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Galicia Is Ready to Aid Ailing Spanish Fishing Company

March 15, 2013 by Leave a Comment

The offer coincided with an extraordinary board meeting of Pescanova, called by some of its institutional shareholders. They are pushing for Pescanova’s longtime president to explain how the company ended up with accounts that do not match the debt claims filed by its creditors.

Pescanova filed for bankruptcy protection on March 1 after failing in an effort to divest some assets to help meet its debt refinancing obligations, which this year amount to about 200 million euros, or $260 million. The company then announced in a separate filing on Wednesday that it had found “discrepancies” between its accounts and its actual bank debt, a gap that “could be significant.”

Pescanova reported debt of 152 million euros, or $198 million, at the end of September 2012, which was eight times its annual operating profit.

Pescanova’s downfall provides fresh evidence that Spain’s debt crisis has stretched well beyond the banks and construction companies that have been at the heart of the country’s economic downturn. Although financial market pressure has eased on Spain, banks remain reluctant to lend to companies whose earnings have been hit by slumping consumer demand and a recession expected to last through this year.

Until recently, Pescanova was considered among Spain’s most successful food companies, with operations from Latin America to Africa. From its operational base in the northwestern port of Vigo, in the region of Galicia, it also headed an industry that remains among the country’s leading employers as well as the biggest recipient of fisheries subsidies from the European Union.

The government in Madrid has so far played down the troubles of Pescanova. After the company’s bankruptcy filing, the agriculture minister, Miguel Arias Cañete, said he was confident that Pescanova would solve what he described as a “temporary problem.”

However, Francisco Conde, the economics minister of the regional government of Galicia, underlined the extent of Pescanova’s difficulties on Thursday, telling reporters that the regional authorities now stood ready to provide “economic and institutional” help to the company once the full extent of its debt problems became clear.

The board meeting on Thursday was requested by some of the company’s main institutional investors, led by Corporación Económica Damm, which holds about 6.2 percent of the stock, and Luxempart, which has a 5.8 percent stake. Pescanova’s 45 creditors have scheduled a separate meeting on Friday to discuss how these financial institutions should act to ensure the company will eventually repay its debt.

Pescanova’s president, Manuel Fernández de Sousa-Faro, took charge in 1980 of the company, which was founded by his father two decades earlier and grew rapidly as a major player in the frozen-fish sector. Its operations now include fish factories in countries like Namibia and Honduras.

Mr. Fernández de Sousa-Faro controls about 28 percent of his company’s equity, including a stake that he bought back from NovaCaixaGalicia, the leading savings bank in Galicia. The bank was among the lenders that had to be rescued by the Spanish government because of its mountain of bad loans.

Investors have sent Pescanova’s shares tumbling 57 percent since the start of March. On Wednesday, the market regulator suspended trading in the shares.

Pescanova also breached its legal obligations to report earnings by the end of February. The market regulator said it would investigate that breach, as well as the latest accounting discrepancies, along with possible insider trading.

Article source: http://www.nytimes.com/2013/03/15/business/global/galicia-ready-to-aid-ailing-spanish-fishing-firm.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

DealBook: In a Switch, Investors Are Buying European Bank Bonds

November 16, 2012 by Leave a Comment

Bank of Ireland raised $1.27 billion on Tuesday in its most significant bond issue in more than three years.Shawn Pogatchnik/Associated PressBank of Ireland raised $1.27 billion on Tuesday in its most significant bond issue in more than three years.

LONDON — European bank debt, once an investment pariah, is suddenly popular.

In recent weeks, money managers have been readily buying the new bonds of the region’s financial institutions, deals that just months ago would have seemed unpalatable. Bank of Ireland, which received a bailout in 2010, sold $1.3 billion of bonds on Tuesday and found strong demand. It was the largest offering by an Irish bank without a government guarantee in almost three years.

The gradual thawing of the capital markets is a good sign for the region’s banks. In the midst of the crisis, institutions, especially in troubled economies like Ireland and Portugal, have been struggling to raise money from private investors. The latest deals will help bolster banks’ capital levels and strengthen their balance sheets.

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But the bonds could leave investors exposed, especially given the precarious situation in Europe. The sovereign debt crisis continues to weigh on the economy. The financial markets remain volatile. And profit at the region’s banks is flagging.

“It’s a great time to be issuing high-yield debt but not to be investing in it,” said Robin Doumar, managing partner at the private equity firm Park Square Capital.

