The Dawn Patrol – 27.11.12 – On Greece, The Fiscal Cliff, JPM Fixed Income outlook, MS and the risk of Rights Issues in Telcos, More….


European futures incated slightly up this morning on the Greek deal and the Euro spiked above 1.30 reaching a 3 week high (now back to 1.2988). Asia up as well but concerns on a large number of IPOs seems to bother Chinese investors. GOLD at 1,749.30.
Today, we’ll be monitoring the French Consumer Confidence index for Nov, the revised UK GDP for Q3 and in the US: Durable Goods, S&P Case Shiller, Consumer Confidence and the Richmond Fed Mnfct index.
On the Auction front, Spain and Switzerland sell bills, Italy and Netherlands sell bonds.

I don’t think skiing is on the agenda yet…


Galp Shares Offered at EU11.48 to EU11.73. Eni will sell 1.1 billion euros ($1.4 billion) of senior, unsecured bonds that can convert into ordinary shares of Galp, it said in a statement. An offering of 49.76 million shares in the Portuguese oil provider is also taking place.

REMY COINTREAU’s H1 operating profit came in better than expected, BUT the co says that H2 growth will be lower than H1. The group confirms its targets.

CARREFOUR to Open More Than 25 China Hypermarkets a Yr: Figaro

LVS. LAS VEGAS SANDS share rise 4.7% after hours as the company like many others in the US who want to avoid the dividend tax increase next year, announced it would raise its dividend now to $2.75

HP sued over Autonomy takeover. Class action alleges investors misled on financial performance.

BIC The European Commission withdraws the anti-dumping measures against Bic, arguing that the company has not demonstrated that it would actually have a negative impact on society. Bic has confirmation on EU plans to end levy on Chinese lighters
ARCELORMITTAL’s Lakshmi Mittal will fly into Paris on Tuesday for emergency talks with the president of France over an extraordinary industrial row in which the Indian steel magnate’s company was accused of “lying” and “blackmail” by a French minister

Actelion Reinstated Neutral at BofAML
Aeroports De Paris Cut To Underweight From Neutral at JPMorgan
ARM Holdings PT Raised to 800p from 660p at RBC Capital
Nokia PT Raised to Eu3.5 From Eu2.5 at Liberum
Nokia Raised To Buy From Hold at Liberum
RBS Raised to Buy VS Neutral at UBS ; RBS PT Raised to 328p VS 287p at UBS
Seadrill PT Cut 2% to Nok225 at Exane; Kept at Neutral
United Internet PT Raised to Eu20 From Eu18 at Berenberg


On Europe
(Alphaville) Eurozone ministers agreed a Greek aid deal in the early hours of the morning, that will release a long-delayed €34.4bn aid payment by agreeing to a series of measures that could relieve Greece of billions of euros in debt by the end of the decade. Greece intends to carry out a debt buyback, the ministers said, and eurozone countries will make some concessions such as accepting reduced interest on Greek repayments on the first bailout, extending maturities of loans and assistance by 15 years, and transferring about €7bn of profits on Greek bonds to Greece. It stops short of accepting official bondholder losses, although the reduced interest payments will likely mean some countries, such as Spain and Italy, are losing money on their loans to Greece. Greece’s debt target for 2020 was raised from 120% to 124%. The IMF won’t release its portion of the aid payment until details of the debt buyback are settled. (Financial Times)(Wall Street Journal)(FT Alphaville)(Eurogroup statement)(Reuters).

On The Fiscal Cliff
Mr. Obama, while standing firm on his viewpoint during talks with Republicans, called House and Senate leaders over the weekend to prod discussions, invited business leaders to the White House to enlist their support and planned a public event for Wednesday to press his position on taxes. Like Mr. Obama, top House Republicans are planning to meet Wednesday with business leaders—including Erskine Bowles, co-chairman with former Sen. Alan Simpson, of the president’s 2010 deficit-reduction commission. WSJ
GS puts out a short piece today in the form of a Q&A on the shate of a year end agreement. An agreement to avert the fiscal cliff before year-end remains their central assumption, though it continues to look like a fairly close call given the political obstacles to a deal. If a deal is reached, they would expect a tax increase of a magnitude similar to the upper income tax cuts, though the composition might differ. Entitlement reforms also seem likely to be part of a package, particularly related to health programs. “Downpayments” in both areas seem likely, with additional deficit reduction to be enacted in 2013 as part of a two-stage process. The working deadline for an agreement appears to be December 21. While talks are ongoing, they would not expect serious negotiations to begin for another couple of weeks. In the interim, headlines out of Washington are likely to be mixed, but we would expect more negative than positive news until at least mid-December.


MS (Delfas) European Telecoms
Rights Issue in Dividends: 2000-2003 revisited.

Sector cash flow squeeze. The telco sector is undergoing erosion of narrowband fixed, macro pressure on mobile, and increasing capex off what has been a very low base for many years. Those that have paid out high dividends and/or run at relatively high gearing are exposed. MS analysed what happened then, when BT, FT, and KPN raised more than €30bn in rights issues:
(i) Wait for ex-rights trading for sector-relative performance. All examples saw a fall from announcement TERP to ex-rights trading, and all outperformed the sector in the 6 months after ex-rights.
(ii) Absolute performance can still be very weak, depends on valuation. Whether a stock performed well absolutely depended on valuation – e.g. BT’s multiple was just too high in 2001 to sustain the absolute share price.
(iii) Leverage nowhere near as stretched today, but also much harder to cut capex / costs. On the one hand leverage nowhere today exceeds 3x EBITDA and debt costs are very low, versus leverage levels of up to 7.5x in 2000. On the other hand, the classic cutting

JPM (Wadhwa) Global Fixed Income 2013 Outlook
Overview. Policy response to the sovereign debt crisis is likely to significantly improve the outlook for peripherals in 2013. We are bullish for the following reasons: 1) The fiscal consolidation burden is lower in 2013 compared to 2012, producing less economic drag; we expect the Eurozone to emerge from recession by mid-year; 2) ECB OMT will implicitly cap peripheral yields, dampen volatility, partially reverse capital flight and improve long-run debt dynamics; 3) German elections in September 2013 will produce more risk-averse policymaking; a Grexit will be avoided at all costs; 4) €575bn of liquidity support is available via bailout facilities, and is being used in increasingly market-friendly ways; and 5) Policymakers are finally addressing the negative feedback loop between sovereigns, banks and the real economy.



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