipate,” says Anand Date, a transport analyst at Deutsche Bank.
Damian Brewer, at RBC Europe, says that there was the risk that any cash value created would leak back to resolving First’s substantial pension deficits, rather than going to shareholders.
Analysts have valued Greyhound at eight to 10 times operating profit of £60m in year to March 2014, putting it at £480m-£600m.
Sandell’s intervention appears timed to coincide with the appointment of a new chairman, John McFarlane, who faces a baptism of fire. His appointment and Sandell’s move have led some analysts to privately question Tim O’Toole’s position as chief executive.
FirstGroup holds a capital markets day in January, when a more detailed picture of their response will be delivered.
Although FirstGroup appears to have the support of most analysts in rejecting Sandell’s proposals, management face the tricky task of keeping investors on board, given that the turnround plan is expected to take several years.
It must first improve the operational performance of its two biggest profit drivers, the UK bus and US school bus operations, with the aim of generating free cash that can then be used to pay down debt.
One of the main challenges management faces in the UK is that it needs to invest to renew its bus fleet in the hope of attracting more passengers, at a time when its fares are already high.
Some of the funds raised from its £615m rights issue this May – which sent the share price plummeting – will be used to finance a £1.6bn investment plan, largely aimed at renewing the bus fleet.
“The management of FirstGroup are trying to execute on a turnround plan at the moment. But this is more of a slow-burn process than a quick fix and could take up to three years,” says Mark Manduca, analyst at Bank of America Merrill Lynch.
Mr Sandell, chief executive of Sandell Asset Management, dismissed FirstGroup’s rejection.
He says: “They don’t understand it yet and are making up excuses as to why the plan wouldn’t work.”
Fellow investors supported the move, he says, adding that he had taken multiple calls from both private equity and strategic buyers expressing an interest.
Other top 10 FirstGroup shareholders, including Majedie Asset Management and Legal & General, declined to comment.
Josh Black, an analyst at the data provider Activist Insight, said the small size of Sandell’s stake would not prevent them from pursuing their objectives. “What’s important is whether they can convince other shareholders.”
He adds: “If Sandell want to take this campaign forward they will have to up the ante a bit, it’s harder in the UK to unseat a board.”
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Buy Rhoen-Klinikum, Fresenius SE Deal Should Close Soon: Equinet 2013-12-12 08:32:13.94 GMT
By Gaurav Panchal Dec. 12 (Bloomberg) -- Equinet says good chance for a closing of hospital portfolio deal with Fresenius SE within next 2 weeks to be a +10% share price trigger vs. limited downside risk. * A good chance for a cartel office approval within the next 2 weeks: Equinet * Even if approval is delayed until Feb., there is only limited downside: Equinet * Says discount of 18% on Rhoen FV quite pronounced, strategic buyer B. Braun seeks to further increase its >15% stake * Reiterates buy, PT EU23.6 * Nov. 27: Fresenius SE confirms original timeline on Rhoen deal closing {NSN MWX8DW6JTSEP <go>} * Fresenius had said majority of transaction would close by year-end
Link to Company News:{RHK GR <Equity> CN <GO>} Link to Company News:{FRE GR <Equity> CN <GO>}
For Related News and Information: First Word scrolling panel: {FIRST<GO>} First Word newswire: {NH BFW<GO>}
To contact the editor responsible for this story: Gaurav Panchal at +44-20-7392-0511 or gpanchal2@bloomberg.net
Mentor adds to Nigeria president’s woes amid missing $50bn
The in-tray of Goodluck Jonathan, Nigeria’s president, has been filling up with some potent mail in recent weeks. In just over 24 hours two letters have leaked, one from the central bank raising questions about the whereabouts of $50bn in oil revenues, the other a broadside from a former head of state, Olusegun Obasanjo.
Both have combined to cast a pall over Mr Jonathan’s presidency at a time of rising political tension and concern over the state of government finances ahead of elections in 2015.
As head of state and leader of the ruling People’s Democratic party, Gen Obasanjo was instrumental in Mr Jonathan’s ascent to the top. He has often argued that it was vital in the interests of preserving Nigeria’s multi-ethnic federation and quelling militancy in the oil-producing Niger delta to prove that someone from that region – Mr Jonathan’s – could reach the top.
But under the heading “before it is too late” he has sent a withering assessment of his protégé’s rule, effectively calling on him in a letter leaked to the media to stand down ahead of the 2015 polls in the interests of party and national unity. Likening the current situation to the dark days in the 1990s when General Sani Abacha’s brutal and corrupt rule stretched Africa’s most populous nation to breaking point, he implies that Mr Jonathan has put ethnic and personal interests above those of the nation.
