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  • Forging more than a Roy Hill fortune? | Business Spectator
    why the shares leaped 67 cents to 1 69 in this morning s trading before falling back to about 1 42 at lunchtime Before the start of trade Forge announced it had received a formal notification from Samsung C T to proceed with phase three works for the 1 5 billion engineering procurement and construction contract for the processing facility at Gina Rinehart s Roy Hill iron ore project in the Pilbara Forge s share of the contract which it has joint ventured with Spain s Duro Felguera is about 830 million and its chief executive David Simpson said the go ahead would underpin the group s order book for the rest of this financial year and into 2015 He said it was encouraging to note that the Roy Hill project was progressing to schedule Over the past week or so the 10 billion Roy Hill project has secured debt funding approaching 3 5 billion from South Korean and US trade finance agencies In some respects the market s reaction to the Roy Hill announcement isn t unexpected given that an announcement of a mere 40 million asset management contract two weeks ago caused an equally sharp spike in its share price albeit from markedly lower levels Since that earlier pick up however Forge s price has risen as much as 168 per cent suggesting there might be something other than a reaction to some good news occurring Towards the end of last week there were some suggestions in the market that Forge could become a takeover target The Australian Securities Exchange last week queried the group about a surge in its share price but Forge said it knew of no reason for the rise other than the asset management contract it won earlier in the month About 17 per cent of Forge s shares were traded this morning reflecting either a massive change of institutional opinion in relation to the group or something more strategic About a month ago Forge Group lost 84 per cent of its value when it came out of a three week trading halt and disclosed a 127 million profit writedown associated with loss on two power station projects in Western Australia and Queensland Forge had picked up those contracts with its 2012 acquisition of the privately owned engineering services company CTEC Not only did Forge announced the writedown but it said it faced a 45 million net cash outlay to complete the projects at a point where it had only 44 million of net cash creating a challenging liquidity position as early as this month Had it not been for the support of ANZ Bank the former sharemarket darling would have been in a desperate position ANZ agreed to waive a number of covenants expanded Forge s working capital facility and deferred quarterly principal repayments on an existing facility In return Forge agreed to issue warrants equivalent to about 13 per cent of its capital base if the warrants were exercised at one cent

    Original URL path: http://www.businessspectator.com.au/article/2013/12/30/resources-and-energy/forging-more-roy-hill-fortune (2014-01-12)
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  • Britain's spring sows the seeds for NAB's exit | Business Spectator
    a larger Europe still struggling to generate any growth Last week the UK Office of National Statistics said UK GDP was 0 8 per cent higher in the September quarter than the June quarter and revised its annual growth rate up from 1 5 per cent to 1 9 per cent A survey of 25 economists also published last week produced an average forecast of GDP growth in 2014 of 2 5 per cent Given the still brittle shape of mainland Europe and the still uncomfortable levels of UK public debt there ought to be a lot of caveats around the outlook but the UK economy has surprised on the upside this year continually outperforming official expectations If that trend were to continue it would have two broad impacts on NAB The group s good bank would be more profitable while it would be able to wind down the non core portfolio even faster The UK operations would be far less of a drag on its core performance NAB would then face a dilemma albeit a better one than it has had to deal with over the past five years When he first became chief executive Clyne was open minded about how to deal with the UK legacy he inherited whether to try to exit the UK or instead to exploit the distressed conditions and bulk up in the south of England via acquisition pursuing the ambition that has driven NAB ever since it first entered the UK with the purchase of Clydesdale Bank in 1987 As the UK economy deteriorated post crisis and the losses mounted and NAB was like all the UK banks hit by a torrent of conduct issues like insurance mis selling the expansion option was abandoned and one suspects that even with conditions and the value of the ongoing UK business improving it isn t one the bank would contemplate again or indeed be allowed to contemplate by the market An improving UK economy however does create options in relation to the timing of a sale with Clyne having to weigh up whether he should exit the UK as quickly as possible or if the UK recovery appears entrenched to allow it some time to run in order to maximise value However a complication for any aspiring vendor of bank assets in the UK is that the UK government is actively exploring its options for exiting its own positions in UK banks UK taxpayers owned nearly 40 per cent of Lloyds before the government sold 6 per cent of the group s capital into the market The government despite losing about 425 million on that sale is now looking at how best to sell the rest Taxpayers still own 81 per cent of the Royal Bank of Scotland although its condition means there is little likelihood of any sell down until after the next UK election in mid 2015 at the earliest The overhang of bank assets as a result of the government s desire