For now, bondholders are taking comfort in the policy makers’ response to the sovereign debt crisis.

On Thursday, the British bank Barclays sold $3 billion of 10-year bonds at 7.6 percent.Neil Hall/ReutersOn Thursday, the British bank Barclays sold $3 billion of 10-year bonds at 7.6 percent.

In late August, the European Central Bank began an unlimited bond-buying program aimed at lowering countries’ borrowing costs and breathing life into local economies. By essentially offering a blank check to help Europe’s troubled governments, policy makers calmed short-term fears that some of the region’s banks might need to be bailed out, reviving interest in the companies’ bonds.

“The biggest driver of demand has been the policy responses from the European Central Bank,” said Melissa Smith, head of European high-grade debt capital markets at JPMorgan Chase in London. “It’s provided stability as policy makers have stated their commitment to preserving the euro zone.”

With interest rates at record lows, European bank debt looks especially appealing to investors.

On Thursday, the British bank Barclays sold $3 billion of 10-year bonds at 7.6 percent. The Portuguese lender Banco Espírito Santo recently issued $958 million worth of debt at 5.9 percent.

By comparison, a 10-year Treasury is paying 1.8 percent. Germany has offered a negative yield on some of its sovereign debt maturities this year.

Even the yields on junk bonds, the risky corporate debt that pays high interest rates, are coming down as investors pile into such securities. The average yield is now just 5.8 percent, according to a Bank of America Merrill Lynch index. Historically, they have paid 10 percent or even more.

“There’s been a huge contraction,” said Robert Ellison, head of European debt capital markets for financial institutions at UBS in London.

The industry has been quick to capitalize on investors’ desperate hunt for returns. Banks in Europe have issued a combined $318 billion of unsecured debt so far this year, almost triple the amount raised by their American counterparts, according to the data provider Dealogic.

The capital markets are being discerning. This year, well-financed companies in Northern Europe, like Nordea Bank of Sweden, have been able to sell the largest lots of bonds at relatively reasonable rates. Smaller banks, particularly in Southern Europe, have had to offer investors better rates to win support for their bond deals.

Even so, it is a stark contrast from almost a year ago. With the capital markets paralyzed, the European Central Bank then had to step in to stabilize the banks, offering $1.3 trillion in short-term, low-cost loans to financial companies.

As they find renewed interest from private investors, European banks can more easily raise money, fortifying their balance sheets in case of unexpected losses. At regulators’ behest, financial institutions in the region have been increasing their capital levels.

But bond investors, in their thirst for yield, may be overlooking signs of potential trouble.

Barclays, for instance, sold a controversial type of debt, known as contingent convertible bonds. With these so-called CoCo bonds, investors can be wiped out if the bank’s capital falls below a certain threshold. While Barclays’ balance sheet is in good shape, bondholders’ willingness to accept such conditions highlights the risks in the market. Traditional bondholders can usually recoup at least some of their principal even if a company goes bankrupt.

At the same time, many European financial institutions are still in fragile shape. The Bank of Ireland, in which the Irish government still has a small stake, is struggling to divest itself of many risky loans that it made before the financial crisis. Portugal’s economy is also expected to contract 3 percent this year, which will probably depress the earnings of Banco Espírito Santo.

The question for investors is whether the reward is worth the risk.

Article source: http://dealbook.nytimes.com/2012/11/15/in-a-switch-investors-are-buying-european-bank-bonds/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: European Banks Hunt for Ways to Raise Cash

December 12, 2011 by Leave a Comment

Francois Lenoir/Reuters

LONDON — As Europe continues to grapple with its sovereign debt crisis, many of the Continent’s banks are facing increased financing costs and limited access to much-needed cash, according to the Bank for International Settlements, an association of the world’s central banks.

In its quarterly review to be published on Monday, the Swiss-based institution said European banks, including Commerzbank of Germany, BNP Paribas of France and Lloyds Banking Group of Britain, are selling assets and increasing customers’ interest rates in an effort to bolster their balance sheets.

The steps come as the European Banking Authority has increased the amount that it expects banks will have to raise to meet new capital requirements.

Last week, European authorities said financial firms must find an additional $153 billion of capital. That is up from a previous estimate of $141 billion. Banks are required to have a core Tier 1 capital ratio, a measure of a firm’s ability to weather financial shocks, of 9 percent by June 2012.

“Banks and other financial institutions in the euro area are in a difficult situation,” said Stephen Cecchetti, head of the monetary and economic department of the Bank for International Settlements, on a conference call with reporters. “On the asset side of their balance sheets, they face losses because of sovereign debt holdings. On the liability side, they face even more difficulty in finding funding.”

