Data Explorers Presentation, Bloomberg London Offices 15th September 2009
Nothing in this document constitutes an offer or a solicitation of an offer to buy or sell any security or other financial instrument or constitutes any investment advice or recommendation of any security or other financial instrument. BLOOMBERG TRADEBOOK believes that the information herein was obtained from reliable sources but does not guarantee its accuracy.
<ul><li>Panellists: </li></ul><ul><li>Charlotte Wall, Data Explorers </li></ul><ul><li>Alexander Hofmann, Data Explorers </li></ul><ul><li>Lucinda Guthrie, DealReporter </li></ul><ul><li>Yanita Morris, DealReporter </li></ul><ul><li>Moderator: Elaine Mulcahy, DealReporter </li></ul>List of speakers <ul><ul><li>Introduction: David Masulo, Bloomberg Tradebook </li></ul></ul>
European bond pipeline <ul><li>European corporates with additional borrowing needs that are expected to come to market </li></ul>Utilities Autos Other EDP VW K+S E.on Peugeot BHP RWE Renault Xstrata Iberdrola Rio Tinto Gas de France Holcim
<ul><li>Anheuser-Busch InBev NV: a brewing company with production in America, Europe and Asia. Inbev needed to raise capital to help finance the purchase of Anheuser-Busch (Bud). This was a $52billion transaction making Inbev the top brewer in the world’s five biggest beer markets. </li></ul><ul><li>Details of Rights Issue: </li></ul><ul><li>Rights Trading period 25th Nov 08 to 9th December 08 </li></ul><ul><li>Terms; 8 shares for every 5 Rights received / bought. </li></ul><ul><li>Subscription Price = 6.45 Euro. </li></ul>InBev
Stock borrowing in InBev Copyright: Data Explorers
<ul><li>100k shares borrowed at 25% fee over a 21 day period for example. (Prices taken from 26th November 08). Cash Flows; </li></ul><ul><li>SELL 100,000 shares at 17.72 Euros = 1,772,000 (cash-in) </li></ul><ul><li>Note; 8/5 = 1.6. (Number of Rights to BUY) so 100,000 / 1.6 = 62,500 Rights </li></ul><ul><li>BUY 62,500 Rights at 11.01 (Rights Price) = 688,125 (cash-out) </li></ul><ul><li>BUY 100,000 shares at 6.45 (subscription price) = 645,000 (cash-out) </li></ul><ul><li>Borrow Costs. 100,000 shares x 25% / 360 x 21 = 25,841.67 </li></ul><ul><li>Total P&L = 413,033.33 (Euros) </li></ul><ul><li>Or </li></ul><ul><li>4.13 Euro per share. </li></ul>Details of the InBev Trade
<ul><li>05-Jan-09 Infineon planning EUR 450m capital increase, acquisitions possible </li></ul><ul><li>05-Jan-09 Infineon capital raising unlikely in immediate short term (dealReporter) </li></ul><ul><li>05-May-09 Infineon intends to repurchase convertible and exchangeable notes </li></ul><ul><li>05-May-09 Infineon Dutch auction orders expected at around 75, as hedge funds bet on rights issue (dealReporter) </li></ul><ul><li>12-May-09 Infineon: EUR 45.1m takeup on 5% convertible; EUR 7.3m takeup on 1.375% exchangeable </li></ul><ul><li>26-Jun-09 Infineon poised for capital raise; wireless business seen as potential disposal candidate, bankers say (dealReporter) </li></ul><ul><li>10-Jul-09 Infineon announces EUR 725m rights issue </li></ul><ul><li>22-Jul-09 Infineon share price makes take up logical option for shareholders; strong off market rights trading - source sdealReporter) </li></ul><ul><li>04-Aug-09 Infineon places 322m shares in capital increase (Boersen-Zeitung) </li></ul>Infineon Copyright: Data Explorers
ArcelorMittal <ul><li>26-Feb-09 ArcelorMittal in talks to extend 2010 maturities(dealReporter) </li></ul><ul><li>17-Mar-09 ArcelorMittal shares dip on rumours of EUR 5bn rights issue - report (Financial Times) </li></ul><ul><li>17-Mar-09 ArcelorMittal says no eed to raise capital through rights issue at this time (Company Press Release(s)) </li></ul><ul><li>24-Mar-09 ArcelorMittal plans EUR 750m convertible </li></ul><ul><li>02-Apr-09 ArcelorMittal secures further USD 1.2bn refinancing </li></ul><ul><li>29-April 09 ArcelorMittal announces c.USD 3bn stock and convertible note offerings </li></ul><ul><li>29-Apr-09 ArcelorMittal equity/CB deal cushions 3.5x net debt/EBITDA covenant sources (dealReporter) </li></ul><ul><li>14-May-09 ArcelorMittal USD 2.25bn bond </li></ul><ul><li>09-Jul-09 ArcelorMittal seeking covenant rise to 4.5x, source says ( dealReporter ) </li></ul>Copyright: Data Explorers