    Original URL path: http://www.businessspectator.com.au/article/2013/12/27/financial-services/britains-spring-sows-seeds-nabs-exit (2014-01-12)
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  • The Big Four get a small taste of things to come | Business Spectator
    tier one CET1 capital than their not so important competitors The Australian majors knew that APRA was looking at the issue of whether or not they should face a capital surcharge and anticipated that one would be imposed albeit at a modest level Just ahead of their results announcements however they became somewhat more concerned when APRA signalled to them to be cautious about any new capital management measures or special dividends because the impost was likely to be greater than they expected Internationally the D SIB surcharges have ranged from about an extra 1 per cent of CET 1 capital to 5 5 per cent in Switzerland where the regulators are trying to force a reshaping of their major banks APRA said today that a range of methodologies and benchmarks had suggested that an appropriate range for the capital surcharge would be between 1 per cent and 3 per cent It opted for 1 per cent The Australian regulatory capital adequacy requirements imposed by APRA are by international standards quite conservative and the Australian banks have added an additional layer of their own conservatism As APRA said the banks have traditionally held a higher quality capital base than their offshore peers Commonwealth Bank for instance has a CET 1 capital adequacy ratio of 8 2 per cent on an APRA basis On an international basis the ratio is 11 9 per cent the difference is very material Its peers report similar discrepancies between domestic and international definitions and outcomes Because they hold substantial amounts of capital in excess of APRA s minimum requirements and are highly profitable and therefore are continuously generating new capital the majors are already in a position to absorb the new risk buffers although that will leave them with less discretionary capital and flexibility The surcharge for D SIBS is on top of the additional capital and liquidity and lower leverage that the global regulators have imposed in response to the global financial crisis It is also separate to the issue of levies on banks deemed too big to fail as de facto insurance premiums for taxpayers to compensate for their effective underwriting of that risk of failure With Joe Hockey s financial system inquiry looming next year the majors will be concerned that they could face more new restrictions and costs both in response to the too big to fail argument and the reduced competitiveness of the system since the financial crisis There has also been a lot of discussion about the use of macro prudential tools direct regulation of lending through for instance limits on loan to valuation ratios or loan servicing limits or tinkering with the capital adequacy regime to inhibit lending to particular asset classes That would mean regulators rather than bankers and markets would have to make assessments of the relatives risks within the economy The underlying fear within the major banks would be that in an effort to promote greater competition they will be handicapped relative to their non

    Original URL path: http://www.businessspectator.com.au/article/2013/12/23/financial-services/big-four-get-small-taste-things-come (2014-01-12)
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  • Telstra makes a call on its Hong Kong hang-up | Business Spectator
    today Business Spectator is available on all of your devices so you can access the latest news and commentary where and how you like Register now Already a member Sign in here Email Address Enter your Email Address Password Enter the password that accompanies your Email Address Remember me Log in Request new password It is deeply ironic that Telstra is selling the Hong Kong based CSL mobile phone business that was regarded as the better of the assets it acquired in a controversial set of deals in 2000 while retaining the one regarded as the biggest blot on its post privatisation copybook The 2 billion sale to Richard Li s HKT Ltd returns CSL to its original owner It was Li the younger son of Hong Kong billionaire Li Ka shing with whom Telstra created the Reach cable and satellite joint venture This was just before the dot com and telco