>>> Repsol could accelerate disposals opportunistically or to keep IG rating

Repsol could accelerate disposals opportunistically or to keep IG rating 

* FFO leverage falling to 3x could be downgrade trigger
* Hybrid bonds possible if quickfire solution needed
* Indonesian assets eyed if Repsol opts for speedy sale

Repsol [BME:REP] could accelerate its disposal programme if it crosses interesting opportunities or its investment grade rating comes under threat, said a person familiar with and two bankers briefed on the situation.

Assuming announced sales close without any hitches, the Spanish oil company will have raised EUR 2.8bn from disposals, or 90% of its target of EUR 3.1bn for 2016-2018, said the person. This figure is also 45% of the company’s total disposal target of EUR 6.2bn by 2020.

If any rating agencies motioned towards cutting the Madrid-based company’s rating below investment grade, it would be likely to move quickly and aggressively, said the person and the bankers. Repsol’s three rating agencies confirmed its debt to be investment grade in March, although it is towards the lower end of the scale.

Standard & Poor’s (S&P) has Repsol’s short-term and long-term rating in the lowest category for investment grade, with A-3 and BBB-, respectively. Fitch Ratings has its short-term debt in the lowest category, with F-3, while its long-term debt is a notch higher at BBB. Moody’s places Repsol’s short-term debt at P-2, away from the floor, while its long-term debt is Baa2, just above its lowest category.

Triggers for a lower rating in the future include Repsol's adjusted funds from operations (FFO) leverage ratio slipping towards 3x, said a second person, briefed on Fitch’s rating. The agency is predicting this ratio to total 3.6x in 2016 and 3.3x in 2017, dipping below 3x in 2018. It was 4.4x in 2015. Another trigger would be an FFO fixed charge cover of 6x or below on a sustained basis, this person added.

No country exits are imminent, said the first person, adding that the company constantly evaluates a long pipeline of possible deals. The company is unlikely to make any substantive moves in the months ahead unless circumstances change, said the first banker.

If Repsol needed to make a quick move, it would consider a hybrid issuance, the first person said.

From its asset portfolio, Indonesian activities would jump to the top of the list of possible divestments if the group decided to move speedily, the first person added. Its minority stake in Tangguh LNG, a large liquefied natural gas (LNG) project, would be a likely candidate in this scenario, this person said.

The company hired Goldman Sachs to identify assets in Asia-Pacific, according to local press in November. A later report said Repsol’s 3.1% stake in Tangguh LNG could be worth around USD 300m (EUR 263m). If this price is confirmed, it would bring Repsol close to its 2018 disposal target.

Repsol also has stakes in 11 upstream blocks in Indonesia, as well as a joint venture with PT Sukabumi Trading to distribute lubricant oils. In October 2015, Repsol said it could exit countries or businesses with high levels of costs.

The Spanish oil major agreed to sell its liquefied petroleum gas (LPG) assets in Peru and Ecuador to Chilean company Abastible for USD 335m in April. The deal is expected to close in the months ahead. The sale of the LPG business was the company’s highest priority, this news service reported at the end of last year.

In February, the company agreed to sell its offshore wind power business in the UK to SDIC Power of China for EUR 238m. The assets were non-strategic, Repsol said at the time.

The underlying logic of the divestment programme, which is equivalent to 38% of Repsol’s market capitalization of EUR 16.3bn, is to focus on assets that are not linked to the oil price. The sales span downstream, midstream and upstream assets and are being designed to help the company improve its competitive position.

A spokesperson for Repsol declined to comment.

>>> Saft/Total deal struck following one-on-one talks begun weeks ago - sources

Merger Market

Saft/Total deal struck following one-on-one talks begun weeks ago - sources
Talks for the takeover of Saft Groupe’s [EPA:SAFT] by Total [EPA:FP] came as a result of direct negotiations, said a person familiar and two sources briefed on the matter.

Saft did not run a sale process, they said, arguing that the target’s strong financial health meant it did not need to sell.

