Tuesday, June 2, 2015

Russians bid to end bond isolation for US$117b repayments

JUN 3, 20157:28 AM

[MOSCOW] After a half-year absence from the Eurobond market, some Russian companies are preparing their return.

Pig iron producer OAO Koks is considering its first foreign bonds in at least four years, while iron-ore miner Metalloinvest says the market shows signs of opening. Moscow-based Bank FC Otkritie meets investors in Europe next week. Russian corporate Eurobond yields fell to an average 6.92 per cent on May 22, the lowest since September and 1.72 percentage points higher than the average for emerging markets, JPMorgan indexes show.

With US$117 billion of external debt due in the coming year, companies and banks not affected by foreign sanctions see a chance to refinance as the cease-fire in Ukraine and oil US$20 above this year's low help Russia's outlook. Sberbank CIB, the investment arm of the country's biggest bank, said foreign bondholders hungry for higher yields will snap up Russian securities. Others are more cautious.

"The market will buy high-quality names with state support if they offer a big enough concession to the existing bonds," said Max Wolman, who helps manage US$13.5 billion in emerging- market debt at Aberdeen Asset Management Plc. Beyond these companies, "there is limited appetite," he said by e-mail Tuesday.

Sberbank expects borrowers to return next quarter when the European Union decides whether or not to extend sanctions that blocked a handful of companies from capital markets as punishment for Russia's role in the Ukraine crisis. Corporates returning to the market will offer a yield premium of 20 to 40 basis points, Sberbank CIB analysts Alexander Kudrin and Alexander Golinsky predicted in an e-mailed note.

Metalloinvest plans to refinance some of its US$1.3 billion of debt maturing in 2016, Chief Financial Officer Pavel Mitrofanov said in May. Koks's board of directors approved a US$500 million Eurobond program in May to be prepared should borrowing costs fall further, Chief Financial Officer Sergey Cherkaev said last month.

Not all Russian companies agree. Power utility Inter RAO UES doesn't expect the market to open within the next 12 months because investors are still wary of sanctions, CFO Dmitry Palunin said on May 27.

With the Eurobond market shut, Russian companies have responded to the sanctions and drop in oil prices last year by cutting costs, refinancing debt on the local market and increasing their cash cushions, Bank of America Corp analysts Kay Hope and Ali Dhaloomal said in a note last month.

Eurobond issuance tumbled to US$7.6 billion last year, equivalent to 17 per cent of the 2013 total. Since OAO Alfa- Bank's US$250 million debt sale in November, companies have stayed away altogether.

Metalloinvest's April 2020 dollar bonds were little changed at 7.66 per cent on Tuesday, leaving the yield down 363 basis points this year. The yield hit a record 14.60 per cent on Dec 16 as the ruble tumbled to records and Russia's market turmoil peaked.

"There are too few Russian Eurobonds outstanding, and the market is squeezed," Jean-David Haddad, a strategist at Otcexgroup in Paris, said by e-mail. "There will be demand for unsanctioned names as investors are hungry for yield, and there's no yield elsewhere."

BLOOMBERG

Chevron deploys robots to see damage at Big Foot site

JUN 3, 20156:44 AM

[GULF OF MEXICO] Chevron Corp has deployed robots on the seafloor near its Big Foot deepwater oil project, aiming to find just how much damage it must contend with after six giant tendons sank and indefinitely delayed the start of production at the platform.

The company, the No 2 US oil producer, said late Monday it would move the Big Foot platform away from the site after tendons, which look like a long series of interlocking metal pipes and tether platforms to seabeds, failed to float.

The setback means Chevron will not meet its goal of bringing Big Foot production online by the end of the year. The site, 225 miles south of New Orleans in the US Gulf of Mexico, is expected to produce 75,000 barrels of oil per day once it opens.

Remote-operated vehicle (ROV) robots, which are equipped with cameras, have been deployed to the site and "are assessing the damage at this time," Chevron spokesman Cam Van Ast said.

The company plans to update its timeline for bringing Big Foot online during its July earnings conference call, Mr Van Ast said.

Wells Fargo analyst Roger Read said on Tuesday the setback was "clearly a negative from production, cash flow and operational excellence standpoints." The Big Foot platform was engineered to be tied by 16 metal rod tendons to a base on the seafloor 5,200 feet below water.

The tendons, which range in diameter from 24 inches (61 cm)to 32 inches (81 cm), were designed to be buoyant and stay in place until the platform was moved atop them and connected. Four tendons were engineered to connect to each of the platform's corners.