bubble burst in 2000 and the market for international capacity imploded As a result Telstra was forced into a 1 billion write off In fact because it had paid for its share of the joint venture by vending in its existing assets in the region at bubble inflated values and extracted 700 million of cash in the process it wasn t as disastrous as it seemed However the US900 million haircut that its non recourse bank lenders were forced to digest is still an unpleasant memory within Telstra Two years ago Reach was restructured Telstra and PCCW divided the assets and Telstra emerged with 100 per cent of the core infrastructure and one of the best and most extensive networks in Asia It is now investing heavily about 650 million in leveraging the network with cloud computing services and facilities data centres and an expanded footprint of points of presence in the region It is seen as a major growth engine for Telstra in a post NBN environment At face value CSL could also have been regarded as a key asset in that environment particularly given Telstra s stated ambitions of expanding in Asia It is the leading and most profitable mobile operator in Hong Kong and has performed strongly over the past three years It has revenues of about 1 billion a year The Hong Kong market is one of the most if not the most mature and competitive mobiles markets in the world Mobile penetration in Hong Kong is above 230 per cent and there are five established operators with more planning to enter the market It is also a very sophisticated market All the operators have rolled out 4G networks using Long Term Evolution technology As David Thodey said today it is a market ripe for consolidation Telstra he said had been looking at its options in Hong Kong for about 18 months but had received what he described as a very full offer The US2 425 billion valuation of all of CSL Telstra owns 76 4 per cent and New World Development which merged

    Original URL path: http://www.businessspectator.com.au/article/2013/12/20/technology/telstra-makes-call-its-hong-kong-hang (2014-01-12)
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  • Markets find the virtue in taper's modesty | Business Spectator
    sheet has been expanded by the three quantitative easing programs over the past five years to a smidge under US4 trillion It is still going to be pumping US75 billion a month an annualised US900 million more into the US economy While that rate may be stepped down through 2014 the Fed is still aggressively maintaining what has been the biggest monetary policy experiment in history While the jury is still out on how truly effective the program has been and what its ultimate consequences might be the US economy is at least steadily improving albeit incrementally and there have been no signs of the policy kindling inflation The other leg of the Fed s policy has been to hold short term interest rates close to zero With the Open Market Committee saying that it would maintain that position well past the time that the unemployment rate declines below 6 5 per cent there was nothing to unsettle markets on that front The US unemployment rate is now 7 per cent With the Fed still planning to begin 2014 by pouring more cheap liquidity into the system it is little wonder that the markets didn t take fright The markets don t have many options One of the key criticisms and great fears of the Fed s policies is that while it has had virtually no impact in encouraging business investment in the US it has exported cheap money into far corners of the globe in search of positive returns Investors consciousness of risk has been dulled risk has been mispriced and risk asset prices have been pushed up to levels difficult to support on any conventional assessment thanks to the artificially low cost of funding In one sense investors have been encouraged or forced into what hedge funds would regard as carry trades or yield arbitrages The Australian dollar and Australian banks stocks and the record low official interest rates are visible examples of the distortionary effects of the US policy But after the wake up call in May funds poured out of emerging markets as some of that hot money fled back to safety The gap between investment grade and junk bonds in the US has narrowed to levels that make them almost indistinguishable in yet another example of the distorted pricing the Fed has created The Fed isn t alone Japan has its own version of quantitative easing while Europe s rate settings are also effectively at zero The flow on effects of the monetary policy settings in the key global economies can also be seen in currency relativities Because the global flows of funds are quite opaque there has been no certainty as to what might happen when the tapering truly gets under way There are almost certainly a range of asset price bubbles in markets and economies around the globe that have been inflated by the scale of the money printing occurring and the subsequently modest cost of funding At some point those bubbles have to deflate The great fear about the taper reflected in the sell offs in May was that the announcement might