Executives at the companies began preliminary discussions on the industrial logic of a combination a few weeks ago, the person and first source said. The board recently decided to recommend the offer to shareholders based on the proposed 38% premium and the opportunity to have Total’s financial backing to invest in innovation, the person added.

It is unclear if other industry players will register interest in Saft following the deal announcement, the person and first source said.

The deal values Saft at a full multiple likely to please shareholders, they said. The companies valued the tender offer at approximately 9x EBITDA in their joint news release. Few bidders would be eager to engage in a potential bidding war with a deep-pocketed rival like Total, the person noted.

Synergies from Saft’s battery operations and Total are likely to be focused on the commercial and marketing areas, the person added. Many of Saft’s industrial customers outside of energy might have a stronger strategic logic to integrate their supplier, the first source and person said.

The French oil major yesterday (9 May) announced plans to launch a friendly tender offer for Saft shares valuing the industrial battery producer at EUR 950m excluding debt. The deal is expected to catalyze Total’s renewables growth and build on its 2011 acquisition of a majority stake in solar panel maker SunPower [NASDAQ:SPWR] for USD 1.3bn.

Timing for the tender offer’s launch is being driven by French financial markets’ regulator the AMF’s review process, the person said. The person estimated the launch could occur in coming weeks, ahead of summer. The offer, which was submitted to the AMF on 9 May, is expected to open on 2 June and close on 19 July, according to the indicative timetable.

The offer also needs to be notified to the relevant authorities in the European Union, the US, Russia and a few other jurisdictions, the offer document stated. However, the decision of these authorities does not constitute a condition precedent of the closing, the document said.

Spokespeople for Saft and Total declined to comment.

(GS) Japan: Any Questions?

Technical bounce or something more? Policy is perplexing, the currency is a conundrum but there’s still a standalone case for equities. Tackling from the top down – from policy to positioning, buybacks to banks, small caps to meta themes:

1) Where does policy go from here? Fiscal and Monetary. Given data remains disappointing and approaching July elections, we expect the government to announce a fiscal stimulus package around the timing of the G7 summit at end-May. Monetary policy timing harder to call, base case is July MPM.

2) Where next for the currency? Higher. Over the longer term we stick to our view JPY will ultimately go a lot higher, and from the perspective of the Fed, the USD has bottomed. Our favourite expression of this is $/JPY upside over a 3- to 6-month window.

3) What’s the top down picture for equities? Neutral near term. But a resumption of earnings momentum, stimulative macro policies, and domestic buying, especially among small/mid-caps should drive a medium-term recovery, TOPIX 12m target 1,550, implying 16% upside.

4) How’s positioning? Still Underweight. International equity mutual funds’ Japanese equity weightings have not changed markedly since end-2015 at around 6% underweight vs. benchmark. Most sales appear to be coming from longer-term investors like European pension funds.

5) Buybacks still strong in 2016? Yes and potentially at a new high. The market’s correction this year has prompted a surge in buybacks, with 168 firms announcing buybacks worth ¥2.2 tn YTD (as of March 29), up 221% yoy. For FY2016, we project a 26% yoy increase to ¥7.4 tn (on a cash flow basis).

6) Earnings so far? Overall results have been disappointing, with more misses than beats, and fairly cautious guidance. GS earnings revisions have been stronger going down than up.

7) Big banks report next, what do you expect? There’s little incentive to issue bullish guidance given the backdrop of negative rates – will their impact be spread evenly over next three years as we assume, and is there any progress in strategic share sales.

8) Small caps have outperformed strongly, can it go on? Yes, mainly due to better earnings growth prospects relative to large caps. They also have greater reliance on domestic demand with less sensitivity to the Yen and less vulnerability to foreign selling.

9) Three year view – earnings have doubled, valuations fallen – fair? Unfair. We see valuation anomalies in exporters like Toyota and Fujitsu and defensives like Adastria and NRI, search for dividend yield in Astellas and Bridgestone, and favor banks like SMFG and Resona.

