By WILL CONNORS and MICHAEL ALLENWARRI,
Nigeria -- Militants attacked two installations operated by Anglo-Dutch oil giant Royal Dutch Shell PLC in the Niger Delta on Monday, sending world oil prices higher and complicating government efforts to bring peace to the region.
Two oil-well clusters supplying Shell's Forcados oil-export terminal in Delta State were bombed by militants, spokesmen from Shell and the Nigerian military confirmed, just days after Nigerian President Umaru Yar'Adua unveiled an amnesty offer to militants.
"Some production has been shut in as a precautionary measure, while we investigate to determine what really happened," a Shell spokesman said. He didn't specify the amount affected by the bombings.
Another oil-company manager based in the region said the effect was severe, closing down at least 100,000 barrels a day in exports in Shell's western Delta region and further crimping Nigeria's oil output.
"We can't produce because we don't know what it did to the infrastructure, " the manager said. "It's pretty catastrophic, both financially and environmentally.
"On Monday, crude oil closed at the highest point in 2½ weeks, as traders reacted to supply threats. Light sweet crude for August delivery settled at $71.49 a barrel, up 3.4% on the New York Mercantile Exchange
Monday, June 29, 2009
Sunday, June 28, 2009
Kim Eng Indonesia Equity Daily, 29 Jun 09
Our Comment
The new President Director of IndonesiaStock Exchange Ito Warsito proposes to require all bank debtors with loan morethan Rp500b to list its shares in the bourse. He views the move will increase transparency and supervisory towards the debtors. Mr Warsito plans to discuss the plan with Bank Indonesia .
After a long meeting last Friday, Bumi´s shareholders approved management´s plan to pledge its assets as collateral, including shares inKPC and Arutmin. We highlight the risks of losing KPC and Arutmin, if thingsare not going in line with the management´s plan.
Farallon Capital Management sold its remaining 4.05% stake (986m shares) in BCA last Friday at Rp3,425/share or total Rp3.38t. The media reported Farallon soldits shares to some institutional investors, but not to Alaerka Investment Ltd,its partner in Farallon Indonesia (Farindo) Investment. Alaerka is a fund controlled by Djarum Group, which currently owns approximately 47% stake in BCA.
By - Ricardo Silaen
Highlights
o BumiResources (HOLD): AGM result
o SemenGresik (HOLD): Rp215 DPS (Yield=4.1%)
o Bakrie& Brothers: Consider to divestmetal units
o BCA: Farallon divested 4.05% ownership
o BankEksekutif: In a potential acquisition
From our chartist desk
o IDX: We see IDX still shows positive histogram on MaCD12-26 day, and reversal on middle line of Bollinger band 20-day. In terms of volatility, we should expect a wide swing trading opportunity. Today´s tradingrange is between 1965-2004-2022 (support) and 2062-2083-2123(resistance) .
o PTBA: The stock price shows a strong buying volume. We think the price would to continue rally, according to positive crossover momentum signal. TRADING BUY
o TLKM: We decide to pick TLKM because the price was successfully above MA 14, 20 and 25 day. We set target price of Rp7750 in near term. TRADING BUY
The new President Director of IndonesiaStock Exchange Ito Warsito proposes to require all bank debtors with loan morethan Rp500b to list its shares in the bourse. He views the move will increase transparency and supervisory towards the debtors. Mr Warsito plans to discuss the plan with Bank Indonesia .
After a long meeting last Friday, Bumi´s shareholders approved management´s plan to pledge its assets as collateral, including shares inKPC and Arutmin. We highlight the risks of losing KPC and Arutmin, if thingsare not going in line with the management´s plan.
Farallon Capital Management sold its remaining 4.05% stake (986m shares) in BCA last Friday at Rp3,425/share or total Rp3.38t. The media reported Farallon soldits shares to some institutional investors, but not to Alaerka Investment Ltd,its partner in Farallon Indonesia (Farindo) Investment. Alaerka is a fund controlled by Djarum Group, which currently owns approximately 47% stake in BCA.
By - Ricardo Silaen
Highlights
o BumiResources (HOLD): AGM result
o SemenGresik (HOLD): Rp215 DPS (Yield=4.1%)
o Bakrie& Brothers: Consider to divestmetal units
o BCA: Farallon divested 4.05% ownership
o BankEksekutif: In a potential acquisition
From our chartist desk
o IDX: We see IDX still shows positive histogram on MaCD12-26 day, and reversal on middle line of Bollinger band 20-day. In terms of volatility, we should expect a wide swing trading opportunity. Today´s tradingrange is between 1965-2004-2022 (support) and 2062-2083-2123(resistance) .
o PTBA: The stock price shows a strong buying volume. We think the price would to continue rally, according to positive crossover momentum signal. TRADING BUY
o TLKM: We decide to pick TLKM because the price was successfully above MA 14, 20 and 25 day. We set target price of Rp7750 in near term. TRADING BUY
Monday, June 22, 2009
Blavatnik to sue JPMorgan over investment losses
June 22 (Reuters) - U.S. billionaire Len Blavatnik is planning to file a lawsuit against JPMorgan Chase (JPM.N) on Monday, accusing the bank of mismanaging an investment account that held $1 billion in assets owned by Blavatnik's industrial holding company, Access Industries, the New York Times said.
In the proposed lawsuit, Blavatnik's lawyers blame Ted Ufferfilge, a JPMorgan banker advising Access, for losing $98 million of the company's money betting on risky subprime mortgage securities, according to the paper.
The proposed lawsuit contends that Ufferfilge told Access that its funds were being invested in conservative instruments, not securities that wound up at the center of the American mortgage crisis, the paper said, citing a draft of the complaint prepared by the law firm Quinn Emanuel Urquhart Oliver & Hedges.
An Access spokesman told the paper that JPMorgan bought the subprime securities for Access "at a time when the bank itself was unwinding its positions in similar investments. "JPMorgan intends "to defend this matter vigorously", a spokeswoman for the bank told the paper. "We believe this lawsuit is meritless and a transparent attempt to recover losses resulting from the unprecedented market downturn," she told the paper.
The bank has hired the law firm Paul, Weiss, Rifkind, Wharton & Garrison to represent it in the case, the paper added. JPMorgan and Access Industries could not be immediately reached for comment by Reuters. (Reporting by Chakradhar Adusumilli in Bangalore; Editing by Muralikumar Anantharaman)
© Thomson Reuters 2009 All rights reserved
In the proposed lawsuit, Blavatnik's lawyers blame Ted Ufferfilge, a JPMorgan banker advising Access, for losing $98 million of the company's money betting on risky subprime mortgage securities, according to the paper.
The proposed lawsuit contends that Ufferfilge told Access that its funds were being invested in conservative instruments, not securities that wound up at the center of the American mortgage crisis, the paper said, citing a draft of the complaint prepared by the law firm Quinn Emanuel Urquhart Oliver & Hedges.
An Access spokesman told the paper that JPMorgan bought the subprime securities for Access "at a time when the bank itself was unwinding its positions in similar investments. "JPMorgan intends "to defend this matter vigorously", a spokeswoman for the bank told the paper. "We believe this lawsuit is meritless and a transparent attempt to recover losses resulting from the unprecedented market downturn," she told the paper.
The bank has hired the law firm Paul, Weiss, Rifkind, Wharton & Garrison to represent it in the case, the paper added. JPMorgan and Access Industries could not be immediately reached for comment by Reuters. (Reporting by Chakradhar Adusumilli in Bangalore; Editing by Muralikumar Anantharaman)
© Thomson Reuters 2009 All rights reserved
Soros: Worst of global crisis is over
Published: 2009/06/22
BILLIONAIRE hedge fund manager George Soros said the worst of the global financial crisis is over, and called for new international regulations to maintain open markets.
"Definitely, the worst is behind us," Hungarian-born Soros said in an interview yesterday with Polish television station TVN24.
He called the crisis the most serious in his lifetime, adding, "This is the end of an era. The question is what's going to come out of it in the future.
"Without new international regulations, "globalisation will fall apart," possibly spawning a system of "state capitalism" like the one that exists in China, he said.
Soros, who recently returned from China, said the world's third-largest economy is "growing in strength" because the country was relatively unaffected by the crisis. -- Bloomberg
BILLIONAIRE hedge fund manager George Soros said the worst of the global financial crisis is over, and called for new international regulations to maintain open markets.
"Definitely, the worst is behind us," Hungarian-born Soros said in an interview yesterday with Polish television station TVN24.
He called the crisis the most serious in his lifetime, adding, "This is the end of an era. The question is what's going to come out of it in the future.
"Without new international regulations, "globalisation will fall apart," possibly spawning a system of "state capitalism" like the one that exists in China, he said.
Soros, who recently returned from China, said the world's third-largest economy is "growing in strength" because the country was relatively unaffected by the crisis. -- Bloomberg
Roubini: There will be a SIGNIFICANT market correction
The price of oil, which is rising too fast, and long-term interest rates that are beginning to creep up are likely to suppress a budding recovery, famous economist Nouriel Roubini, also dubbed "Dr. Doom," told CNBC Monday.
"I see even the risk of a double-dip, W-shaped recessionÂ… towards of the end of next year," Roubini told "Squawk Box Europe."
"Oil could be closer to $100 a barrel towards the end of this year, this could be a negative shock to the economy," he said, adding that other dangers come from long-term interest rates and big budget deficits.
In the next few months, unemployment may reach 11 percent in the US and around 10 percent in Europe.
"There will be a significant market correction" in the coming months, as economic data will offer negative surprises, he said.
In Europe, the dangers came both from its weak economy and from exposure of Western European banks to Eastern European economies, he said. But protectionism is not an answer, Roubini warned.
"The reality is that too much protection would be dangerous," he said.
"In Europe there is a risk that even the single market is breaking down because of protectionism, let alone the rest of the world," Roubini added.
With reporting by Stephane Pedrazzi in Paris.
"I see even the risk of a double-dip, W-shaped recessionÂ… towards of the end of next year," Roubini told "Squawk Box Europe."