provide the trigger The Fed s cautious first move however didn t provide the catalyst for a global markets meltdown that some feared The path it has outlined for the future of both the tapering and US official rates is so gradual and hedged by caveats that it might be possible to manage a gentle deflation in asset prices or a lengthy pause while the markets wait for real economic activity to validate prices There still aren t many if any lower risk sources of real returns available anywhere The market s easy digestion of the Fed announcement appears to have sparked some optimism that a gradual but seamless shift towards more normal monetary policy settings is now probable But the elevated levels of asset prices and the latent risks within them not to mention the fragile states of key economies suggest it it is too early to reach that conclusion and that s likely to remain the case for some time Print this page More from Stephen Bartholomeusz 10 Jan Britain s Christmas ghost of retail future 09 Jan Ailing Qantas needs a new battle strategy 08 Jan Dairy sector takes the cream in a Murray Goulburn bid 07 Jan The rewards of a pragmatic GPT Dexus truce 06 Jan Why a public asset sell off is on the money Connect with Stephen Bartholomeusz on Google Related articles 12 Jan Obama picks Fed vice chair 11 Jan US jobs growth slows sharply 10 Jan Fed s Yellen expects 3 growth 10 Jan US jobless claims dip 09 Jan Tinker taper the Fed s cautious path More from Business Spectator Technology Adapt or die Commercial The Future of Energy Family Business Alan Kohler s Family Business China China Spectator Please log in or register to post comments Comments on this article Comments Policy Bruce 55 Thu 2013 12 19 14 13 Not sure how long it will take for our AUD to find a new base and where will that be but when it does we may well see some good buying of Aussie shares by overseas investors If they get 20 more than they did 12 months ago and our shares are still 20 off 2007 highs who knows high we might run up in 2014 Sure alot can go wrong on the way thru but you just never know 2014 might be a year to remember for the right reasons well on a purely capitalistic view Ken not available Thu 2013 12 19 14 58 Yeah whats 10 billion here or there but as I said yesterday there is only one way to restore business confidence and that is by reducing QE and 10 billion was the right stating number So far Stephen I am the only one on this website that has consistently stated this Fed out come So lets enjoy the confidence while it exists Sam

    Original URL path: http://www.businessspectator.com.au/article/2013/12/19/us-economy/markets-find-virtue-tapers-modesty (2014-01-12)
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  • ANZ meets its perfect match in Gonski | Business Spectator
    the best and brightest lawyers and then investment bankers in the region He s also extraordinarily well connected in both business and political circles But perhaps the two most relevant items in his CV are the Singaporean board seats he has occupied and the fact that he was a director of ANZ from 2002 to 2007 Therefore he knows the bank and banking The super regional strategy is still evolving and there are inherent risks involved in expanding into Asia With Mike Smith s term as ANZ CEO closer to its end than its beginning the looming financial system inquiry and a tide of new regulation pouring towards the sector the ANZ role required someone with an unusual range of skills to succeed Morschel In the near term ANZ s board needs a strong chairman because it has a strong CEO Mike Smith CEO since 2007 was initially and obviously over qualified for the role he took on in 2007 when Charles Goode oversaw the replacement of John McFarlane The choice of Smith then Asian head of HSBC and its global head of commercial banking was an obvious statement of ANZ s ambitions in Asia He has proved to be a very astute choice opting for a conservative expansion buying assets selectively and populating the upper echelons of the bank with executives with experience of operating in the region The results which are increasingly positive are beginning to flow The shape of the new ANZ and the connectivity of its regional operations has become clearer Nevertheless the strategy carries with it significant latent risks Organisations with powerful CEOs with understandable ambition for their legacies require strong and knowledgeable chairmen While there are strong candidates to eventually succeed Smith within the bank despite the loss of the obvious successor Alex Thursby to a CEO role in Abu Dhabi Gonski will play a key role in the critical process of identifying Smith s successor who will be the person who continues the execution of the strategy Morschel it must be said has been a good chairman of the bank He gained the job in 2010 unusual circumstances Sir Rod Eddington had been Goode s choice and that of the wider ANZ board because of his vast experience of operating in Asia and the connections he made during two decades with Hong Kong s Swire Group However he got caught up in the fallout of the Allco collapse The board then turned to Morschel who had a long and distinguished career in financial services and who had been on the board since 2004 It was never going to be a long term appointment because of his age so he placed a major focus on identifying his successor The process has taken some time because Gonski appears to have been reluctant to relinquish the prestigious and powerful position he holds as chair of the guardians of the 92 billion Future Fund which he will now do to avoid the potential for conflicts of interest