10) Go long – what structural themes are Japanese firms leading in? 10 themes, 25 buy ideas. e.g., advancing governance (Yamato), inbound tourism (Zojirushi), Biotech solutions (ReproCell), Tech winners (Nidec), Cars 2025 (Aisin), Emerging innovators (Yonex), Robots migration (Yaskawa Electric).

(ZeroHedge) With A Historic -150% Net Short Position, Carl Icahn Is Betting On A

With A Historic -150% Net Short Position, Carl Icahn Is Betting On An Imminent Market Collapse

Over the past year, based on his increasingly more dour media appearances, billionaire Carl Icahn had been getting progressively more bearish. At first, he was mostly pessimistic about junk bonds, saying last May that "what's even more dangerous than the actual stock market is the high yield market." As the year progressed his pessimism become more acute and in December he said that the "meltdown in high yield is just beginning." It culminated in February when he said on CNBC that a "day of reckoning is coming."
Some skeptics thought that Icahn was simply trying to scare investors into selling so he could load up on risk assets at cheaper prices, however that line of thought was quickly squashed two weeks ago when Icahn announced to the shock of ever Apple fanboy that several years after his "no brainer" investment in AAPL, Icahn had officially liquidated his entire stake.
As it turns out, Icahn's AAPL liquidation was just the appetizer of how truly bearish the legendary investor has become.
* * *
As readers will recall, when it comes to what we believe is one of the world's most bearish hedge funds, we traditionally highlight the net exposure of Horseman Global, which not only has been profitable for the past four years, it has done so while running a net short book. To the point, as of March 31, Horseman was net short by a record 98%.

As it turns out this was nothing compare to Icahn's latest net exposure.
In the just disclosed 10-Q of Icahn's investment vehicle, Icahn Enterprises LP in which the 80 year old holds a 90% stake, we find that as of March 31, Carl Icahn - who subsequently divested his entire long AAPL exposure - has been truly putting money, on the short side, where his mouth was in the past quarter. So much so that what on December 31, 2015 was a modest 25% net short, has since exploded into a gargantuan, and unprecedented for Icahn, 149% net short position.

This is the result of a relatively flat long gross exposure of 164% resulting from a 156% equity and 8% credit long (a combined long exposure which is certainly far lower following the AAPL liquidation), and a soaring short book which has exploded from 150% as of March 31, 2015 to a whopping 313% one year later, on the back of 277% in gross short equity exposure and 36% short credit.

Putting this number in context, in the history of IEP, not only has Icahn never been anywhere near this short, but just one year ago when he first started complaining about stocks, he was still 4% net long. Thos days are gone, and starting in Q3 and Q4, Icahn proceeded to wage into net short territory, with roughly -25% exposure, a number that has increased a record six-fold in just the last quarter!
What is just as notable is the dramatic leverage involved on both sides of the flatline, but nothing compares to the near 3x equity leverage on the short side (this is not CDS). As a reminder, Icahn Enterprises used to be run as a hedge fund with outside investors, but Icahn returned outside money in 2011, leaving IEP and Icahn as the two dominant investors. According to Barron's, the entire fund appears to be about $5.8 billion, with $4 billion coming from Icahn personally. Which means that this is a very substantial bet in dollar terms.
When asked about this unprecedented bearish position, Icahn Enterprises CEO Keith Cozza said during the May 5 earnings call that "Carl has been very vocal in recent weeks in the media about his negative views." He certainly has been, although many though he was merely exagerating. He was not.
"We’re much more concerned about the market going down 20% than we are it going up 20%. And so the significant weighting to the short side reflects that," Cozza added.
Icahn was not personally present at the conference call, however now that his bet on what is arguably a massive market crash has become public, we are confident he will be on both CNBC and Bloomberg TV in the coming days if not hours, to provide damage control and to avoid a panic as mom and pop investors scramble, and wonder just what does one of the world's most astute investors see that they don't.