"Oil could be closer to $100 a barrel towards the end of this year, this could be a negative shock to the economy," he said, adding that other dangers come from long-term interest rates and big budget deficits.
In the next few months, unemployment may reach 11 percent in the US and around 10 percent in Europe.
"There will be a significant market correction" in the coming months, as economic data will offer negative surprises, he said.
In Europe, the dangers came both from its weak economy and from exposure of Western European banks to Eastern European economies, he said. But protectionism is not an answer, Roubini warned.
"The reality is that too much protection would be dangerous," he said.
"In Europe there is a risk that even the single market is breaking down because of protectionism, let alone the rest of the world," Roubini added.
With reporting by Stephane Pedrazzi in Paris.
Wednesday, June 17, 2009
The three steps to financial reform
Financial Times, Wednesday, 17 June 2009 - By : George Soros
The Obama administration is expected today to propose a reorganisation of the way we regulate financial markets. I am not an advocate of too much regulation. Having gone too far in deregulating - which contributed to the current crisis - we must resist the temptation to go too far in the opposite direction.
While markets are imperfect, regulators are even more so. Not only are they human, they are also bureaucratic and subject to political influences, therefore regulations should be kept to a minimum.
Three principles should guide reform.
First, since markets are bubble-prone, regulators must accept responsibility for preventing bubbles from growing too big.
Alan Greenspan, the former chairman of the Federal Reserve, and others have expressly refused that responsibility.
If markets cannot recognise bubbles, they argued, neither can regulators. They were right and yet the authorities must accept the assignment, even knowing that they are bound to be wrong. They will, however, have the benefit of feedback from the markets so they can and must continually re-calibrate to correct their mistakes.
Second, to control asset bubbles it is not enough to control the money supply; we must also control the availability of credit.
This cannot be done with monetary tools alone - we must also use credit controls such as margin requirements and minimum capital requirements.
Currently these tend to be fixed irrespective of the market's mood. Part of the authorities' job is to counteract these moods. Margin and minimum capital requirements should be adjusted to suit market conditions.
Regulators should vary the loan-to-value ratio on commercial and residential mortgages for risk-weighting purposes to forestall real estate bubbles.
Third, we must reconceptualise the meaning of market risk.
The efficient market hypothesis postulates that markets tend towards equilibrium and deviations occur in a random fashion; moreover, markets are supposed to function without any discontinuity in the sequence of prices.
Under these conditions market risks can be equated with the risks affecting individual market participants. As long as they manage their risks properly, regulators ought to be happy.
But the efficient market hypothesis is unrealistic. Markets are subject to imbalances that individual participants may ignore if they think they can liquidate their positions. Regulators cannot ignore these imbalances.
If too many participants are on the same side, positions cannot be liquidated without causing a discontinuity or, worse, a collapse. In that case the authorities may have to come to the rescue. That means that there is systemic risk in the market in addition to the risks most market participants perceived prior to the crisis.The securitisation of mortgages added a new dimension of systemic risk.
Financial engineers claimed they were reducing risks through geographic diversification: in fact they were increasing them by creating an agency problem. The agents were more interested in maximising fee income than in protecting the interests of bondholders. That is the verity that was ignored by regulators and market participants alike.
To avert a repetition, the agents must have "skin in the game" but the five per cent proposed by the administration is more symbolic than substantive. I would consider ten per cent as the minimum requirement. To allow for possible discontinuities in markets securities held by banks should carry a higher risk rating than they do under the Basel Accords.
Banks should pay for the implicit guarantee they enjoy by using less leverage and accepting restrictions on how they invest depositors' money; they should not be allowed to speculate for their own account with other people's money.It is probably impractical to separate investment banking from commercial banking as the US did with the Glass Steagull Act of 1933. But there has to be an internal firewall that separates proprietary trading from commercial banking. Proprietary trading ought to be financed out of a bank's own capital.
If a bank is too big to fail, regulators must go even further to protect its capital from undue risk. They must regulate the compensation packages of proprietary traders so that risks and rewards are properly aligned. This may push proprietary trading out of banks into hedge funds. That is where it properly belongs.
Hedge funds and other large investors must also be closely monitored to ensure that they do not build up dangerous imbalances.Finally, I have strong views on the regulation of derivatives. The prevailing opinion is that they ought to be traded on regulated exchanges. That is not enough.. The issuance and trading of derivatives ought to be as strictly regulated as stocks. Regulators ought to insist that derivatives be homogenous, standardised and transparent.
Custom made derivatives only serve to improve the profit margin of the financial engineers designing them. In fact, some derivatives ought not to be traded at all. I have in mind credit default swaps. Consider the recent bankruptcy of Abitibi Bowater and thatof General Motors. In both cases, some bondholders owned CDS and stood to gain more by bankruptcy than by reorganisation. It is like buying life insurance on someone else's life and owning a licence to kill him. CDS are instruments of destruction that ought to be outlawed.
The writer is chairman of Soros Fund Management and author of The Crash of 2008 (PublicAffairs 2009)
The Obama administration is expected today to propose a reorganisation of the way we regulate financial markets. I am not an advocate of too much regulation. Having gone too far in deregulating - which contributed to the current crisis - we must resist the temptation to go too far in the opposite direction.
While markets are imperfect, regulators are even more so. Not only are they human, they are also bureaucratic and subject to political influences, therefore regulations should be kept to a minimum.
Three principles should guide reform.
First, since markets are bubble-prone, regulators must accept responsibility for preventing bubbles from growing too big.
Alan Greenspan, the former chairman of the Federal Reserve, and others have expressly refused that responsibility.
If markets cannot recognise bubbles, they argued, neither can regulators. They were right and yet the authorities must accept the assignment, even knowing that they are bound to be wrong. They will, however, have the benefit of feedback from the markets so they can and must continually re-calibrate to correct their mistakes.
Second, to control asset bubbles it is not enough to control the money supply; we must also control the availability of credit.
This cannot be done with monetary tools alone - we must also use credit controls such as margin requirements and minimum capital requirements.
Currently these tend to be fixed irrespective of the market's mood. Part of the authorities' job is to counteract these moods. Margin and minimum capital requirements should be adjusted to suit market conditions.
Regulators should vary the loan-to-value ratio on commercial and residential mortgages for risk-weighting purposes to forestall real estate bubbles.
Third, we must reconceptualise the meaning of market risk.
The efficient market hypothesis postulates that markets tend towards equilibrium and deviations occur in a random fashion; moreover, markets are supposed to function without any discontinuity in the sequence of prices.
Under these conditions market risks can be equated with the risks affecting individual market participants. As long as they manage their risks properly, regulators ought to be happy.
But the efficient market hypothesis is unrealistic. Markets are subject to imbalances that individual participants may ignore if they think they can liquidate their positions. Regulators cannot ignore these imbalances.
If too many participants are on the same side, positions cannot be liquidated without causing a discontinuity or, worse, a collapse. In that case the authorities may have to come to the rescue. That means that there is systemic risk in the market in addition to the risks most market participants perceived prior to the crisis.The securitisation of mortgages added a new dimension of systemic risk.
Financial engineers claimed they were reducing risks through geographic diversification: in fact they were increasing them by creating an agency problem. The agents were more interested in maximising fee income than in protecting the interests of bondholders. That is the verity that was ignored by regulators and market participants alike.
To avert a repetition, the agents must have "skin in the game" but the five per cent proposed by the administration is more symbolic than substantive. I would consider ten per cent as the minimum requirement. To allow for possible discontinuities in markets securities held by banks should carry a higher risk rating than they do under the Basel Accords.
Banks should pay for the implicit guarantee they enjoy by using less leverage and accepting restrictions on how they invest depositors' money; they should not be allowed to speculate for their own account with other people's money.It is probably impractical to separate investment banking from commercial banking as the US did with the Glass Steagull Act of 1933. But there has to be an internal firewall that separates proprietary trading from commercial banking. Proprietary trading ought to be financed out of a bank's own capital.
If a bank is too big to fail, regulators must go even further to protect its capital from undue risk. They must regulate the compensation packages of proprietary traders so that risks and rewards are properly aligned. This may push proprietary trading out of banks into hedge funds. That is where it properly belongs.
Hedge funds and other large investors must also be closely monitored to ensure that they do not build up dangerous imbalances.Finally, I have strong views on the regulation of derivatives. The prevailing opinion is that they ought to be traded on regulated exchanges. That is not enough.. The issuance and trading of derivatives ought to be as strictly regulated as stocks. Regulators ought to insist that derivatives be homogenous, standardised and transparent.
Custom made derivatives only serve to improve the profit margin of the financial engineers designing them. In fact, some derivatives ought not to be traded at all. I have in mind credit default swaps. Consider the recent bankruptcy of Abitibi Bowater and thatof General Motors. In both cases, some bondholders owned CDS and stood to gain more by bankruptcy than by reorganisation. It is like buying life insurance on someone else's life and owning a licence to kill him. CDS are instruments of destruction that ought to be outlawed.
The writer is chairman of Soros Fund Management and author of The Crash of 2008 (PublicAffairs 2009)
Gas prices rise for 50th straight day
Gas prices rise for 50 straight days and counting; crude falls again, trading below $70 Chris Kahn, AP Energy Writer On Wednesday June 17, 2009, 10:18 am
PrintRelated: The McGraw-Hill Companies, Inc. ,United States Oil NEW YORK (AP) --
Retail gas prices climbed for the 50th straight day Wednesday, the longest streak in records dating to 1996, even as benchmark crude fell for the fourth day in a row.
Related Quotes Symbol Price Change MHP29. 51-0.09 USO 37. 81-0.70
Pump prices added a half cent overnight to a new national average of $2.679 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service.
A gallon of regular gas has jumped nearly 37 cents in a month. That's still cheaper than a gallon of gas three years ago at this point in June.
Historically, filling station prices tend to rise during the summer as millions of vacationing Americans pour onto the highways.
A surge in crude pricesduring the past few months and less production from the refiners that make gasoline has added even more pressure on prices.
On Wednesday, crude oil dropped below $70 a barrel ahead of a key government report on petroleum supplies and consumption in the United States.
