something to smile about? - Euromoney Institutional Investor PLC

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conducted an internalinvestigation into Tyco. Incourt it was a different story.Swartz claimed the $100million paid in bonuses wasearly payment of annualbonuses that Kozlowski hadtold him had been approvedby board member PhilHampton (deceased). Sixformer Tyco directors – allvery much alive – say theynever approved them.»The butterfly-effect ofcorporate scandals has nowmade its way to thecorridors of the big fouraccountancy firms. A surveyhas revealed the firms arequietly divesting themselvesof their riskiest corporateclients. The prominence ofsmaller companies in theranks of the culledcorporates from theportfolio’s suggests thatthey may be more willing totake on risk when the auditfees are far larger.Oops, silly usCF would like to apologise toNeil and Neal. You really dolook nothing alike:Neil Preston, companysecretary, Punch TavernsNeal Neilinger, DresdnerKleinwort WassersteinAFRICAThe South Africangovernment has announcedan easing of its exchangecontrols, which will allowforeign firms to access itsstock and bond markets.The JSE has been hit byfalling trading volumes soforeign firms will soon beallowed to list on SouthAfrican capital markets toraise debt and equity financeon the JSE SecuritiesExchange and the BondExchange.»The Ghanaian parliamenthas approved AngloGold’s$1.55 billion all-sharetakeover offer for AshantiGoldfields after theopposition boycotted thevote, saying the deal willreduce the government’sstake below the 10% levelset by legislation. Ashanti’sboard approved the mergerdespite receiving animproved offer of a €1.6billion share swap fromsmaller South Africanmining group Randgold.»South African oil and gasgroup Sasol and Malaysia’sPetronas have agreed amerger between Sasol’sLiquid Fuels Business andEngen, 80% owned byPetronas. The merger will bea joint venture, with eachcompany holding a 37.5%stake. The remaining 25%will be held by blackpartners - as required underSouth Africa’s BlackEconomic Empowermentrules. This includesWorldwide AfricanInvestment Holdings,which owns 20% of Engen,and former shareholders ofExel, a liquid fuels companythat merged with Sasol inDecember 2004.Top Telecoms GroupsRank Company Home Country Mobile Subscribers(million)1 China Mobile China 153.62 Vodafone UK 118.93 China Unicom China 86.64 Cingular/AT&T Wireless US 67.15 Deutsche Telekom Germany 65.86 NTT DoCoMo Japan 50.87 France Telecom France 41.98 America Movil Mexico 36.79 Telefonica Spain 29.910 Verizon US 28.8Source: FTWhat’s happened tothe telecoms sector?A month ago the telecomssector was bobbing alongquite nicely, then bam!All hell breaks loose.First up was the bustlingfor position in the AT&TWireless deal. CingularWireless and Vodafoneboth made plays for thecompany, but Cingularsnatched AT&T last-minutewith a bid for $41 billion –one of the largest cashtransactions in history –making it the fourth largesttelecoms group in theworld (see box).Vodafone claims it wasprudent to walk away fromthe auction but rumoursabound of its executivesbeing in bed asleep whenthe deal was struck andalso that loose tongues inthe Vodafone camp blastedits offer from the water (itis alleged Vodafone toldreporters that the Vodafoneboard were going toapprove a bid of $14.50 pershare; Cingular got hold ofthis information and heypresto a bid of $15 pershare). What’s thatexpression? Careless talkcosts acquisitionopportunities.»February also saw Belgianincumbent telecomscompany Belgacom putthe finishing touches to itsIPO. The €3.5 billion ($4.4billion) share sale will bethe largest IPO in Europe inthe last three years.»France Telecom gotround to launching an offerto buyout the remaining29.4% of Wanadoo, itsdirectories and internetservices division. The €3.9billion offer is awaitingWanadoo’s approval.»XO Communications,which emerged fromChapter 11 a year ago,unveiled plans to acquireother distressed telecoms.The company has just wonan auction for the bulk ofAllegiane Telecom’s assetsfor $628 million.»China Telecom may raiseas much as $3 billionthrough a share placing tofund the acquisition of 11regional telecom networksfrom its state-owned parentcompany, which would add45 million users to itssubscriber base.corporatefinancemag.com March 2004 cf 5
MARKETFOCUSStrike whilehigh yield’s hot»Issue volume hit €16.6billion in 2003»Move from refinancingactivity to find M&AThe high yield market inEurope was the turnaroundstory of 2003. New issuevolume hit a record high of€16.3 billion after amiserable two years. Whatcan issuers expect this year?Standard & Poor’s saysthat prospects of a cyclicalrecovery, a continuedaccommodative monetarypolicy stance, decliningdefault rates, and aslowdown in credit qualitydeterioration in theEuropean high yield marketwill mean that corporatesshould have strongconditions in which to issuein – though S&P also notesthat corporate downgradescontinue to be substantiallyhigher than upgrades.