Over 18 pages, he lists a string of abuses allegedly taking place from billion-dollar fraud in the oil industry to the use of security agencies for political ends. He implores Mr Jonathan to stick to what he says was an original promise not to seek a second term as president.
The issue of his second term has contributed to dividing the ruling party in recent months, prompting a faction of state governors, most of them from the predominantly Muslim north to defect to the opposition. “If on the altar of the party you go for broke, the party may be broken beyond repairs. In such a situation Nigeria as a nation may also be adversely affected, not just the PDP. I wish to see no more bloodshed occasioned by politics,” Gen Obasanjo writes.
Contacted by the FT, the former head of state, who stood down in 2007 after serving two terms as elected president, said he had felt compelled to send the letter out of “serious concern” about the direction in which Nigeria is heading.
Presidential spokespeople contacted by the FT were not on hand to respond. But an ally of the president said: “I don’t know why he has done this. He must be frustrated that he doesn’t have the influence he used to have . . . For him to stand up and be the moral conscience I don’t think too many people will buy into that. I see a lot of people who will call him a hypocrite.”
Separately a letter from the Central Bank of Nigeria suggests that the state oil company has failed to account for nearly $50bn in crude oil sold between January 2012 and July 2013 that should by law have been remitted to government coffers. The alleged shortfall amounts to 76 per cent of crude oil sold by the NNPC and is nearly equal to federal budget expenditure for both years. The NNPC has rejected the allegations.
Lamido Sanusi, the CBN governor, declined to comment on the letter. In it he says he felt obliged to write to the president documenting the “continued failure of the NNPC to repatriate significant proportions of the proceeds of crude oil shipments it made in gross violation of the law.” He wrote that he had been warning the president of this since as far back as 2010.
Mr Obasanjo also refers to 430,000 b/d of oil which he alleges have not been remitted to federal coffers. “Please deal with this allegation transparently and let the truth be known,” he pleads.
Huge shortfalls in oil revenues, which typically account for 80 per cent of government revenue, have periodically come to light in Nigeria’s past. However, the combined sums involved in Mr Sanusi’s calculations and Gen Obasanjo’s allegations dwarf previous controversies over the opaque nature of the oil industry in Africa’s leading producer.
Both letters have surfaced at a time when President Jonathan is under growing public pressure for his perceived failure to tackle corruption and act on the findings of a series of state-sanctioned investigations pointing to gross mismanagement in the oil industry. In a statement, the NNPC denied it had withheld payments and said the CBN’s information was “misleading” and “capable of creating public disaffection.”
“The allegation is borne out of misunderstanding of the workings of the oil and gas industry and the modality for remitting crude oil sales revenue into the Federation Account,” the statement said.
The 24 per cent of total crude oil earnings the CBN acknowledges receiving represents the full amount due from the NNPC’s share of sales, the statement added. The remainder could be accounted for in field development costs as well as from the receipts collected by other government agencies.
Snapchat raises $50m from hedge fund Coatue
Snapchat has raised $50m in new funding from Coatue Management, the hedge fund that has been increasing its investments in Silicon Valley companies over recent months.
The messaging app, which last month turned down a $3bn acquisition offer from Facebook, revealed its fundraising in a regulatory filing on Wednesday. Snapchat confirmed that Coatue, which has previously invested in travel app Hotel Tonight and cloud storage provider Box, was the sole investor but declined to comment further.
A related filing last week suggested that investors valued Snapchat at $2bn in its latest funding round, according to an analysis by VCExperts.com – below the figures mooted for a takeover but more than double its June valuation of $800m.
Snapchat is yet to begin generating revenues but its popularity with tens of millions of users, many of them teenagers, has alarmed Facebook and excited investors.
Users of Snapchat, which allows people to send photos and videos that disappear after 10 seconds or less, are opting not to leave a digital trail of personal information as they might if they were chatting with friends on Facebook.
The addition this summer of Michael Lynton, chairman of Sony Entertainment, to its board and the attracting of new investor Coatue suggests that Snapchat’s young founders, Evan Spiegel and Bobby Murphy, have convinced their backers they can create a lasting business from ephemeral messaging.
The rapid growth of chat apps such as Snapchat, WeChat, WhatsApp Messenger and Line have taken some established social networks by surprise. Earlier this week, Twitter launched a redesigned smartphone app that featured private messaging much more prominently and introduced the ability to send pictures in direct messages.
Facebook, which tried to ape Snapchat with a disappearing messaging app Poke but failed to attract many users, admitted in October that it was seeing a drop-off in usage among younger teenagers. Analysts have cited teenagers as becoming more aware of the risks to future college places or employment of having a trove of embarrassing photographs on their Facebook profile.