Benchmark crude for July delivery fell 92 cents to $69.55 on the New York Mercantile Exchange.
In London, Brent prices fell 71 cents to $69.53 a barrel on the ICE Futures exchange.The Energy Information Administration is expected to show a 1.7 million-barrel drop in crude oil reserves for the week ended June 12, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
Platts also expects gasoline stockpiles to fall by 650,000 barrels.Oil prices this week have come off eight-month highs near $73 a barrel amid some signs that the U.S. economy, while past the worst of a severe recession, is still weak.
Crude prices have dropped with equities markets this week, and they continued to fall Wednesday though the dollar was week. Because barrels are priced in U.S. currency, oil tends to rise when the dollar falls.
In other Nymex trading, gasoline for July delivery fell 4.15 cents to $2.0296 a gallon and heating oil dropped 1.35 cents to $1.8115. Natural gas for July delivery added 2.1 cents to $4.150 per 1,000 cubic feet.
Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.
PrintRelated: The McGraw-Hill Companies, Inc. ,United States Oil NEW YORK (AP) --
Retail gas prices climbed for the 50th straight day Wednesday, the longest streak in records dating to 1996, even as benchmark crude fell for the fourth day in a row.
Related Quotes Symbol Price Change MHP29. 51-0.09 USO 37. 81-0.70
Pump prices added a half cent overnight to a new national average of $2.679 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service.
A gallon of regular gas has jumped nearly 37 cents in a month. That's still cheaper than a gallon of gas three years ago at this point in June.
Historically, filling station prices tend to rise during the summer as millions of vacationing Americans pour onto the highways.
A surge in crude pricesduring the past few months and less production from the refiners that make gasoline has added even more pressure on prices.
On Wednesday, crude oil dropped below $70 a barrel ahead of a key government report on petroleum supplies and consumption in the United States.
Benchmark crude for July delivery fell 92 cents to $69.55 on the New York Mercantile Exchange.
In London, Brent prices fell 71 cents to $69.53 a barrel on the ICE Futures exchange.The Energy Information Administration is expected to show a 1.7 million-barrel drop in crude oil reserves for the week ended June 12, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
Platts also expects gasoline stockpiles to fall by 650,000 barrels.Oil prices this week have come off eight-month highs near $73 a barrel amid some signs that the U.S. economy, while past the worst of a severe recession, is still weak.
Crude prices have dropped with equities markets this week, and they continued to fall Wednesday though the dollar was week. Because barrels are priced in U.S. currency, oil tends to rise when the dollar falls.
In other Nymex trading, gasoline for July delivery fell 4.15 cents to $2.0296 a gallon and heating oil dropped 1.35 cents to $1.8115. Natural gas for July delivery added 2.1 cents to $4.150 per 1,000 cubic feet.
Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.
Tuesday, June 16, 2009
Global Economics: Now What? The W-Shaped scenario
June 16, 2009
Is this really the end of the recession?
The new framework for modelling the world economy in a post transition-phase state is still missing. The models we use still have major systemic errors in them, we obviously still have the same valuation problems and mis-specification of the policy mix. Despite some calling for the New Thinking, there is little new that has been put forward in reality.
Much of the problem in valuations is still here. Others argue that while the visible part of the sub-prime mess is mostly cleaned up, a lot of the less visible, but rather sizeable side-effects of it are still on the books, without `proper´ valuation. I would add my own observation, that the way the markets approached emerging markets has not really changed much, differentiation is still not really the name of the game. If the capital markets asked for the a realistic risk premium, some emerging market treasuries would have gone into default, whatever the urgent ambulance package was. In any case, we would see a much wider performance range from emerging markets than was the case the past months.
Plus, the policy response has been mostly inadequate. The global economy has gone through a transition phase the past ten years, making national level policy responses unlikely to do the job. The problem is that to tackle the kind of global crisis that is at hand, one would need to have enforceable monetary and fiscal policy in place, on a global level, and that is clearly not there. What has been there instead, after an initial bout of panic, is a set of protectionist measures, and a happen-to-be- at-more-or- less-the- same-time fiscal stimuli around the world that kind of works as harmonised global stimulus.
Yet, the current stimuli take most governments way-way beyond known territories: deficits are up to levels unimaginable before, and debt as well as debt projections are through the roof. For the majority of the governments the current stimulus it is a one-off action. This one really needs to work.
Which takes us to the really bad news: most of the `green shoots´ seem to be directly dependent on the fiscal stimuli. There is hardly anything else. Scratch any bit of `end of recession´ data around, independent whether the US, China, Germany, or Australia. Although there is some actual money in the pockets, it is not that much. The biggest across the board factor is the change of confidence. In other words, the governments are inducing a new bubble, and we lay all our hopes on it.
This might work. Yet, there is a significant momentum towards further slowing in the global economy. The multiplying effect of the initial hit is just taking shape. The main survival strategy in sectors hit only indirectly by the crisis has been to cut back spending as much as possible, and try to bridge over the shortage of revenues from reserves and bank loans. Banks are still hesitant to lend (even if they are ordered to by their respective governments, as we have seen many examples around the world), which means that the bridging exercise is mostly from own reserves. And there signs that reserves are running out.
If the global confidence boom will not be sustained, and there is plenty of reason why it should not be, then the coming fall might turn out to be even bigger than the one allegedly bottoming. The W-shape scenario might see a deeper, and longer, second trough.
Is this really the end of the recession?
The new framework for modelling the world economy in a post transition-phase state is still missing. The models we use still have major systemic errors in them, we obviously still have the same valuation problems and mis-specification of the policy mix. Despite some calling for the New Thinking, there is little new that has been put forward in reality.
Much of the problem in valuations is still here. Others argue that while the visible part of the sub-prime mess is mostly cleaned up, a lot of the less visible, but rather sizeable side-effects of it are still on the books, without `proper´ valuation. I would add my own observation, that the way the markets approached emerging markets has not really changed much, differentiation is still not really the name of the game. If the capital markets asked for the a realistic risk premium, some emerging market treasuries would have gone into default, whatever the urgent ambulance package was. In any case, we would see a much wider performance range from emerging markets than was the case the past months.
Plus, the policy response has been mostly inadequate. The global economy has gone through a transition phase the past ten years, making national level policy responses unlikely to do the job. The problem is that to tackle the kind of global crisis that is at hand, one would need to have enforceable monetary and fiscal policy in place, on a global level, and that is clearly not there. What has been there instead, after an initial bout of panic, is a set of protectionist measures, and a happen-to-be- at-more-or- less-the- same-time fiscal stimuli around the world that kind of works as harmonised global stimulus.
Yet, the current stimuli take most governments way-way beyond known territories: deficits are up to levels unimaginable before, and debt as well as debt projections are through the roof. For the majority of the governments the current stimulus it is a one-off action. This one really needs to work.
Which takes us to the really bad news: most of the `green shoots´ seem to be directly dependent on the fiscal stimuli. There is hardly anything else. Scratch any bit of `end of recession´ data around, independent whether the US, China, Germany, or Australia. Although there is some actual money in the pockets, it is not that much. The biggest across the board factor is the change of confidence. In other words, the governments are inducing a new bubble, and we lay all our hopes on it.
This might work. Yet, there is a significant momentum towards further slowing in the global economy. The multiplying effect of the initial hit is just taking shape. The main survival strategy in sectors hit only indirectly by the crisis has been to cut back spending as much as possible, and try to bridge over the shortage of revenues from reserves and bank loans. Banks are still hesitant to lend (even if they are ordered to by their respective governments, as we have seen many examples around the world), which means that the bridging exercise is mostly from own reserves. And there signs that reserves are running out.
If the global confidence boom will not be sustained, and there is plenty of reason why it should not be, then the coming fall might turn out to be even bigger than the one allegedly bottoming. The W-shape scenario might see a deeper, and longer, second trough.
Sunday, June 14, 2009
Kim Eng Indonesia Equity Daily, 15 Jun 09
Our Comment
Hexindo Adiperkasa will propose two dividend payments at EGM on 29 June 2009.
First, dividend from FY08 net profit 2008 with DPOR expected at 30%-40%, and second, dividend from 1Q09 net profit, with DPOR at expected 20%.
The above is because the company will change its financial statement from Jan-Des to April March, to follow policy of its parent company, Hitachi Construction Machinery Co Ltd.
Total of the two dividends is expected at Rp106-136 per share (yield: 4.5%-5.9%).
Separately, Telkom announced Rp296.95 DPS (yield = 3.88), representing payout ratio of 55%.
The company will conduct an extraordinary shareholders meeting after presidential election on changes in the board of commissioners.
Telkom is facing tough competition and pressure from lower tariff derived from lower interconnection. Maintain HOLD.
Acting Central Bank Governor Miranda Goeltom, estimated thatIndonesia annual inflation will reach 5% in 2009 as mild weather should guarantee sufficient domestic food supply, hence lower food prices.
She expects GDP growth to reach the higher end of Central Bank 3-4% forecast, as lower-than-expected inflation which should help boost purchasing power and consumer confidence.
Katarina Setiawan Highlights
Telkom (HOLD): Rp296.95 DPS (yield=3.88% )
Adhi Karya (HOLD): Rp11.51 DPS (yield=2.5%)
Hexindo: Obtained US$192m contracts to supply heavy equipment
Indika Energy: Acquisition plan
Economy: BI estimated 2009 inflation to hit 5%
From our chartist desk
IDX: The index has potential of a technical rebound referring to moving average 100-200 day. We maintain our target levels; 2029 and 2016. Enter at near support levels.
Today trading range is between 2023-2056-2073 (support) and 2107-2124-2157 (resistance) .
CPIN: Strong reversal on MaCD 12-26 days with positive histogram. We set our trend line target at Rp750. TRADING BUY
ELSA: We are still believer on this stock, based on flag pattern and daily TD sequential buy countdown. TRADING BUY
Hexindo Adiperkasa will propose two dividend payments at EGM on 29 June 2009.
First, dividend from FY08 net profit 2008 with DPOR expected at 30%-40%, and second, dividend from 1Q09 net profit, with DPOR at expected 20%.