The lack of new financing will soon start to bite. Nearly $2 trillion of bank debt is due to be repaid by the end of 2014, according to data from the Bank for International Settlements.

European banks are likely to have varying degrees of success in raising new funds. Because of Germany’s continued economic resilience, banks in that country were able to tap the markets for a combined $47 billion of additional debt financing in the third quarter of 2011, the settlement bank said.

Yet lenders in France, which may soon lose its coveted triple-A sovereign debt rating, had net repayments to investors — the difference between money raised and repaid — reach $18 billion over the same period.

With debt financing difficult to come by, financial firms are turning to other means to increase their capital bases. That includes raising interest rates on customers, despite the European Central Bank’s reduction of its benchmark rate to 1 percent last week.

The Bank for International Settlements estimates that euro zone banks have increased customer interest rates, on average, by 1 percentage point in the 52-week period ended Sept. 30. In Greece and Portugal, institutions have pushed rates up by 2 percentage points over the same period.

Firms are also turning to asset sales to increase their capital reserves. Attention has focused on banks’ international operations, particularly in Eastern Europe, as they focus attention to their home markets.

According to the advisory firm Deloitte, European banks currently have $2.2 trillion in noncore and nonperforming assets on their balance sheets, much of which could be put up for sale.

“Deleveraging is a key objective of most banks’ strategic plans, which is likely to lead to increased divestment in 2012 and beyond,” Robert Young, a partner at Deloitte, said in a statement.

A reduction in European banks’ operations outside their home countries will likely have a ripple effect.

The Continent’s banks, for example, currently provide almost 50 percent of the funding for nonfinancial firms in Eastern Europe, according to the Bank for International Settlements. If European banks reduce their lending, these Eastern Europe companies may face dwindling sources of financing, which could hurt the region’s overall economy.

Banks already are cutting back. Commerzbank and UniCredit of Italy have said they plan to reduce their operations in Eastern Europe.

And authorities in Austria, whose financial firms have been very active in the region, want new loans to Eastern European companies to be matched by similar increases in local deposits. Their goal is to ensure Austrian banks remain well capitalized to provide lending for domestic customers.

“When banks pull back from outside the E.U., the hole they’re leaving is being filled by others,” said Mr. Cecchetti of the Bank for International Settlements. “But that may change if they continue to shed foreign assets and conditions in the financial markets change.”

Article source: http://dealbook.nytimes.com/2011/12/11/european-banks-hunt-for-ways-to-increase-capital/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Russia Is Better Prepared for a Possible Global Downturn

August 18, 2011 by Leave a Comment

This time is different.

While the Russian economy is still vulnerable to the vicissitudes of global capital and commodity moves, it is in a far better position to weather the effects of a fresh recession in Europe or the United States.

Russia is not immune, of course. The European sovereign debt crisis, exacerbated by Standard Poor’s downgrade of the debt of the United States, caused a sell-off in the Russian stock market, but it hardly went into its typical free fall. The Micex index fell 17 percent from Aug. 1 until Aug. 10.

While drastic, it was about the same as the peak-to-trough decline of the Standard Poor’s 500-stock index over the last month, and Russian stocks have recovered somewhat over the last few trading sessions.

The ruble declined 7.5 percent against the dollar in 11 trading days, but then rebounded Monday, the most it has climbed in any single day in more than a year and a half.

One reason for the new resilience is that Russian private sector debt is only a fraction of what it was in 2008, after the oligarchs had quietly bulked up on Western loans collateralized against their companies’ shares.

This buildup of debt set off a cascade of margin-call selling in Russia, accelerating the collapse of the market. These debt levels are no longer widespread here.

Also, Russian banks have gone from being net debtors to net creditors.

“The situation with debt has changed dramatically,” Vladimir Tikhomirov, chief economist at Otkritie, one of Russia’s largest financial firms, said in a telephone interview.

In the fourth quarter of 2008, $80 billion in corporate and bank debt came due to foreign lenders, he said. Since then companies have paid down and extended the maturities of debt. In the fourth quarter of this year, only $35 billion will come due, giving companies a good deal more leeway to handle a downturn.

One sign of this change came from Oleg V. Deripaska, the metals and automobile tycoon whose hugely leveraged business came to symbolize the oligarchs’ debt binge and its aftermath in the recession. He announced without fanfare on Tuesday that he had restructured a $4.5 billion loan from the Russian bank Sberbank, extending its repayment period.