    Original URL path: http://www.businessspectator.com.au/article/2013/12/18/financial-services/anz-meets-its-perfect-match-gonski (2014-01-12)
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  • The premium benefits of the Wesfarmers-IAG deal | Business Spectator
    the password that accompanies your Email Address Remember me Log in Request new password Wesfarmers prides itself on its financial discipline but it has traditionally been far more of a buyer than seller of corporate assets The 1 85 billion sale of its insurance underwriting business to Insurance Australia Group however made compelling sense for both vendor and buyer Wesfarmers Richard Goyder said today that the sale process had started with unsolicited approaches from a number of parties and that the decision to sell accords with the way Wesfarmers runs its portfolio and assesses value for its shareholders It has been evident for some years that despite ambitions to grow the insurance business Wesfarmers had experienced some frustrations in a sector that has been heavily consolidated over the past decade or so This left its own operations sub scale relative to the dominant competitors like IAG and QBE and insignificant in the context of the group s other major business units More recently it had been trying to expand its insurance business by underwriting Coles branded products It had some success gaining about 200 000 customers via that channel But organic growth is incremental and long term and doesn t offer the synergies of large scale acquisitions Moreover as Goyder said while the underwriting business has improved its performance recently it hasn t delivered satisfactory returns over the past five or six years relative to the risks and volatility it has generated Selling it but not Wesfarmers insurance broking business de risks the Wesfarmers portfolio of businesses now dominated by its retail operations At 13 6 times earnings before interest and tax IAG s attractive offer would have helped Wesfarmers reach the decision to sell This offer will generate a pre tax profit of 700 million to 750 million and vindicate the investment the group has made in the business The cash and capital released from the biggest divestment in its history will give Wesfarmers options either to return capital to shareholders or to return some extra diversity to the retail centric portfolio via acquisition now that Wesfarmers has most of its retail brands except Target performing strongly Assuming it gets past the Australian Competition and Consumer Commission IAG s deal is compelling in a market where domestic insurance assets of any scale are now scarce This explains why it was prepared to pay a handsome price and emerge successful from a contest that is reported to have had a number of interested parties The two portfolios are highly complementary and will make IAG the market leader in intermediated insurance across Australasia pushing past QBE It provides a much stronger presence in the small and medium sized enterprise segment as well as producing a more balanced geographical presence across the states and regions It will increase IAG s premium base by about 18 per cent to more than 4 3 billion It will also give IAG access to the Coles customer base with the parties entering a 10 year distribution

    Original URL path: http://www.businessspectator.com.au/article/2013/12/16/insurance/premium-benefits-wesfarmers-iag-deal (2014-01-12)
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  • Stephen Bartholomeusz | Business Spectator
    about Westfield s split into domestic and international segments has failed to inspire the market but the restructure makes sense by Stephen Bartholomeusz 6 01pm December 05 Bleeding Qantas dives into dire straits The capacity war between Qantas and Virgin has the national carrier haemorrhaging at a furious pace Without a truce or a much needed government intervention Qantas future is bleak by Stephen Bartholomeusz 1 08pm December 05 28 comments Westfield s split signals a shift to an offshore focus The proposed restructure of Westfield will allow it to tap into a broader range of investors with different risk appetites and hints at the Lowy family s stronger interest in its offshore businesses by Stephen Bartholomeusz 1 41pm December 04 NBN review shows time is on Turnbull s side Turnbull s NBN review will provide little comfort to the ALP but its more rigorous cost benefit analysis will allow NBN Co chair Ziggy Switkowski to establish a realistic timeline for the Coalition s strategy by Stephen Bartholomeusz 6 06pm December 03 34 comments A leaner Rio