The above is because the company will change its financial statement from Jan-Des to April March, to follow policy of its parent company, Hitachi Construction Machinery Co Ltd.
Total of the two dividends is expected at Rp106-136 per share (yield: 4.5%-5.9%).
Separately, Telkom announced Rp296.95 DPS (yield = 3.88), representing payout ratio of 55%.
The company will conduct an extraordinary shareholders meeting after presidential election on changes in the board of commissioners.
Telkom is facing tough competition and pressure from lower tariff derived from lower interconnection. Maintain HOLD.
Acting Central Bank Governor Miranda Goeltom, estimated thatIndonesia annual inflation will reach 5% in 2009 as mild weather should guarantee sufficient domestic food supply, hence lower food prices.
She expects GDP growth to reach the higher end of Central Bank 3-4% forecast, as lower-than-expected inflation which should help boost purchasing power and consumer confidence.
Katarina Setiawan Highlights
Telkom (HOLD): Rp296.95 DPS (yield=3.88% )
Adhi Karya (HOLD): Rp11.51 DPS (yield=2.5%)
Hexindo: Obtained US$192m contracts to supply heavy equipment
Indika Energy: Acquisition plan
Economy: BI estimated 2009 inflation to hit 5%
From our chartist desk
IDX: The index has potential of a technical rebound referring to moving average 100-200 day. We maintain our target levels; 2029 and 2016. Enter at near support levels.
Today trading range is between 2023-2056-2073 (support) and 2107-2124-2157 (resistance) .
CPIN: Strong reversal on MaCD 12-26 days with positive histogram. We set our trend line target at Rp750. TRADING BUY
ELSA: We are still believer on this stock, based on flag pattern and daily TD sequential buy countdown. TRADING BUY
Thursday, June 11, 2009
World Bank Sees Economy Shrinking 3 Percent This Year
By NELSON D. SCHWARTZ - THE NEW YOR TIMES
June 12, 2009
PARIS - Underscoring the risk that hopes for a quick turnaround may be premature, the World Bank said Thursday that it expected the global economy to shrink nearly 3 percent in 2009, far deeper than the 1.7 percent contraction it predicted slightly more than two months ago.
Although the bank said that it expected growth in developed countries to resume next year, emerging-market countries could feel the effects of "aftershocks" for several years, as the full impact of the worst downturn since World War II became apparent.
"It´s quite clear that even if the developed world starts on a path of recovery, for many developing countries, it will take longer," the World Bank´s president, Robert B. Zoellick, said Thursday. "Financial markets seem to have broken the fall but there are clear fragilities and risks remain."
"Some of these fragile developing economies don´t have any cushion," he added.
The gloomy outlook is likely to top the agenda this weekend as finance ministers gather for a Group of 8 meeting in Lecce, Italy, and assess progress since the broader G-20 summit meeting with President Obama and other world leaders in London in early April.
Despite a recent burst of optimism that the American economy has turned the corner, with the pace of job losses showing signs of easing, economies elsewhere remain deeply troubled.
Since the World Bank´s last estimate for 2009, released on March, 31, Europe has continued to weaken. Meanwhile, unemployment in the United States is still on the rise, and house prices are also still falling.
New figures released this week showed German exports in April declined 28.7 percent from a year ago, the steepest drop since the government began keeping records in 1950. Meanwhile, industrial production fell 1.9 percent in April from the previous month, well below the 0.3 percentage point increase economists had been expecting.
Last week, the European Central Bank predicted the economy would contract 4.1 to 5.1 percent in 2009, sharper than the 3.2 percent contraction the European Central Bank predicted in March.
By contrast, the United States economy is expected to contract 2.8 percent this year, according to I.M.F. estimates, and many private economists say growth could resume in the second half of the year.
"We are seeing more signs of improvement in the U.S. than across the euro area," said Jonathan Coppel, a senior economist at the Organization for Economic Cooperation and Development. But both economies are still in recession, he pointed out, "and we´re not out of the woods yet in either region."
June 12, 2009
PARIS - Underscoring the risk that hopes for a quick turnaround may be premature, the World Bank said Thursday that it expected the global economy to shrink nearly 3 percent in 2009, far deeper than the 1.7 percent contraction it predicted slightly more than two months ago.
Although the bank said that it expected growth in developed countries to resume next year, emerging-market countries could feel the effects of "aftershocks" for several years, as the full impact of the worst downturn since World War II became apparent.
"It´s quite clear that even if the developed world starts on a path of recovery, for many developing countries, it will take longer," the World Bank´s president, Robert B. Zoellick, said Thursday. "Financial markets seem to have broken the fall but there are clear fragilities and risks remain."
"Some of these fragile developing economies don´t have any cushion," he added.
The gloomy outlook is likely to top the agenda this weekend as finance ministers gather for a Group of 8 meeting in Lecce, Italy, and assess progress since the broader G-20 summit meeting with President Obama and other world leaders in London in early April.
Despite a recent burst of optimism that the American economy has turned the corner, with the pace of job losses showing signs of easing, economies elsewhere remain deeply troubled.
Since the World Bank´s last estimate for 2009, released on March, 31, Europe has continued to weaken. Meanwhile, unemployment in the United States is still on the rise, and house prices are also still falling.
New figures released this week showed German exports in April declined 28.7 percent from a year ago, the steepest drop since the government began keeping records in 1950. Meanwhile, industrial production fell 1.9 percent in April from the previous month, well below the 0.3 percentage point increase economists had been expecting.
Last week, the European Central Bank predicted the economy would contract 4.1 to 5.1 percent in 2009, sharper than the 3.2 percent contraction the European Central Bank predicted in March.
By contrast, the United States economy is expected to contract 2.8 percent this year, according to I.M.F. estimates, and many private economists say growth could resume in the second half of the year.
"We are seeing more signs of improvement in the U.S. than across the euro area," said Jonathan Coppel, a senior economist at the Organization for Economic Cooperation and Development. But both economies are still in recession, he pointed out, "and we´re not out of the woods yet in either region."
Upgrade INCO & ANTM to Buy
After factoring in our new higher nickel px forecast, US$23mn insurance receipt, and 50% lower costs from efficiency program, INCO's earnings got quite a boost by 542% for 2009, 137% for 2010 and 87% for 2011.
Hence, Daisy upgraded INCO to Buy with PO Rp 6,500, based on 47% premium to NPV which Daisy thinks is justifiable as cyclical stocks did trade at a premium to NPV in past cycles in anticipation of rising prices (up to 2x for gold stocks).
As the saying goes "don't dance cha-cha when everybody is dancing disco", so just ride along because INCO will continue to rerate with nickel px recovery given close correlation (R²=0.9) b/w INCO’s shr px and nickel px.
Aside from being one of the lowest cost producer, INCO's other catalysts include solid2Q and higher dividend as it remains cash flow positive even at the currentlow nickel px environment.
Our commodity team raised nickel px to US$5.7/lb for '09, $6.4 for '10, $5.6 for '11 and $5.3 for LT…these are higher by 27%,26%, 15% and 9% respectively. ANTM also got upgraded to Buy with PO Rp 2800.
Daisy raised earnings by 227%, 203%, and 83% for 2009-11. Our new PO is based on 26% premium to NPVof Rp2,215.
Nickel contributes ~60% to ANTM’s revenue. We see turn around inANTM on the back of its nickel bizz returning to profit in 2Q with nickel px now above ANTM's breakeven level of US$5.5/lb (vs loss of Rp29.4bn in 1Q).
Further, with the re-commissioning of its FeNi3’s copper cooling system in Sept, we see limited downside risk to its ferronickel output.
Hence, Daisy upgraded INCO to Buy with PO Rp 6,500, based on 47% premium to NPV which Daisy thinks is justifiable as cyclical stocks did trade at a premium to NPV in past cycles in anticipation of rising prices (up to 2x for gold stocks).
As the saying goes "don't dance cha-cha when everybody is dancing disco", so just ride along because INCO will continue to rerate with nickel px recovery given close correlation (R²=0.9) b/w INCO’s shr px and nickel px.
Aside from being one of the lowest cost producer, INCO's other catalysts include solid2Q and higher dividend as it remains cash flow positive even at the currentlow nickel px environment.
Our commodity team raised nickel px to US$5.7/lb for '09, $6.4 for '10, $5.6 for '11 and $5.3 for LT…these are higher by 27%,26%, 15% and 9% respectively. ANTM also got upgraded to Buy with PO Rp 2800.
Daisy raised earnings by 227%, 203%, and 83% for 2009-11. Our new PO is based on 26% premium to NPVof Rp2,215.
Nickel contributes ~60% to ANTM’s revenue. We see turn around inANTM on the back of its nickel bizz returning to profit in 2Q with nickel px now above ANTM's breakeven level of US$5.5/lb (vs loss of Rp29.4bn in 1Q).
Further, with the re-commissioning of its FeNi3’s copper cooling system in Sept, we see limited downside risk to its ferronickel output.
Tuesday, June 9, 2009
PGN (PGAS): On A Solid Platform (Buy, TP: Rp3,975)
Today we issue our initiation report on Perusahaan Gas Negara (PGAS) with a target price of Rp3,975.
Our key investment thes is are:
1) PGAS is prime to benefit from Indonesia’s moves to reduce dependency on fuel oil and promote gas usage
2) With infrastructure in place and inventory built up, PGAS sets to deliver the goods
3) Pricing and new gas supply will be the catalyst for PGAS’ performance going forward
4) Valuation wise, PGAS is attractively traded among Asian’s large cap gas utility players
Our key investment thes is are:
1) PGAS is prime to benefit from Indonesia’s moves to reduce dependency on fuel oil and promote gas usage
2) With infrastructure in place and inventory built up, PGAS sets to deliver the goods
3) Pricing and new gas supply will be the catalyst for PGAS’ performance going forward
4) Valuation wise, PGAS is attractively traded among Asian’s large cap gas utility players
CLSA INDO: nickel downgrades, INCO UPF, ANTM SELL
"If a government is determined to create inflation and negative realinterest rates, there is really nothing standing in the way of its doing so," Marc Faber
Last report (Investing at the bottom) by our investment guru Russell Napier highlighted copper price as a particularly useful indicator in confirming the bottom for equities in the two near-deflationary recessions of 1982 and 2002.