Effectively, six of the tendons failed, sinking to the seabed floor. It is not yet known if the tendons that sank can be salvaged or if new ones will need to be built.

It also was not immediately clear who constructed the tendons for Chevron. An investor presentation by Houston-based Oil States International Inc said the company had worked on some tendon components of Big Foot.

A unit of Dynamic Industries Inc was contracted to work on commissioning and mechanical offshore construction services. Neither company was immediately available for comment.

Chevron is the project's operator, with a 60 per cent stake. Statoil ASA and Marubeni Oil & Gas hold the remainder.

REUTERS

Europe: Stocks fall to two-week low amid Greece debt standoff

JUN 3, 20156:10 AM

[LONDON] European stocks fell for the third time in four days as investors speculated whether Greece will reach an agreement with creditors before it runs out of time and money.

The Stoxx Europe 600 Index declined 1 per cent to 396.45 at the close of trading, after losing as much as 1.3 per cent. The ASE Index dropped 2.5 per cent to the lowest level in almost a month, as Greek markets reopened after a holiday.

Greece's prime minister said his government submitted a new plan aimed at ending a stalemate, just as creditors met to finalize theirs. European leaders and the head of the International Monetary Fund gathered last night in Berlin to work out ways to avert a Greek default. The country owes four payments to the IMF this month, and its aid package backed by the euro region expires at the end of June.

"Clearly there's still a lot of negotiations to go," said Ben Kumar, who helps oversee about US$12 billion at Seven Investment Management in London. "Central-bank action is already factored in, as are corporate earnings. That leaves Greece as the one thing to look at right now. We see headlines everyday saying this is getting serious. Eventually, people get bored. They've been hearing it for months."

Shares resumed declines after halting a two-day drop on Monday. Exporters tumbled as the euro strengthened, with carmakers falling 1.4 per cent as a group. Volkswagen AG and Daimler AG declined more than 1.5 per cent, pushing Germany's DAX Index down 0.9 per cent for one of the worst performances among western-European markets.

Aryzta, Pernod Among stocks active on corporate news, Aryzta AG slid 9.2 per cent after posting revenue that missed analysts' estimates. Pernod Ricard SA lost 4.9 per cent after forecasting a slow recovery in pricing and saying gross margins are still under pressure.

Elekta AB plunged 9.6 per cent after reporting worse-than- projected annual earnings and saying sales will continue to decline in the first half of the next year.

LVMH Moet Hennessy Louis Vuitton SE climbed 1.2 per cent after HSBC Holdings Plc recommended buying the shares, forecasting faster sales growth in the luxury-goods industry. Wolseley Plc gained 2 per cent after reporting an increase in quarterly same-store sales.

BLOOMBERG

US: Wall St ends lower

JUN 3, 20156:07 AM

[NEW YORK] US stocks eased on Tuesday as a jump in bond yields hit utilities and other top dividend payers, but energy gains and optimism Greece is near a deal with creditors limited losses.

The Dow Jones industrial average fell 28.43 points, or 0.16 per cent, to 18,011.94, the S&P 500 lost 2.13 points, or 0.1 per cent, to 2,109.6 and the Nasdaq Composite dropped 6.40 points, or 0.13 per cent, to 5,076.52.

The S&P utility index fell 1.4 per cent, leading losses among S&P sectors, after US long-dated Treasury debt yields rose to two-week highs. Utilities and other dividend paying shares tend to compete with bonds as investments.

Energy shares gained along with oil prices. The S&P energy index rose 0.5 per cent, leading the day's gainers. "Today the utilities are way underperforming, obviously because people are thinking rates are going to go up sooner rather than later," said Uri Landesman, president of Platinum Partners in New York.

Greece's creditors drafted the broad lines of an agreement to put to the leftist government in Athens in a bid to conclude four months of acrimonious negotiations and unlock aid. "I don't think Greece is going to be the thing that upsets this market," Mr Landesman said.

Advancing issues outnumbered declining ones on the NYSE by 1,648 to 1,385, for a 1.19-to-1 ratio on the upside; on the Nasdaq, 1,594 issues rose and 1,149 fell for a 1.39-to-1 ratio favoring advancers.

The S&P 500 posted 3 new 52-week highs and 1 new lows; the Nasdaq recorded 93 new highs and 42 new lows.

About 5.5 billion shares changed hands on US exchanges, below the 6.3 billion daily average for the last five sessions, according to BATS Global Markets.

REUTERS

Tuesday, June 2, 2015