is primed to capitalise Rio Tinto s focus on less capital intensive assets will allow it to generate growth at a lower cost holding it in good stead for the sector s post boom adjustment by Stephen Bartholomeusz 12 38pm December 03 1 comment A Qantas debt deal might not fly with Abbott How should Tony Abbott respond to Qantas pleas for help A guarantee of the airline s debt would secure its credit rating but its offshore expansion presents additional risks for taxpayers by Stephen Bartholomeusz 5 54pm December 02 11 comments Leaderless GrainCorp is lost in the maize Alison Watkins departure for Coca Cola poses another challenge for GrainCorp which is already reeling from Archer Daniels Midland s blocked takeover and the lost opportunities and capital that went with it by Stephen Bartholomeusz 1 09pm December 02 28 comments ADM s rejection goes against the grain of logic Joe Hockey was unconvincing in his dismissal of ADM s bid for GrainCorp His decision denies Australian agribusiness of much needed capital and sends a troubling message to foreign investors by Stephen Bartholomeusz 12 32pm November 29 71 comments How will Hockey handle Qantas baggage The Qantas Virgin debate highlights Joe Hockey s policy dilemma Lifting restrictions on Qantas foreign ownership or providing subsidies will do little to disarm the threat of a destabilising capacity war by Stephen Bartholomeusz 2 20pm November 28 19 comments Tensions give ADM a grainy outlook Archer Daniels Midland s declaration of its capital commitments to GrainCorp and price restrictions on grain handling charges have helped assuage local growers fears But politics may yet get in the way by Stephen Bartholomeusz 4 26pm November 27 7 comments A tough reign for Jackman at fading Elders Destabilising debt levels and a traumatic post GFC restructure meant the odds were always against Elders chief Malcolm Jackman But the fact the company has any market value at all is testament to his legacy by Stephen Bartholomeusz 12 55pm November 27 5 comments A jack of all trades but a Masters of none Woolworths chairman Ralph Waters has asked shareholders to be patient with the struggling Masters business But questions remain over the company s core retail strategy and capital commitments by Stephen Bartholomeusz 5 32pm November 26 6 comments Ansell clears the barriers to the US market Ansell s acquisition of US market leader BarrierSafe Solutions will equip it with a broader product range and wider distribution footprint aiding its accelerated growth strategy by Stephen Bartholomeusz 1 06pm November 26 1 comment Strong demand stokes the LNG flame Robust demand for LNG should see the sector withstand threats of increased supply abroad and changes to the gas pricing mechanism by Stephen Bartholomeusz 5 20pm November 25 7 comments Page 2 The failing auto industry gets a final reality check Insufficient scale and high costs have ensured that any attempt to resuscitate the car manufacturing industry is futile General Motors exit will turn the spotlight on Toyota and parts suppliers by Stephen Bartholomeusz 5 21pm December 11 20 comments America s shale gas is BHP s liquid gold BHP Billiton s plunge into US shale gas has not been smooth sailing but a shift in focus to liquids rich regions looks set to offer the company its biggest productivity opportunities yet by Stephen Bartholomeusz 12 59pm December 11 Foxtel s triple play may be Telstra s bundle of joy Foxtel s triple play deal will put it in direct competition with Telstra its half owner But increased competition amid the NBN rollout may mean cannibalisation is the only way for Telstra to thrive by Stephen Bartholomeusz 5 41pm December 10 4 comments BHP goes with the cash flow The scale and diversity of BHP Billiton s portfolio including potentially lucrative US gas assets give it more capital options than its peers and will bolster the resilience of its cash flows by Stephen Bartholomeusz 1 05pm December 10 1 comment An American anchor drags on QBE s renewal The market continues to punish QBE Insurance Group amid further guidance downgrades as its troubled US operations drag John Neal will be hoping his strategic overhaul eventually hits the mark by Stephen Bartholomeusz 12 17pm December 09 1 comment Vulnerable Qantas flies a fine line Qantas cannot afford to cede any market share to arch rival Virgin because the eventual loss of volume and yield advantage could create a one way route to oblivion by Stephen Bartholomeusz 12 47pm December 06 22 comments Revealing the missing pieces of Westfield s puzzle A lack of detailed information about Westfield s split into domestic and international segments has failed to inspire the market but the restructure makes sense by Stephen Bartholomeusz 6 01pm December 05 Bleeding Qantas dives into dire straits The capacity war between Qantas and Virgin has the national carrier haemorrhaging at a furious pace Without a truce or a much needed government intervention Qantas

    Original URL path: http://www.businessspectator.com.au/contributor/stephen-bartholomeusz?page=1 (2014-01-12)
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