Since then, copper prices had one of the most impressive rebound and so did equities especially those in emerging markets. One key conclusionfor equity investors is that they should be wary of buying any rebound inequities that coincides with a continued decline in the copper price, this has not happened yet.
In Russell's latest report "How the rally ends" (Must Read!!! ask me if you want a copy), he argues that we are in another rally in the long bear market that began in 2000. The last rally lasted from 2002-2007 and this current one should also last for a few years.
One can't call the end by using valuations or magnitudes of returns. Instead we must wait for inflation to claw its way back to around 4%. This report shows that inflation is a worry, but it is far too early in the business/reflation/ inflation cycle to worry now.
It is indeed likely that inflation and rising Treasury yields produce the next down leg in the bear market - but financial history strongly suggests that equities are major beneficiaries in that sweet spot when inflation rises from around zero to four percent.
To be frank in an era of global quantitative easing, almost nobody is likely to forecast exactly when and how rapidly inflation will return but equities will be dangerously extended when inflation nears 4%.
My best guess is that such a level will not occur until at least the end of 2010. Until that time, many other positives will develop for equity investors; and before inflation reaches 4% we will see economic and earnings recovery. Russell will be running through his new report on a conferance call this Thursday, 4pm HKT, details attached!
Research Today:
Nickel downgrades, INCO UPF, ANTM SELL Our analyst Olie revises down our earnings forecasts for both Inco (INCO IJ)and Aneka Tambang (ANTM IJ) by 30-60% mainly to reflect sustained weaknessin nickel demand.
INCO: downgrade to UNDER perform w/ Rp3,400 TP (from outperform, 2800).
ANTM: downgrade to SELL w/ Rp1,650 TP (from outperform,1300).
The new TPs are DCF-based. We continue to like in the medium to long-term prospect of INCO and expect the company to become bigger, adding 30% output, and better, lowering cost by 30%, within two years.
However,current valuation does not justify an O-PF. Upside on nickel price, thus earnings of both Inco Indonesia and Antam, hinges on US dollar direction, re-stocking of nickel inventory, and announcements of production cut and delays.
Soaring crude oil price, hencefuel cost, poses downside risk to earnings.What nickel prices are implied in the current share prices?
Current share prices imply a much higher LT nickel price than current spot,US$8.5/lb for ANTM and US$7/lb for INCO.
How do the nickel shares look relative to their historical trading ranges?
INCO was trading at its through-cycle multiple of 40x back in 1998/Asiancrisis and nickel price hit historic lows of US$2.0/lb, with low costssupply under way.
INCO and ANTM are currently trading at 68.5x and 91.2x of their 2009 earnings respectively, suggesting a 70% and 120% premium to the previous though cycle multiple, respectively.
Our earnings revision:Soaring oil prices poses more risk to INCO earnings as fuel cost accounts for 30% of the cash cost. Much less for ANTM due to higher gold contribution: 10% of the cash cost. How do our numbers look like compared to consensus? Our numbers are much lower than consensus. For INCO, we are 31% and 24%below consensus for 2009 and 2010, respectively.
For ANTM, our numbers are 75% below consensus for 2009 and 81% below consensus for 2010. I suspect this is mainly due to our much lower nickel price assumptions and highercost structure assumptions.
News Headlines/Others:
Government raises growth lending target for SOE banks. Currently, SOE banksare targeting around 14-17% full year lending growth for 2009.
This is likely to see upward revision to around 20%. Better than expected 1Q09 GDPgrowth showing a resilient economy is cited as a reason for the upgrade.
Bumi Resources (BUMI IJ) requests more time to review asset report. The coal miner has asked for more time to review the draft appraisal report by the independent valuer on the three acquisitions Bumi did recently.
The result will be announced by the end of this week.Three bidders for Elnusa (ELSA IJ). Pertamina, Ciptadana Securities, and consortium of Northstar and Saratoga Capital are vying for the 37.15% stake in Elnusa.
They have put in a bid price earlier this week. The winner will be announced next week. The last four months saw foreign inflows US$ 4bn.
Bank Indonesia officaisl report that foreign ownership in SBI (Indonesian T Bills) has increased by US$ 4bn in the last four months totaling Rp 89.04 tn (about US$9bn).UNESCO recognizes Batik as a world heritage.
The non-profit educational organization will recognize Indonesian batik as a world heritage in October2009. Local media reports that the city of Pekalongan in Central Java, long known as a batik center, has welcomed this award and hopes that this will give an additional boost to batik sales.
Indo-Premier still seeing an influx of new account openings. One of theInternet-based securities pioneer, Indo Premier Securities, now has around 12,000 customer accounts, reporting a fantastic 2300% growth since 2007 when the company had around 500 accounts.
Electricity installation fee to be raised. The SOE electricity company, PLN has introduced an immediate increase in its electricity installation fees upto 300% (range depending on the installed power capacity) for new customers in greater Jakarta area.
Under the new pricing structure, customers are responsible to help cover the cost for transmission of power from PLN'sclosest transmission tower to their house. Govt to inject Rp 50 bn to SOW sugar firms.
The Ministry of Industry has agreed to inject Rp50bn subsidy to SOE sugar firms, aiming to revitalize the sugar industry and attain self-sufficiency by 2014.
The financial support will be in the form of 10% subsidy for every machine purchased by nine SOE sugar companies including Perkebunan Negara and subsidiaries.
One term applied is the machines must be entirely assembled in Indonesia with min 40% local content.
Direct Cash Disbursement (BLT) may be discontinued next year. The govt plans to stop distributing the Direct Cash Disbursement next year. However, govt says that the BLT program may still be retrieved if there is an extraordinary event such as increase in fuel price that disturb povertyeradication.
Bank Central Asia (BBCA IJ) update.
Trading CUM-DIVIDEND for 65/sh today. Key Indicators: JCI: 2,056.65 -22.28 (-1.07%), T/O US$481.47 mil, YTD: +51.74%
ADR: TLKM US$ 30.63 = IDR 7,677 ISAT US$ 26.20 = IDR 5,253.
The market broke an 8-day winning streak as profit taking took hold yesterday afternoon. But support still very strong, and we could expect the market to revert back to its bullish mode.
Foreign investors have stepped upto the plate recently, and their participation level has increased (to around 25%) as fund inflows continue.We are 2.5x better buyer as of this morning.
Charts of the Day: Indonesia vs. Asia, New Buy Signal, from Laurence Balanco Overweight - Our decision to Overweight Indonesia ahead of the mechanicalbuy signal has been vindicated.
This signal which followed the break above resistance provided by the January 2009 highs has added credibility to ourpositive outlook for Indonesia. The oscillator remains in positive territory and has room to move to the upside.
Our view for the MSCI Indonesia (420) is unchanged as the uptrend remains intact. The next event should be a test of chart resistance at 449. Key support for the uptrend is found at the 335.
Source: Jakarta Post
Best regards,Wuddy Warsono, CFACLSA Indonesia Head of SalesPhone: (62-21) 573 9460Toll Free - HK: 800 938 000Toll Free - SIN: 800 621 1104Toll Free - US: 800 460 2581wuddy.warsono@ clsa.com
Last report (Investing at the bottom) by our investment guru Russell Napier highlighted copper price as a particularly useful indicator in confirming the bottom for equities in the two near-deflationary recessions of 1982 and 2002.
Since then, copper prices had one of the most impressive rebound and so did equities especially those in emerging markets. One key conclusionfor equity investors is that they should be wary of buying any rebound inequities that coincides with a continued decline in the copper price, this has not happened yet.
In Russell's latest report "How the rally ends" (Must Read!!! ask me if you want a copy), he argues that we are in another rally in the long bear market that began in 2000. The last rally lasted from 2002-2007 and this current one should also last for a few years.
One can't call the end by using valuations or magnitudes of returns. Instead we must wait for inflation to claw its way back to around 4%. This report shows that inflation is a worry, but it is far too early in the business/reflation/ inflation cycle to worry now.
It is indeed likely that inflation and rising Treasury yields produce the next down leg in the bear market - but financial history strongly suggests that equities are major beneficiaries in that sweet spot when inflation rises from around zero to four percent.
To be frank in an era of global quantitative easing, almost nobody is likely to forecast exactly when and how rapidly inflation will return but equities will be dangerously extended when inflation nears 4%.
My best guess is that such a level will not occur until at least the end of 2010. Until that time, many other positives will develop for equity investors; and before inflation reaches 4% we will see economic and earnings recovery. Russell will be running through his new report on a conferance call this Thursday, 4pm HKT, details attached!
Research Today:
Nickel downgrades, INCO UPF, ANTM SELL Our analyst Olie revises down our earnings forecasts for both Inco (INCO IJ)and Aneka Tambang (ANTM IJ) by 30-60% mainly to reflect sustained weaknessin nickel demand.
INCO: downgrade to UNDER perform w/ Rp3,400 TP (from outperform, 2800).
ANTM: downgrade to SELL w/ Rp1,650 TP (from outperform,1300).
The new TPs are DCF-based. We continue to like in the medium to long-term prospect of INCO and expect the company to become bigger, adding 30% output, and better, lowering cost by 30%, within two years.
However,current valuation does not justify an O-PF. Upside on nickel price, thus earnings of both Inco Indonesia and Antam, hinges on US dollar direction, re-stocking of nickel inventory, and announcements of production cut and delays.
Soaring crude oil price, hencefuel cost, poses downside risk to earnings.What nickel prices are implied in the current share prices?
Current share prices imply a much higher LT nickel price than current spot,US$8.5/lb for ANTM and US$7/lb for INCO.
How do the nickel shares look relative to their historical trading ranges?
INCO was trading at its through-cycle multiple of 40x back in 1998/Asiancrisis and nickel price hit historic lows of US$2.0/lb, with low costssupply under way.