Phillipe Laffont, Coatue’s founder and chief executive, said Snapchat’s “incredible scale” attracted it to the company, in spite of its unproven business model. “We think they’re revolutionising how people communicate in a mobile-centric world,” Mr Laffont told Forbes.
Snapchat has now raised a total of more than $120m. Its other investors include Lightspeed Ventures, Institutional Venture Partners and Benchmark Capital.
Coatue was among the contributors to Box’s $100m funding round last week, which valued the company at $2bn.
The appointment of Sony’s Mr Lynton to the board this summer came after he invested about $250,000 in Snapchat last year.
*LIBERTY GLOBAL SAID TO PREPARE RENEWED TAKEOVER BID FOR ZIGGO
m Asian Market Update: RBNZ shifts to a tightening bias; Facebook shares spike upon joining S&P500 Thu, 12 Dec 2013 0:53 AM EST
***Observations/Insights*** - Asian equities continued to lose ground amid speculation that the Fed could begin to scale back its stimulus measures sooner than later. Despite the declines in the US markets, the S&P announced that Facebook was set to replace Teradyne in the S&P 500 index at the close of trading on Dec 20th. Shares of Facebook closed at $49.38 -1.7%, but rose to a high of 52 +5.3% in after-hours trading on the news. - The NZD strengthened on hawkish tones out of the RBNZ after it left the official cash rate at 2.50% (as expected). The central bank said that it would increase the cash rate as needed to maintain average inflation near 2% target midpoint. It had previously stated that a rate hike will likely to be needed next year. - The Australian jobless rate increased to a three-month high of 5.8% for November despite a rise in job numbers with the participation rate steady at 64.8%, the lowest level since October 2006. AUD was briefly higher following a November employment change reading of 21.0k beating expectations, but it quickly reversed gains on risk-aversion and expectations of Fed tapering. - South Korean market fell after the Bank of Korea left its 7-day repo rate steady at 2.50%, as widely expected. Increased volatility in the yen continued to pose considerable risk to the domestic economy.
***Economic Data*** - (NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE UNCHANGED AT 2.50%, AS EXPECTED - (AU) AUSTRALIA NOV EMPLOYMENT CHANGE: +21.0K V +10.0KE (7-month high); UNEMPLOYMENT RATE: 5.8% V 5.8%E - (AU) AUSTRALIA DEC CONSUMER INFLATION EXPECTATION: 2.1% V 1.9% PRIOR (4-month high) - (KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 2.50% (AS EXPECTED); (7th straight pause) - (JP) JAPAN NOV TOKYO AVERAGE OFFICE VACANCIES: 7.5 V 7.6 PRIOR - (AU) AUSTRALIA OCT CREDIT CARD BALANCES (A$): 48.9B V 48.8B PRIOR; CREDIT CARD PURCHASES: 23.0B V 22.0B PRIOR - (NZ) NEW ZEALAND NOV FOOD PRICES M/M: -0.2% V -1.0% PRIOR - (NZ) NEW ZEALAND REINZ NOV HOUSE PRICE INDEX: 3,885 V 3,839 PRIOR; M/M: 1.2% V 1.6% PRIOR; HOUSE SALES Y/Y: -6.6% V +2.1% PRIOR - (JP) Japan investors bought net ¥413.2B in foreign bonds last week vs bought net ¥65.5B in prior week (9th straight week of net purchases); Foreign Investors bought net ¥113.8B in Japan stocks v bought net ¥368.7B in prior week
***Fixed Income/Commodities/Currencies*** - JGB: (JP) Japan's MoF sells ¥2.50T in 0.2% (0.2% prior) 5-yr notes; Avg yield: 0.197% v 0.193% prior; Bid to cover: 4.43x v 5.03x prior - (CN) China National Petroleum Corporation (CNPC) researcher: China natural gas price may rise 77% by 2015; Sees China oil demand to rise 2.5%/yr in 2013-2020 - Chinese press - (CN) China Qinhuangdao coal price rises to CNY605-615/t (9th consecutive rise; highest since mid-June) - (CN) China Iron and Steel Association (CISA) plans to introduce daily price index for imported iron ore in early 2014 - Chinese press - GLD: SPDR Gold Trust ETF daily holdings fall 2.1 tonnes to 833.6 tonnes (lowest since Jan 2009) - SLV: iShares Silver Trust ETF daily holdings fall to 10,208 tonnes (lowest since July 15) from 10,304 tonnes
***Speakers/Political/In the Papers*** - (JP) Japan Pension Fund (GPIF) panel head Ito: Govt should decide on independence of GPIF - (JP) Japan PM Abe