(Oct 9): Spanish stocks and bonds have taken a beating as tensions flared over Catalonia’s bid for independence. Spain’s blue-chip Ibex 35 index slumped 2.9% to 9,964.9 points on Oct 4, falling below the 10,000 mark for the first time since March.
On Sept 30, the northeastern region held a referendum for independence. While only 42% of residents turned up, 90% voted in favour of secession. However, Prime Minister Mariano Rajoy declared the referendum illegal. Catalonia accounts for 16% of Spain’s population and a fifth of its economic output. It includes the major city of Barcelona. As at Oct 5, Catalonian leader Carles Puigdemont has indicated that he may negotiate a settlement with the Spanish government.
Meanwhile, banks serving the Catalonian market slid amid fears over the safety of bank deposits. Shares of Caixabank, Catalonia’s largest lender, fell 5% to €3.91 on Oct 4. Banco de Sabadell fell 6% to €1.59. Both banks reassured customers that their deposits are safe. Blue chips, including energy giants Repsol and Gas Natural and telecommunications provider Telefonica, also saw their share prices slide over 2% on Oct 4.
The exception was drugmaker Oryzon Genomics, which soared 33% on Oct 4 after announcing that it would move from Barcelona to Madrid. The rally may indicate investors’ aversion to political instability in the region. Other listed Catalan companies are considering exit plans, according to a Bloomberg report.
There was also weakness in Spanish government bonds. The yield on the benchmark 10-year bond rose six basis points to 1.79% on Oct 4. According to Markus Allenspach, head of fixed income research at Julius Baer, the crisis has dimmed prospects of Spain seeing an improvement in its credit rating, despite the Bank of Spain projecting 3.1% economic growth.
“This is now out of the question, given the outlook for more tensions with the regional government of Catalonia and the fact that the government of Prime Minister Rajoy needs support from the PNV party, a nationalist party from the Basque country, another region that wants more autonomy,” he says in a report.
While maintaining a “hold” rating on Spanish bonds, Allenspach cautioned investors on Catalonian debt. “Investors should keep in mind the EU Commission’s warning that an independent state of Catalonia would need to apply for EU membership, with negotiations starting from scratch and most likely ending in a prolonged period of uncertainty for the local economy,” he says.
SIA Engineering falls to lowest level since 2010
SIA Engineering Co (SIAEC) fell as much as 9% to hit $3.15 on Oct 4, marking a new low since December 2009. The tumble came amid market chatter that JPMorgan was planning to sell all of its 38.9 million shares in the company.
JPMorgan currently owns 3.5% of SIAEC’s shares. It could raise up to $128 million by selling all its shares at $3.11 to $3.30 apiece. This represents a 4.6% to 10.1% discount to SIAEC’s closing share price of $3.46 on Oct 3.
Corrine Png of Asian equities research firm Crucial Perspective believes the price drop was triggered by JPMorgan’s move. “Due to SIAEC’s low free float of 22% and low average trading liquidity averaging only 300,000 shares a day in the past year, selling such a large block has the effect of dampening its share price,” Png says.
In an emailed note, UOB Kay Hian’s director of Asia transport research K Ajith suggests that sentiment on SIAEC has also been negatively affected by the upcoming IPO of regional rival GMF AeroAsia. GMF, a unit of Indonesian national carrier Garuda Indonesia, is Indonesia’s largest aircraft maintenance operator and serves airlines from 55 countries.
“We do not have an indication of the pricing or valuation, but there has been market talk that pricing will be lower than 20 times trailing earnings. We had persistently highlighted that GMF would be a threat to SIAEC’s operations, given its relatively lower operating cost,” Ajith says.
GMF is seeking to raise up to IDR5.55 trillion ($562 million) through a sale of up to 10.9 billion new shares priced between IDR390 and IDR510 apiece. Garuda finance director Helmi Imam Satriyono told Reuters last month that GMF also hopes to sell 10% of its shares to strategic investors, and has attracted interest from maintenance, repair and overhaul companies in Asia and Europe.
Rotary shares up on privatisation offer
Shares of Rotary Engineering closed 9.8% higher at 45 cents on Oct 2 after a takeover offer from its controlling shareholder — the Chia family — and the Oman Investment Fund. The takeover vehicle, Orochem, is offering 46 cents a share to take the Mainboard-listed company private. The offer price is at a 21% premium to Rotary’s last full-day traded price of 38 cents on Sept 29, before a trading halt. Orochem currently controls 60.6% of Rotary’s shares. The vehicle is 64.7%-owned by the Chia family and 35.3%-owned by the Oman Investment Fund.
In a statement, Orochem says the delisting will provide “greater operational flexibility to manage the business of the company, optimise the use of its management and capital resources, and facilitate the implementation of any operational change”. Orochem also notes that an average of only 0.06% of Rotary’s shares have been traded daily this year.
The offer will close at least 14 days after the offer documents are released, Rotary said in a filing with the Singapore Exchange. The company has hired Deloitte and Touche as independent adviser on the bid.
Loyz Energy issues 76.6 mil new shares to Arctos
Loyz Energy has announced that it will issue 76.6 million new shares at 1.305 cents each to multi-asset firm Arctos Investments. The issue price represents a 10% discount to Loyz’s volume weighted average price of 1.45 cents on Sept 29.
Last month, both companies agreed to set up a joint-venture company, FIT Global, to engage in fund management, investment and trading. Following the issue, Arctos will own 4.8% of Loyz. The shares will be issued at no consideration to Arctos, in exchange for its staff and risk management expertise.
Loyz Energy has seen a surge in trading activity since. On Oct 4, it was the fourth-mostactive counter on the SGX. Some 38.6 million shares were traded, although its share price remained unchanged at 1.2 cents.
Loyz is currently streamlining its oil and gas assets, amid the prolonged weakness in oil prices. Subject to shareholders’ approval later this month, Loyz will be renamed CWX Energy in January 2018.
ThaiBev climbs following restaurant takeover
Thai Beverage has added a new restaurant chain to its business. On Oct 3, the company’s wholly-owned subsidiary Food of Asia Co acquired a 76% stake in Thai restaurant chain Spice of Asia. The latter operates 10 restaurants under the brands Cafe Chilli, Chilli Thai Restaurant, Eat Pot and Pot Ministry.
On Oct 4, ThaiBev’s shares rose 2.2% to 92 cents. It was among the most active counters on the SGX, with 22.3 million shares traded.
In a Sept 19 report, OCBC Investment Research analyst Jodie Foo maintains a “buy” call on the stock, with a $1.01 fair-value estimate. She notes that Thailand’s new excise tax law has raised beer and soft drink prices, while the cremation ceremony for the late Thai king from Oct 21 to 25 could also soften consumption for the quarter. However, she is optimistic on the stock’s long-term prospects. “During the festive season in the last two months of the year, we believe advertising and promotion efforts will be more effective with prospects of on-premise consumption recovering,” she writes.
What to look out for
On Oct 12, the Federal Open Market Committee will release minutes from its meeting on Sept 19 and 20. On Oct 13, the US will be releasing inflation and retail sales data. A Bloomberg poll has projected that the consumer price index is likely to rise 2.2% y-o-y. In Singapore, advance estimates of GDP for 3Q2017 will be released by Oct 13. Singapore Press Holdings will kick-start the earnings season on Oct 11 with the release of its earnings figures for FY2017 ended Aug 31. Last month, Bloomberg reported that the company is considering job cuts and a reorganisation.