Expected rights issue candidates Company Catalyst % stock on loan (change on week) Bilfinger Berger (NR) To fund acquisitions 2.15% (-2.19%) Immofinanz Awaiting AGM results- first step towards merger with ImmoEast 8.57% (+9.0%) RSA Insurance Targeting AIG LatAM assets – leading shareholder expecting EUR 1bn deal 0.71 (+156%) Barratts EUR 500m deal expected- second wave of UK housebuilders exp end September- advisers appointed 5.30% (+18.5% ) Alstria Pitched - planning to cut debt without rights issue, could use proceeds for acquisitions. Not short term 0.47% (+3.2%)
<ul><li>In June 2009, the gap between US 3m swap rates and Libor increased dramatically as risk aversion temporarily returned and banks restricted lending to corporates. </li></ul>Predicting future rights issues The companies that would be hardest hit by the higher spread would be those with the highest net debt to equity or net debt to ebitda ratio. Typically, a ratio of 3x net debt to ebitda is used as a rule of thumb to indicate trouble ahead.
Rights issues in the UK <ul><li>We identified the UK and European largecap universe by net debt to equity ratio and then sorted by the rank of the Data Explorers Negative Sentiment Indicator (DNS), which identifies where utilisation is high and has been rising rapidly. Utilisation is a measure of supply: a utilisation ratio of 50% means that half the available supply from lending agents has been borrowed. </li></ul>The following tables show the net debt and equity position for a number of large nonfinancial companies in the DX research universe in UK,
Rights issues in Europe <ul><li>In Europe, the most heavily indebted non-financial companies are concentrated in the Capital Goods and Transportation sectors, with emphasis on infrastructure companies. </li></ul><ul><li>Grupo Ferrovial (owner of BAA in UK) has 7% of its shares outstanding on loan; but Itinere Infraestructuras has only 0.1%, despite being ranked 8th for Negative Sentiment. Utilisation is 45% so the demand for shorting is constrained by almost non-existent supply. Borrow fees in Sacyr are >12%. </li></ul>The following tables show the net debt and equity position for a number of large nonfinancial companies in the DX research universe in UK,
Investors’ risk appetite looking ahead Source: Data Explorers; FactSet The SPX is up 12% YTD and fund managers will be looking to lock-in profits. One of the best proxies for investor sentiment is the borrow level in the SPDR ETF (Ticker: SPY ). Since September 7 th , short interest in the SPDR as measured by the quantity of shares on loan has risen by 24% from 60.8m shares to 80.0m shares. The USSI data which will be published later this week will back this up. Big new borrows in the SPY since 7 th Sept.
Appendix 1 The DNS indicator is based on the normalized sum of the moving average of utilization (a DX measure of supply vs. demand in the securities lending market) and the change in utilization. This indicator is based on a relative scale (normalized) from 0 to 100. A relatively high DNS generally reflects negative sentiment (an increasing amount of shorts relative to longs) while a low number shows relatively less negative sentiment. This measure is best viewed over a time series. A rising DNS signifies an increase in negative sentiment for the security which represents a potential risk for long positions and may indicate a signal for going short or underweight. A falling DNS signifies decreasing negative sentiment and may signal a move to close shorts or to go overweight. DNS (Data Explorers Negative Sentiment) Calculation DNS = a1 *(Previous 8 working day moving average of Utilisation) + a2*(Absolute Change in Utilisation over previous 7 working days) Where a1 = 1 a2 = 1 Example Utilization for previous 8 days = 25, 26, 27, 29, 30, 32, 33, 35 8 day Moving average = (25+26+27+29+30+32+33+35)/8 = 29.6 Current Utilisation = 36 Absolute Change = 36 – 26 = +10 Indicator = 1* 29.6 + 1*(+10) = 39.6 This is then normalized with the other indicators in the sample so that it lies in the range between 0 and 100. Calculation of the DNS Indicator
Appendix 2 List of companies which show signs of pre-borrowing We analysed DealReporters’ universe of 121 announced or potential rights issues candidates and compared cash equity volumes 1 month before the announcement date and 1 day before announcement. If the cash equity volumes had not risen, but the quantity of stock on loan had risen, there was potentially pre-borrowing in these names.
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