INCO and ANTM are currently trading at 68.5x and 91.2x of their 2009 earnings respectively, suggesting a 70% and 120% premium to the previous though cycle multiple, respectively.
Our earnings revision:Soaring oil prices poses more risk to INCO earnings as fuel cost accounts for 30% of the cash cost. Much less for ANTM due to higher gold contribution: 10% of the cash cost. How do our numbers look like compared to consensus? Our numbers are much lower than consensus. For INCO, we are 31% and 24%below consensus for 2009 and 2010, respectively.
For ANTM, our numbers are 75% below consensus for 2009 and 81% below consensus for 2010. I suspect this is mainly due to our much lower nickel price assumptions and highercost structure assumptions.
News Headlines/Others:
Government raises growth lending target for SOE banks. Currently, SOE banksare targeting around 14-17% full year lending growth for 2009.
This is likely to see upward revision to around 20%. Better than expected 1Q09 GDPgrowth showing a resilient economy is cited as a reason for the upgrade.
Bumi Resources (BUMI IJ) requests more time to review asset report. The coal miner has asked for more time to review the draft appraisal report by the independent valuer on the three acquisitions Bumi did recently.
The result will be announced by the end of this week.Three bidders for Elnusa (ELSA IJ). Pertamina, Ciptadana Securities, and consortium of Northstar and Saratoga Capital are vying for the 37.15% stake in Elnusa.
They have put in a bid price earlier this week. The winner will be announced next week. The last four months saw foreign inflows US$ 4bn.
Bank Indonesia officaisl report that foreign ownership in SBI (Indonesian T Bills) has increased by US$ 4bn in the last four months totaling Rp 89.04 tn (about US$9bn).UNESCO recognizes Batik as a world heritage.
The non-profit educational organization will recognize Indonesian batik as a world heritage in October2009. Local media reports that the city of Pekalongan in Central Java, long known as a batik center, has welcomed this award and hopes that this will give an additional boost to batik sales.
Indo-Premier still seeing an influx of new account openings. One of theInternet-based securities pioneer, Indo Premier Securities, now has around 12,000 customer accounts, reporting a fantastic 2300% growth since 2007 when the company had around 500 accounts.
Electricity installation fee to be raised. The SOE electricity company, PLN has introduced an immediate increase in its electricity installation fees upto 300% (range depending on the installed power capacity) for new customers in greater Jakarta area.
Under the new pricing structure, customers are responsible to help cover the cost for transmission of power from PLN'sclosest transmission tower to their house. Govt to inject Rp 50 bn to SOW sugar firms.
The Ministry of Industry has agreed to inject Rp50bn subsidy to SOE sugar firms, aiming to revitalize the sugar industry and attain self-sufficiency by 2014.
The financial support will be in the form of 10% subsidy for every machine purchased by nine SOE sugar companies including Perkebunan Negara and subsidiaries.
One term applied is the machines must be entirely assembled in Indonesia with min 40% local content.
Direct Cash Disbursement (BLT) may be discontinued next year. The govt plans to stop distributing the Direct Cash Disbursement next year. However, govt says that the BLT program may still be retrieved if there is an extraordinary event such as increase in fuel price that disturb povertyeradication.
Bank Central Asia (BBCA IJ) update.
Trading CUM-DIVIDEND for 65/sh today. Key Indicators: JCI: 2,056.65 -22.28 (-1.07%), T/O US$481.47 mil, YTD: +51.74%
ADR: TLKM US$ 30.63 = IDR 7,677 ISAT US$ 26.20 = IDR 5,253.
The market broke an 8-day winning streak as profit taking took hold yesterday afternoon. But support still very strong, and we could expect the market to revert back to its bullish mode.
Foreign investors have stepped upto the plate recently, and their participation level has increased (to around 25%) as fund inflows continue.We are 2.5x better buyer as of this morning.
Charts of the Day: Indonesia vs. Asia, New Buy Signal, from Laurence Balanco Overweight - Our decision to Overweight Indonesia ahead of the mechanicalbuy signal has been vindicated.
This signal which followed the break above resistance provided by the January 2009 highs has added credibility to ourpositive outlook for Indonesia. The oscillator remains in positive territory and has room to move to the upside.
Our view for the MSCI Indonesia (420) is unchanged as the uptrend remains intact. The next event should be a test of chart resistance at 449. Key support for the uptrend is found at the 335.
Source: Jakarta Post
Best regards,Wuddy Warsono, CFACLSA Indonesia Head of SalesPhone: (62-21) 573 9460Toll Free - HK: 800 938 000Toll Free - SIN: 800 621 1104Toll Free - US: 800 460 2581wuddy.warsono@ clsa.com
Cheapest commodity play
Analyst: Liny Halim
Likely to secure more orders. After securing a US$175m order book (giant dump trucks and excavators) from the mining sector in 1Q09, Hexindo is now negotiating with Sinar Mas pulp business for 200 units of medium-sized excavators.
Hexindo is targeting equipment sales of 800 units in 2009E, down 50% yoy, but this excludes the potential order from the pulp sector.
In 1Q, Hexindo secured US$130m deal with KPC (owned by Bumi) for delivering 30 giant dump trucks and 4 big excavators. It also got another US$15m order from Newmont and US$30m from Thiess.
Margin should remain strong. Hexindo enjoyed high operating margin of 21.3% in 1Q09 versus 14.14% in 2008 due to increased contribution from high-margin spare parts business (gross margin of 35-40% vs equipment sales of 16%).
In 1Q09, spare parts accounted for 30% of revenues, up from 18% in 2008. Miners are extending their equipment lifecycle which therefore boosted spare parts sales.
As Hexindo sells more of the smaller equipment to the pulp sector in 2H09, it would benefit from higher margin of 17% versus the 10% margin for large equipment.Strong financial backing from parent.
We think Hitachi's recent move to set up financing arm (Hexindo has a 15% stake and Hitachi 85%) reflects the parent strong commitment to grow its business aggressively in Indonesia.This finance arm funded the equipment sales to KPC and to Thiess. Hexindo to contribute more to parent.
Additionally, Hexindo plans to change its financial reporting to US$ reporting so that it no longer has to suffer from forex losses. Its financial year will also be changed running to April-March, similar to parent. We think this implies that Hexindo will become a more important contributor to its parent, and therefore increased profitability.
Hexindo is 54% owned by Hitachi and 20% owned by Itochu.Paying dividend of Rp125/share or yield of 5.6%. Hexindo will hold an AGM on 29 June where it will declare a dividend of Rp125/share comprising of final 2008 dividend of Rp109/share (based on 35% payout ratio) and interim 1Q dividend of Rp16/share.
This translates to a yield of 5.6%.Strong profit in 2009. Hexindo booked a net profit of Rp62b in 1Q09 but this is after a Rp30b forex loss. If we were to adjust for the forex loss and annualised the 1Q09 earnings, this would give us a net profit of Rp340b in 2009E (+33% yoy), which should still be conservative.
As Hexindo booked more sales to KPC (the equipments are being shipped currently) and Thiess in 2H, this should increase profitability during the semester.Trading at half of United Tractors PER.
Based on back-the-envelope calculation of net profit of Rp340b (annualising 1Q09), Hexindo is trading on 2009E PER of 5.4x, at a steep discount to United Tractors PER of 13.3x.
We like Hexindo for its cheap valuation but we also like United Tractors as a bigger cap play in the commodity space.
Hexindo Adiperkasa (HEXA IJ) NOT RATED
Price: Rp2,200 Mkt Cap: US$189.7m Daily: Vol 8.0m (US$1.8m)1-Yr Hi/Lo: Rp3,400/510
Likely to secure more orders. After securing a US$175m order book (giant dump trucks and excavators) from the mining sector in 1Q09, Hexindo is now negotiating with Sinar Mas pulp business for 200 units of medium-sized excavators.
Hexindo is targeting equipment sales of 800 units in 2009E, down 50% yoy, but this excludes the potential order from the pulp sector.
In 1Q, Hexindo secured US$130m deal with KPC (owned by Bumi) for delivering 30 giant dump trucks and 4 big excavators. It also got another US$15m order from Newmont and US$30m from Thiess.
Margin should remain strong. Hexindo enjoyed high operating margin of 21.3% in 1Q09 versus 14.14% in 2008 due to increased contribution from high-margin spare parts business (gross margin of 35-40% vs equipment sales of 16%).
In 1Q09, spare parts accounted for 30% of revenues, up from 18% in 2008. Miners are extending their equipment lifecycle which therefore boosted spare parts sales.
As Hexindo sells more of the smaller equipment to the pulp sector in 2H09, it would benefit from higher margin of 17% versus the 10% margin for large equipment.Strong financial backing from parent.
We think Hitachi's recent move to set up financing arm (Hexindo has a 15% stake and Hitachi 85%) reflects the parent strong commitment to grow its business aggressively in Indonesia.This finance arm funded the equipment sales to KPC and to Thiess. Hexindo to contribute more to parent.
Additionally, Hexindo plans to change its financial reporting to US$ reporting so that it no longer has to suffer from forex losses. Its financial year will also be changed running to April-March, similar to parent. We think this implies that Hexindo will become a more important contributor to its parent, and therefore increased profitability.
Hexindo is 54% owned by Hitachi and 20% owned by Itochu.Paying dividend of Rp125/share or yield of 5.6%. Hexindo will hold an AGM on 29 June where it will declare a dividend of Rp125/share comprising of final 2008 dividend of Rp109/share (based on 35% payout ratio) and interim 1Q dividend of Rp16/share.
This translates to a yield of 5.6%.Strong profit in 2009. Hexindo booked a net profit of Rp62b in 1Q09 but this is after a Rp30b forex loss. If we were to adjust for the forex loss and annualised the 1Q09 earnings, this would give us a net profit of Rp340b in 2009E (+33% yoy), which should still be conservative.
As Hexindo booked more sales to KPC (the equipments are being shipped currently) and Thiess in 2H, this should increase profitability during the semester.Trading at half of United Tractors PER.