To be sure, Russia is hardly a haven, and never will be, as long as it continues its reliance on volatile commodity exports.

In the 20 years since the breakup of the Soviet Union, the Russian stock market has been either in the top five performing markets in the world or the bottom five in every year except one, according to estimates by Renaissance, an investment bank in Moscow.

“Russia has always been a big cyclical market,” Kingsmill Bond, the chief Russia strategist for Citigroup, said in a telephone interview from London. And despite its stronger starting position now, it is still vulnerable to a drop in the price of oil.

“If the situation in Europe worsens, and we get major recessions materializing, that would impact the oil price, and Russia would be damaged,” he said.

Mr. Bond has estimated that for each $10 drop in the average annual price of a barrel of oil, Russia loses 1 percent of its gross domestic product.

Russia can ill afford a sharp decline in the price of oil because, though the oligarchs and their businesses are carrying less debt, government spending has increased well beyond current tax receipts from oil export tariffs and mineral extraction fees.

In 2008, the Russian budget was intended to run a surplus at oil prices above $60 a barrel. But now, the Russian government estimates it will need to collect taxes on oil at prices above $120 a barrel to balance the budget. As they are already below that level, the finance ministry is borrowing from domestic and foreign investors.

Article source: http://www.nytimes.com/2011/08/18/business/global/this-time-russia-is-prepared-for-a-global-downturn.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

S.&P. Cuts Rating of Tokyo Electric Power to Junk

May 30, 2011 by Leave a Comment

S.P. said it had lowered the long-term credit rating of Tokyo Electric, one of the most active bond issuers in Japan, to B+ from BBB, while cutting the rating on the utility’s secured bonds to BB+ from BBB.

The ratings agency said it viewed a default on the utility’s 5 trillion yen ($62 billion) in corporate bonds as less likely than a restructuring of its bank debt.

Japan’s government earlier this month agreed to set up a fund with taxpayer money to help Tokyo Electric, known as Tepco, avoid insolvency and compensate victims of the radiation crisis at its Fukushima Daiichi nuclear plant.

Reactor cooling systems were knocked out by the March 11 earthquake and tsunami, causing a meltdown at three of the reactors and forcing the evacuation of about 80,000 residents near the plant.

But Chief Cabinet Secretary Yukio Edano has said the government scheme, which still needs parliamentary approval, would be unlikely to gain public support unless Tepco’s banks agreed to waive some of the debt they are owed by the utility, a step they have resisted.

S.P. said a restructuring of Tepco’s bank debt would be a “selective default,” and it now regarded the probability of “extraordinary” Japanese government support for Tepco as “high” rather than “very high,” the phrase it had previously used.

“Standard Poor’s now believes that some politicians think banks should share the burden in some form, which may fall into our definition of default,” S.P. said in a statement. “We now think such a scenario is more likely than previously thought.”

Tepco is Japan’s largest corporate bond issuer, and its shares are widely held by financial institutions.

S.P. said it was still unclear how much Tepco would have to pay in compensation for people who have suffered damages because of the Fukushima disaster. But the ratings agency said it believed that the Japanese government would intervene to prevent a disruptive default on Tepco’s bonds.

“The Japanese bond market would suffer a negative impact if Tepco were to default on its bond payments,” the ratings agency said. “We believe the Japanese government has an economic incentive to avoid such a scenario.”

Moody’s Investors Service said on May 19 it might review Tepco’s credit ratings if Japan failed to pass laws to help the utility handle compensation payments related to the plant.

Estimates for the cost of the compensation to be paid to displaced residents and disrupted business ranged as high as $130 billion in an extended crisis, according to one calculation by Bank of America-Merrill Lynch.

By comparison, BP earmarked just $20 billion for its oil-spill clean-up fund run by an overseer appointed by the Obama administration.

Sumitomo Mitsui Financial Group is the main bank for Tepco, Japan’s largest and most politically connected utility.

SMBC had an estimated $11 billion in exposure to Tepco after an April lending round, according to CreditSights. The analysis service put the total for Mizuho Corp. at the equivalent of $8.5 billion, and at $5.8 billion for Bank of Tokyo-Mitsubishi.

(Reporting by Chisa Fujioka, Kevin Krolicki; Editing by Michael Watson and Will Waterman)

Article source: http://www.nytimes.com/reuters/2011/05/30/business/business-us-tepco-credit.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,