cabinet set to approve ¥5.5T extra budget for stimulus measures - Japanese press - (JP) Japan to increase total defense spending to ¥24.4T over the next 5-yr mid-term Defense Program - Kyodo News - (JP) Japan megabanks to allow overseas credit card users to access cash at ATMs - Japanese press
- (CN) China to sell second tranche CNY15B of negotiable certificates of deposits (NCD) for 5 banks on Friday Dec 13th, 2014 - financial press - (CN) PBoC won't conduct open market operations (OMO) in today's session (3rd consecutive session of halted operations); Drains CNY37B this week v drained CNY47B prior (2nd week of net drain) - (CN) China Finance Ministry announces import, export duty adjustments, effective Jan 1st; Over 760 imported goods to be affected
- (NZ) RBNZ Gov Wheeler: Rate must rise by 225bps over the next 2 1/4 year; RBNZ serious about containing inflation - press conf - (NZ) RBNZ Gov Wheeler: RBNZ concerned about house prices; Auckland house price gain is unhealthy - address at Finance and Expenditure Committee - (AU) New South Wales (NSW) announces deficit wider than prior forecast
- (ID) Fitch: Indonesia residential property faces near-term headwinds - (VN) Moody's: Firmer macroeconomic stability supports Vietnam sovereign rating - (TH) Moody's: Thailand political crisis is credit Negative
- (UK) British Chambers of Commerce (BCC): Raises 2013 GDP forecast to 1.4% from 1.3% prior forecast, Raises 2014 GDP to 2.7% from 2.2% prior forecast - (EU) ECB may put in place stricter regulations on sovereign bonds - FT citing ECB's Praet - (EU) EU negotiators said to have reached provisional agreement to impose possible losses on shareholders, bondholders, savers on failing banks form Jan 2016 - financial press - (IT) Italy Govt of PM Letta wins confidence vote in the Senate; as expected
- (US) House panel has cleared bipartisan budget deal for full house vote this week; vote may occur Thursday - financial press
***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 -1.4%, S&P/ASX -1.3%, Kospi -0.7%, Shanghai Composite -0.1%, Hang Seng -0.5%, Dec S&P500 -0.2% at 1,777, Feb gold -0.2% at $1,255, Jan crude oil -0.1% at $97.36/brl
US markets: - HLT: Prices 117M share IPO at $20/shr (as expected) - PRTA: Prothena Enter Into Worldwide Collaboration with Roche to Co-Develop and Co-Promote Antibodies for Treatment of Parkinson's Disease; +7.7% afterhours - FB: *TO BE ADDED TO S&P500 AND S&P100; effective after the close of trading on Friday, December 20; +4.0% afterhours - MW: Reports Q3 $0.90 v $0.87e, R$649M v $627Me; +1.4% afterhours
- AET: Reaffirms FY13 $5.80-5.90 v $5.87e, R$47B v $47.1Be; Guides initial FY14 at least $6.25 v $6.21e, R$53B v $54.9Be - filing; -0.5% afterhours - IAG: Suspends dividend payout (prior was 6.5% yield) to preserve balance sheet; -3.4% afterhours - VRA: Reports Q3 $0.37 v $0.34e, R$130.1M v $129Me; guides lower; -7.7% afterhours - SUNE: Guides Q4 semiconductor materials Rev $209-234M v $234-264M prior; -11.3% afterhours - ATHN: Guides initial FY14 $0.98-$1.10 v $1.37e, R$725-755M v $765Me; Affirms FY13 $1.05-1.15 v $1.03e, R$580-615M v $592Me (prior "at or near the low end" $1.05-1.15); -15.8% afterhours
Notable movers by sector: - Consumer discretionary: Sunvim Group 002083.CN +2.2% (receives govt subsidy); Huayi Brothers 300027.CN +4.9%, Zhejiang Huace Film 300133.CN +9.6%, China Television Media 600088.CN +3.6% (China annual movie box office reaches CNY20B); Shanghai Lansheng 600826.CN +10.0% (approves for SOE restructure) - Industrials: Kanamoto Co Ltd 9678.JP +2.3% (FY12/13 results); Doosan Heavy 034020.KR -4.6% (to sell treasury shares); Chengdu Road & Bridge Engineering 002628.CN +0.9% (awarded contract); Jiangsu WELLE Environmental 300190.CN +1.7% (awarded contract) - Materials: Nitto Denko Corp 6988.JP -18.3% (FY13/14 guidance) - Financials: Cinda Asset Management 1359.HK +29.9% (IPO) - Technology: Pegatron Corp 4938.TW -1.1% (working safety concerned) - Energy: Kingdream 000852.CN +3.1%, Shandong Molong Petroleum Machinery 002490.CN +4.3% (China Qinhai province finds shale gas) - Utilities: Envestra Ltd ENV.AU +1.0% (FY14 guidance)