insto - Australian financial markets

Queensland coal explorer Endocoal hopes to raise $17 million in an IPO to explore for coal in the Bowen Basin region. The company has 10 tenements covered 5000 square kilometres.

2009. Three consecutive rate rises, record deal volumes, diverse issuers, and significant credit spreads. We saw the debut of government guaranteed issuance and semi-government syndicated transactions. We saw true corporate bonds and the rediscovery of retail funding channel. Australia proved that it can have a ferocious and healthy bond market, Sonia Han reports.

Mark Johnson chaired the Australian Financial Centre Forum’s report “Australia as a Financial Centre: Building on our Strengths” which was released for discussion in January. The report made 19 specific recommendations to the government, from tax reform to changes to corporate bond structures, designed to facilitate growth in the financial sector, and a greater inter-reaction with Asian markets. Mark Johnson spoke with Insto soon after the report was released.

Chris Weston, from the institutional dealing desk at IG Markets, filed these comments to sum up the week’s action on local and regional equities markets:

Across Asia, regional indices are all lower after the weak session we saw on European and US markets overnight. Comments from Fitch Ratings that Chinese banks’ capital positions may be more strained than they appear due to the increasing use of off-balance sheet transactions are also weighing on the region. The Shanghai Composite is the worst performer in the region, lower by 1.4 per cent while the Hang Seng is weaker by 0.8 per cent. The Nikkei 225 is also down on the session.

In Australia the ASX 200 closed down 0.4 per cent at 4650, well off its earlier lows of 4604. Losses came predominantly from the materials, telecommunications and financial sectors while the energy and healthcare sectors offered some support.

The US private placement market is on the rebound and Australian corporates are viewed favourably by investors, according to the National Australia Bank’s New York-based head of PP.

Geoff Schmidt is head of US Private Placements for NAB and says the market balance has changed in the last part of 2009 to the advantage of issuers as spreads have narrowed from “in excess” of 500 basis points to around 200 today.

“Spreads were very, very wide for the first half of 2009 and that created some issuer reluctance, so there was a dearth of deal flow for the first six months of the year,” Schmidt told Insto on a visit to Sydney last week.

The weekly headlines from this week’s Thomson Reuters “Investment Banking Scorecard” include the following:

Automotive stakes total US$11.2 billion: Powered by Germany's Volkswagen AG, the volume of minority stake purchases in automotive manufacturers totals US$11.2 billion for year-to-date 2009, the biggest year on record. In this week's biggest deal, Volkswagen secured a 19.9 per cent stake in Japanese automobile maker, Suzuki Motor Corp, valued at US$2.5 billion. Volkswagen's 49.9 per cent stake in German rival, Porsche was valued at US$5.8 billion and completed on December 7th. Year-to-date, worldwide M&A activity in the industrials sector totals US$244.3 billion, a 9 per cent increase over last year at this time.

A couple of private placements from the past week that are worth noting:

Sonic Healthcare has priced US$250 milliom of notes in the US private placement market. Close of the transaction is expected in mid January 2010.

Proceeds of the note offer will be used to repay existing bank debt, and the notes will lengthen Sonic's debt maturity profile.

US stocks rose on positive economic news, while a weakening dollar gave commodities a boost. Near the close, the Dow was trading at 10,472 (up 127 pts, or +1.22 per cent); with the Nasdaq up 31 to 2,176 (+1.46) and the S&P 500 up 1.2 per cent.

Hopes rose that the Dubai World crisis will be contained, with news overnight (US time) that the Middle East conglomerate was “in the process of restructuring” US$26bn in debt. Although no details were given, this is much less than the US$59 bn originally mentioned. Part of the rise was on the back of several pieces of good news – US established home sales rose again for the fourth consecutive month; and the US ISM manufacturing index printed at 53.6 per cent (down from 55.7 per cent in October), indicating overall growth among US manufacturing firms.

Robert Dunn, CEO of Opportunity International Australia, takes a business approach to a massive social problem. He spoke to Janette Wajs-Chaczko about delivering financial expertise to 1.8 million of the world’s poorest people.