Based on back-the-envelope calculation of net profit of Rp340b (annualising 1Q09), Hexindo is trading on 2009E PER of 5.4x, at a steep discount to United Tractors PER of 13.3x.
We like Hexindo for its cheap valuation but we also like United Tractors as a bigger cap play in the commodity space.
Hexindo Adiperkasa (HEXA IJ) NOT RATED
Price: Rp2,200 Mkt Cap: US$189.7m Daily: Vol 8.0m (US$1.8m)1-Yr Hi/Lo: Rp3,400/510
Sunday, June 7, 2009
Kim Eng Indonesia Equity Daily, 8 Jun 09
Our Comment
Rupiah continued to appreciate despite the benchmark rate cut by the central bank. Stronger rupiah is positive for stocks with heavy exposure (in terms of costs and debt) in US dollar such as Astra International, Indofood, Kalbe Farma, Tempo Scan, Unilever.
On the other hand, export-oriented companies (i.e., mining and plantation stocks) will experience pressure, but the pressure is compensated to a certain extent by the rise in commodity prices.
Oil price touched US$70/bbl on Friday before sliding. There is speculation that oil price will repeat last year´s tumble.
The IMF upgraded its forecast on Indonesia ´s GDP growth in 2009 to 3%-4% from 2.5% previously.
Katarina Setiawan Highlights
o Elnusa: Board commissioners of Pertamina refused to increase stake in Elnusa
o Aqua: Plans to go private o Nusantara Infrastructure: To seek financing From our chartist desk
o IDX: Upward direction is still intact, referring to daily TD sequential on buy countdown on 7th day and strengthening Rupiah, with longer term target 2200 (lower target is 2029 - but it is unlikely).. We maintain Rupiah target at Rp9300. BUY ON WEAKNESS is recommended. Today´s trading range is between 1971-2017-2048 (support) and 2094-2109-2155 (resistance) .
o INKP: The stock price will try to break above moving average (MA 14 and 20 day). This sentiment is supported by increasing money flow. BUY
o BBCA: Net-buying position on averaging during last 10 days. We like this stock, as its price is above MA 50 days. TRADING BUY
Rupiah continued to appreciate despite the benchmark rate cut by the central bank. Stronger rupiah is positive for stocks with heavy exposure (in terms of costs and debt) in US dollar such as Astra International, Indofood, Kalbe Farma, Tempo Scan, Unilever.
On the other hand, export-oriented companies (i.e., mining and plantation stocks) will experience pressure, but the pressure is compensated to a certain extent by the rise in commodity prices.
Oil price touched US$70/bbl on Friday before sliding. There is speculation that oil price will repeat last year´s tumble.
The IMF upgraded its forecast on Indonesia ´s GDP growth in 2009 to 3%-4% from 2.5% previously.
Katarina Setiawan Highlights
o Elnusa: Board commissioners of Pertamina refused to increase stake in Elnusa
o Aqua: Plans to go private o Nusantara Infrastructure: To seek financing From our chartist desk
o IDX: Upward direction is still intact, referring to daily TD sequential on buy countdown on 7th day and strengthening Rupiah, with longer term target 2200 (lower target is 2029 - but it is unlikely).. We maintain Rupiah target at Rp9300. BUY ON WEAKNESS is recommended. Today´s trading range is between 1971-2017-2048 (support) and 2094-2109-2155 (resistance) .
o INKP: The stock price will try to break above moving average (MA 14 and 20 day). This sentiment is supported by increasing money flow. BUY
o BBCA: Net-buying position on averaging during last 10 days. We like this stock, as its price is above MA 50 days. TRADING BUY
Thursday, June 4, 2009
Meltdown 101: Why the S&P 500 index is important
By TIM PARADIS - 12 hours ago
NEW YORK (AP) - The ups and downs of the Dow Jones industrial average may get most of the attention, but there's another stock index you should be watching: the Standard & Poor's 500, which offers a broader sense of how stocks are doing and determines the performance of many mutual funds.
Many market pros keep an eye on the Dow, of course, but when they need a close-up look at the U.S. market they turn to the S&P 500. Investors rely on it as a barometer for the economy, and it serves as the market's primary benchmark - trillions of dollars in investments mirror its moves, and the performance of many investment funds is measured against it.
Here are some questions and answers about the S&P 500, including what it says about the state of the economy.
Q: What is the S&P 500 index?
A: It's a grouping of the stocks of 500 large companies that's designed to give a big-picture view of the U.S. stock market. It reflects about 75 percent of the value of the U.S. stock market. The index is run by Standard & Poor's, which is best known as a credit rating agency.Data for the index's predecessors extend back to 1923, so it gives market analysts a long history to review for clues about how stocks might move in the future. It once included as few as 90 companies, but was expanded to 500 in 1957.
Q: What makes it important?
A: Everyday investors are more likely to have their money tied to the S&P 500 index than the Dow. About $1.5 trillion in investments mirror the moves of the S&P index and $4.9 trillion in investments are measured against it; the Dow, by comparison, has about $32.6 billion in investments that track it.
Jeffrey Kleintop, chief market strategist at LPL Financial in Boston, said he's been getting more questions from investors about the S&P 500 index in the past year as the stock market tumbled.
"The Dow used to represent 30 strong companies that could be bought and held forever and that whole concept is rapidly fading if not gone completely," he said.In an illustration of this, multiple longtime Dow companies have been dropped from the index during the recession. This week, Dow Jones & Co. said it was dumping General Motors Corp., which filed for bankruptcy protection, along with Citigroup Inc., which was dropped because it's less of a publicly traded company than it used to be - federal bailout money has made the government a major shareholder.
In the fall, the Dow dropped insurer American International Group Inc. after bad bets on mortgages threatened to topple the company and the government pumped in billions of dollars to keep it afloat.
Fans of the Dow's simplicity point out that it moves the same way as the S&P 500 index 95 percent of the time, but Kleintop said the S&P is quicker to factor in new forces in the economy.
"A lot of new industries and sectors get their representation in the S&P 500 well before they show up in the Dow," he said.The S&P 500 is also important because, as with other indexes, its moves can offer some idea of how the economy is expected to fare.
A sustained slide in the S&P 500 can signal that investors expect the economy to slow.The S&P 500 began sliding in October 2007, months ahead of the recession's start in December 2007.
Q: How is the S&P 500 set up?
A: It is divided into 10 groups that represent the leading industries in the U.S. economy. For example, there are industrial companies, like General Electric Co., and information technology companies, like Microsoft Corp.
Q: Why do the groupings matter?
A: Investors can look at how the stocks of different types of companies are performing, which can provide clues about the health of the economy.
When the economy is wheezing investors tend to flock to businesses that are seen as less vulnerable, such as health care stocks, like Johnson & Johnson, and makers of consumer staples, like Procter & Gamble Co.
These sectors tend to be more resilient because they provide products and services that people always need, regardless of the economy.On the other hand, retailers, like Macy's Inc., might fall out of favor if investors worry consumers will be cutting back.
Q: What determines how the index moves?A: The S&P 500 doesn't simply rise or fall based on changes in share prices. Based on price alone, Google's $432 shares would have more pull than Exxon Mobil Corp.'s $72 shares.
The index also takes into account how many shares of a company can be traded in the marketplace. So Exxon, with more shares floating around, is valued at $355.8 billion compared with $135.3 billion for Google - and thus has far more influence over whether the index goes up or down.In contrast, the Dow Jones industrial average is moved most by those of its 30 stocks with the highest price. So in the Dow, IBM at $106 has greater say in what the blue chips do than does Exxon at $72.
Q: I know that a 200-point drop in the Dow doesn't feel good. What's considered a significant move in the S&P?
A: Analysts caution against reading too much into any one day's moves. But to get a good sense of what the market does, focus on percentages. A 2 percent move in a day is a big shift.
Q: How are companies picked for the index?
A: An S&P committee considers publicly traded U.S. companies worth at least $3 billion in the eyes of the stock market. There are many considerations, including how readily a stock can be traded. Warren Buffett's Berkshire Hathaway, for one, is plenty big enough to make the cut, but S&P has left it out of the index because it considers the company too cumbersome to trade. The reason: Its shares are priced at $89,500 apiece.
Q: What is the S&P 500 index telling us about the U.S. economy right now?
A: The index is still way down from its peak in October 2007, but it's surged about 40 percent from a 12-year low in early March - meaning it's quickly made up almost exactly half of what it's lost during the downturn.
The three-month rally translates to a gain on paper of $2.4 billion - though the loss since the peak still totals $5.6 billion.The gains show that investors are becoming more confident about an eventual recovery in the U.S. economy.
Still, that doesn't mean the rebound won't be bumpy.In downturns during the past 60 years, the S&P 500 index has hit bottom an average of four months before a recession ended and about nine months before unemployment hit its peak. So if history repeats itself, recovery may be near - but any growth in jobs may be many months away.
Copyright © 2009 The Associated Press. All rights reserved
NEW YORK (AP) - The ups and downs of the Dow Jones industrial average may get most of the attention, but there's another stock index you should be watching: the Standard & Poor's 500, which offers a broader sense of how stocks are doing and determines the performance of many mutual funds.
Many market pros keep an eye on the Dow, of course, but when they need a close-up look at the U.S. market they turn to the S&P 500. Investors rely on it as a barometer for the economy, and it serves as the market's primary benchmark - trillions of dollars in investments mirror its moves, and the performance of many investment funds is measured against it.
Here are some questions and answers about the S&P 500, including what it says about the state of the economy.
Q: What is the S&P 500 index?
A: It's a grouping of the stocks of 500 large companies that's designed to give a big-picture view of the U.S. stock market. It reflects about 75 percent of the value of the U.S. stock market. The index is run by Standard & Poor's, which is best known as a credit rating agency.Data for the index's predecessors extend back to 1923, so it gives market analysts a long history to review for clues about how stocks might move in the future. It once included as few as 90 companies, but was expanded to 500 in 1957.
Q: What makes it important?
A: Everyday investors are more likely to have their money tied to the S&P 500 index than the Dow. About $1.5 trillion in investments mirror the moves of the S&P index and $4.9 trillion in investments are measured against it; the Dow, by comparison, has about $32.6 billion in investments that track it.