“Conditions remainfavourable in Europe,” saysDiane Vazza, managingdirector in global fixedincome research at S&P inNew York. “Monetary policyis really helping to keep itthat way.” StephaneTremelot, head of creditsyndicate at BNP Paribas inLondon, agrees that “slow[erthan expected] economicgrowth in the eurozone andthe dollar/euro exchangerate mean that it is unlikelythat the ECB will raise ratesin the short term. Thatmeans that there is anopportunity for issuers tobenefit from issuing bondswith low yields.”Even if rates do rise, itdoesn’t necessarily spell anend to issuance, accordingto Nicholas Coates, head ofhigh yield at RBS in London.“Some issuers may makeopportunistic moves to dodeals before rate rises takeplace but issuers can alwaysuse the swap market to getcomparatively lowerfloating rates.”While spreads in the UShigh yield market havewidened by around 8bpsince the beginning of theyear, in Europe they havecontinued to tighten and arearound 38bp tighter than atthe end of 2002, accordingto Tremelot. Indeed, theaverage absolute yield forEuropean issues remainslower in Europe at 7.44%than in the US at 7.87%.Some market observersfear that Europe is about tosuccumb to the problemstroubling the US market,where fund flowsinformation provider AMGData Services has reportednet outflows from highyield funds in the US forthree of the four weeks toFebruary 25. While theseoutflows are specific – andthus far isolated – to USfunds, their impact is morewidely felt: many of thosefunds also invest in theEuropean market; andtrends in the US high yieldmarket frequently pre-emptthose in Europe.Nevertheless, S&P’s Vazza– and most market observers– say that this is just ahiccup. “Investor demand isstill there but there has beena realisation that corporatespreads have tightened toofast compared to creditquality and that there was aneed to set that right.”Coates adds: “Whilst theEuropean high yield markethas softened over the pastmonth, we believe this to bea temporary phenomenon: acorrection to a bullishmarket. The long-term trendis for increased liquidity inEurope and demand willremain strong as fundscontinue to flow into themarket.” More bullishcommentators say that thesoftening of the market hasresulted from investorsselling bonds in order tohave cash to respond to theexpected deluge of newissuance expected.Either way, no-oneexpects the high yieldmarkets in Europe toflounder this year. IssuanceYTD has been limited –around €2 billion from 10deals compared to $25billion from around 100deals in the US – but BNPParibas’ Tremelot says thatthis is common for thisperiod of the year. “Unlikethe high grade world Januaryand February are quietmonths as issuers and banksprepare new transactions.”While it is impossible toknow if we are at thebottom of the credit cycle,all the indicators show thatthe economy is improving,credit quality is improving,and investor demand isn’tabout to collapse.And while all thesefactors may be pullingissuers to the high yieldmarket, the long-termstructural trend of reducedbank lending – not leastbecause of Basel II – is alsopushing issuers toward it.“European corporatesincreasingly view thehigh yield product as amainstream financingtool.”Nicholas Coates, RBS“Banks have become muchmore focused on the riskadjusted returns of theircredit provision and areoften less resistant than theyhave been in the past tocorporates diversifying theirsources of funding awayfrom the bank market,” saysRBS’s Coates. “That is asignificant change.”Who’s issuing?The high yield market hastraditionally been driven bythree sources of issuance –leveraged buyouts (LBO),telecom, media andtechnology (TMT) andgeneral corporate issuance.“For the first time thesethree components of theprimary high yield marketin Europe will produce dealssimultaneously this year.That means that we canexpect a strong level ofissuance,” says Coates.LBO issuance is expectedto provide a quarter of themarket in 2004 while TMTissuance should match lastyear issuance of almost €6billion. But the key to thepotential market growth iscorporate issuance.One of the main reasonsfor the growth of theEuropean high yield marketin 2003 was issuance fromfallen angels – issuers thathave fallen to speculative(rated BB+ and below by S&Pand Ba1 by Moody’s) frominvestment grade (BBB- andabove by S&P and Baa3 byMoody’s). Of the total €16.3billion raised in Europe,fallen angels accounted for6 cf March 2004 corporatefinancemag.com
Page 1 and 2: The magazine forthe internationalfi
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Page 8 and 9: €6.4 billion or 40%. S&Ppoints ou
Page 11 and 12: Global consolidationefforts set to
Page 13 and 14: Follow-ons by Indian Issuers 01/01/
Page 15 and 16: Crudele strikes a chordwith Gibson
Page 17 and 18: ProxyMed recruitshealthcare veteran
Page 19 and 20: It is fair to say that France Telec
Page 21 and 22: TREASURER’SVIEWGetting to grips w
Page 23 and 24: Top 25 Japan (by market value)Compa
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Page 27 and 28: offered a cash dividend of €4.7 a
Page 29 and 30: MANAGING RISKFX FORECASTER OF THE Y
Page 32 and 33: What acorporateneedsThe modern corp
Page 34 and 35: Norbert Mayer, BMW: “Commercialpa
Page 36 and 37: Weatherfordchooses loanflexibility
Page 38 and 39: JT InternationalJT Internationalann
Page 40 and 41: Glasgow School of Art: part ofGlasg
Page 42 and 43: EMEA ECM SECTORSPREADS ‘03 & ‘0
Page 44 and 45: FXFORECASTS10-year benchmark long-b

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