Jeffrey Kleintop, chief market strategist at LPL Financial in Boston, said he's been getting more questions from investors about the S&P 500 index in the past year as the stock market tumbled.
"The Dow used to represent 30 strong companies that could be bought and held forever and that whole concept is rapidly fading if not gone completely," he said.In an illustration of this, multiple longtime Dow companies have been dropped from the index during the recession. This week, Dow Jones & Co. said it was dumping General Motors Corp., which filed for bankruptcy protection, along with Citigroup Inc., which was dropped because it's less of a publicly traded company than it used to be - federal bailout money has made the government a major shareholder.
In the fall, the Dow dropped insurer American International Group Inc. after bad bets on mortgages threatened to topple the company and the government pumped in billions of dollars to keep it afloat.
Fans of the Dow's simplicity point out that it moves the same way as the S&P 500 index 95 percent of the time, but Kleintop said the S&P is quicker to factor in new forces in the economy.
"A lot of new industries and sectors get their representation in the S&P 500 well before they show up in the Dow," he said.The S&P 500 is also important because, as with other indexes, its moves can offer some idea of how the economy is expected to fare.
A sustained slide in the S&P 500 can signal that investors expect the economy to slow.The S&P 500 began sliding in October 2007, months ahead of the recession's start in December 2007.
Q: How is the S&P 500 set up?
A: It is divided into 10 groups that represent the leading industries in the U.S. economy. For example, there are industrial companies, like General Electric Co., and information technology companies, like Microsoft Corp.
Q: Why do the groupings matter?
A: Investors can look at how the stocks of different types of companies are performing, which can provide clues about the health of the economy.
When the economy is wheezing investors tend to flock to businesses that are seen as less vulnerable, such as health care stocks, like Johnson & Johnson, and makers of consumer staples, like Procter & Gamble Co.
These sectors tend to be more resilient because they provide products and services that people always need, regardless of the economy.On the other hand, retailers, like Macy's Inc., might fall out of favor if investors worry consumers will be cutting back.
Q: What determines how the index moves?A: The S&P 500 doesn't simply rise or fall based on changes in share prices. Based on price alone, Google's $432 shares would have more pull than Exxon Mobil Corp.'s $72 shares.
The index also takes into account how many shares of a company can be traded in the marketplace. So Exxon, with more shares floating around, is valued at $355.8 billion compared with $135.3 billion for Google - and thus has far more influence over whether the index goes up or down.In contrast, the Dow Jones industrial average is moved most by those of its 30 stocks with the highest price. So in the Dow, IBM at $106 has greater say in what the blue chips do than does Exxon at $72.
Q: I know that a 200-point drop in the Dow doesn't feel good. What's considered a significant move in the S&P?
A: Analysts caution against reading too much into any one day's moves. But to get a good sense of what the market does, focus on percentages. A 2 percent move in a day is a big shift.
Q: How are companies picked for the index?
A: An S&P committee considers publicly traded U.S. companies worth at least $3 billion in the eyes of the stock market. There are many considerations, including how readily a stock can be traded. Warren Buffett's Berkshire Hathaway, for one, is plenty big enough to make the cut, but S&P has left it out of the index because it considers the company too cumbersome to trade. The reason: Its shares are priced at $89,500 apiece.
Q: What is the S&P 500 index telling us about the U.S. economy right now?
A: The index is still way down from its peak in October 2007, but it's surged about 40 percent from a 12-year low in early March - meaning it's quickly made up almost exactly half of what it's lost during the downturn.
The three-month rally translates to a gain on paper of $2.4 billion - though the loss since the peak still totals $5.6 billion.The gains show that investors are becoming more confident about an eventual recovery in the U.S. economy.
Still, that doesn't mean the rebound won't be bumpy.In downturns during the past 60 years, the S&P 500 index has hit bottom an average of four months before a recession ended and about nine months before unemployment hit its peak. So if history repeats itself, recovery may be near - but any growth in jobs may be many months away.
Copyright © 2009 The Associated Press. All rights reserved
Adaro investors raise $150 million in a sell-down
By Daniel Inman
The deal will greatly increase the number of international investors with a stake in the Indonesian coal miner.
Three existing investors yesterday teamed up to reduce their stake in Indonesian coal miner PT Adaro Energy, raising Rp1.5 billion ($150 million) in a placement launched and completed before the start of trading in Jakarta.
A total of 1.25 billion shares, representing 3.9% of the company, were sold. The shares were offered in a range between Rp1,230 and Rp1,260 per share, which translated to a discount of 8% to 10.2% versus Tuesday's closing price. The deal was priced at the bottom, at Rp1,230, with a corresponding discount of 10.2%. Adaro's share price fell 5.1% yesterday after the transaction.
The sellers were GIC Special Investment, Goldman Sachs and Noonday. Before the deal, the investors held a combined 17.3% stake in Adaro and this was reduced to 13.4% after the transaction. Since Goldman was one of the sellers, it was only natural that it was also the sole international bookrunner.
Adaro listed on the Jakarta exchange last summer following a $1.3 billion initial public offering, which was the largest Indonesian listing in 2008 and the second largest equity transaction in the country. Despite the scale of the deal, only around $200 million was open to public investors, since most of the shares were set aside for pre-IPO investors as part of a restructuring. Around 65% of this stock went to the company's management, while around 20% went to international pre-IPO investors.
Of the publicly offered shares, most went to domestic investors, while international presence was limited to a core group of long-term stakeholders. The end result was a highly illiquid stock, so the stake sold yesterday is equivalent to half of the company's free float.
Yesterday's trade was sold to around 40 international accounts, greatly increasing the number of small international shareholders. Most of the investors were long-only accounts with a view on the commodity cycle, while the liquidity dynamic was not so attractive to hedge funds. Around two-thirds of the demand originated from Asia, with good interest from the US and a few investors from Europe, said a source close to the deal.
The source said that the deal was attractive to investors partly due to the coordinated approach taken by the sellers, and also because sellers agreed to be bound by a 90-day lock up, suggesting that they retain an interest in the company's future.
Adaro mines coal in the Tanjung district of South Kalimantan Province where the government has given it rights to operate until 2022. Among its mines is the largest open pit coal mine in the southern hemisphere with reserves of 2.8 billion tonnes. The company has plans to double its 40 million tonnes of production capability over the next few years.
The company's share price took a terrible beating last year when the commodity bubble burst. Over the course of just four days' trading at the beginning of October, the share price lost 48% of its value. However, the stock has recovered significantly since the beginning of the year and now trades at around Rp1,300 a share, close to the Rp1,500 level where it traded last September.
In early April, when the stock was trading at around Rp880 a share, some analysts were calling on investors to take profit. Yesterday's sellers will be glad that they held their nerve.
Indonesia's equity markets have been quiet this year, with Bank Danamon Indonesia involved in the major deals. Two weeks ago, an unidentified shareholder sold $60 million worth of stock in the bank; and in April, the bank completed a $362 million rights issue.
© Haymarket Media Limited. All rights reserved.
The deal will greatly increase the number of international investors with a stake in the Indonesian coal miner.
Three existing investors yesterday teamed up to reduce their stake in Indonesian coal miner PT Adaro Energy, raising Rp1.5 billion ($150 million) in a placement launched and completed before the start of trading in Jakarta.
A total of 1.25 billion shares, representing 3.9% of the company, were sold. The shares were offered in a range between Rp1,230 and Rp1,260 per share, which translated to a discount of 8% to 10.2% versus Tuesday's closing price. The deal was priced at the bottom, at Rp1,230, with a corresponding discount of 10.2%. Adaro's share price fell 5.1% yesterday after the transaction.
The sellers were GIC Special Investment, Goldman Sachs and Noonday. Before the deal, the investors held a combined 17.3% stake in Adaro and this was reduced to 13.4% after the transaction. Since Goldman was one of the sellers, it was only natural that it was also the sole international bookrunner.
Adaro listed on the Jakarta exchange last summer following a $1.3 billion initial public offering, which was the largest Indonesian listing in 2008 and the second largest equity transaction in the country. Despite the scale of the deal, only around $200 million was open to public investors, since most of the shares were set aside for pre-IPO investors as part of a restructuring. Around 65% of this stock went to the company's management, while around 20% went to international pre-IPO investors.
Of the publicly offered shares, most went to domestic investors, while international presence was limited to a core group of long-term stakeholders. The end result was a highly illiquid stock, so the stake sold yesterday is equivalent to half of the company's free float.
Yesterday's trade was sold to around 40 international accounts, greatly increasing the number of small international shareholders. Most of the investors were long-only accounts with a view on the commodity cycle, while the liquidity dynamic was not so attractive to hedge funds. Around two-thirds of the demand originated from Asia, with good interest from the US and a few investors from Europe, said a source close to the deal.
The source said that the deal was attractive to investors partly due to the coordinated approach taken by the sellers, and also because sellers agreed to be bound by a 90-day lock up, suggesting that they retain an interest in the company's future.
Adaro mines coal in the Tanjung district of South Kalimantan Province where the government has given it rights to operate until 2022. Among its mines is the largest open pit coal mine in the southern hemisphere with reserves of 2.8 billion tonnes. The company has plans to double its 40 million tonnes of production capability over the next few years.
The company's share price took a terrible beating last year when the commodity bubble burst. Over the course of just four days' trading at the beginning of October, the share price lost 48% of its value. However, the stock has recovered significantly since the beginning of the year and now trades at around Rp1,300 a share, close to the Rp1,500 level where it traded last September.
In early April, when the stock was trading at around Rp880 a share, some analysts were calling on investors to take profit. Yesterday's sellers will be glad that they held their nerve.
Indonesia's equity markets have been quiet this year, with Bank Danamon Indonesia involved in the major deals. Two weeks ago, an unidentified shareholder sold $60 million worth of stock in the bank; and in April, the bank completed a $362 million rights issue.
© Haymarket Media Limited. All rights reserved.
Subscribe to:
Posts (Atom)
Posts
