Euro CDS: Subordinated Bank Debt Remains Under Pressure (iMarketNews.com)
LONDON (MNI) - European credit markets had a mixed session, seeing some large pockets of underperformance as details of the Irish EU/IMF bailout completely underwhelmed the markets.
A growing school of thought believes that - without major debt restructuring for Ireland - the current solution is just buying time. Many traders also fear that the interest rate applied to the new cash of 5.83% is unmanageable for the Irish economy. Initially, stocks opened higher today following more positive price action in Asia (on the back of reports of strong retail activity in the US on "Black Friday").
Eurozone peripheral spreads tightened only fractionally (single digits) and by mid-morning, prices had started to re-widen. Prices in Spanish government debt in particular have weakened on the day, currently 14bps net wider at 258bps.
The net impact on the wider CDS market has been a tad negative, with most benchmarks edging wider. However, the financial sector continues to see substantial underperformance and, in particular, many subordinated debt single names continue to widen very steeply indeed.
Negativity towards the Irish bailout is also reflected in the ongoing weakness in the euro, although again, reports of very robust US retail sales over the weekend also boosted the greenback. Xover is 4bps wider at 497bps, HiVol is 1bps wider at 166bps and Europe is flat at 110bps. Notably Financial subordinated indices are 15bps wider at 296bps.
Porsche is in focus after an article in the FT reported the company is hoping to receive shareholder approval Tuesday for the launch of an E5 billion rights issue. Market commentators expect preference shareholders to approve the issue despite opposition from a number of smaller German institutions.
Porsche's preference shares have risen by 55% over the last month as investors gamble on a large discount for the rights issue that could allow them a cheap way into VW through a merger next year. Porsche needs the money from the share issue, expected in Q2 next year, to pay back most of its E6 billion net debt ahead of the integration with VW. VW and Porsche ended a bitter feud last year by agreeing to create a joint automotive group, in a move that would add the sports car producer to VW's stable of brands.
The backing of Porsche's ordinary shareholders, the Porsche and Piech families and the Qatar Investment Authority, is already guaranteed but, although expected, the backing of preference shareholders is not a given, as they are made up of institutional and private investors. CDS spreads for Porsche are currently unchanged on the day at 120bps.
BASF is looking to invest more than E1 billion in additional plants in China over the next few years, the FT reports, citing executive board member and head of Asia-Pacific operations, Martin Brudermuller. Asia made up 23% of BASF's E39.6 billion chemical sales in the first nine months of the year.
By 2020 the group expects to generate E20 billion of its forecast E92 billion of revenues from the region.
Around half of the Asian sales come from China. The group has invested E3.5 billion in its third-largest global market in the past 20 years, more than a fifth of overall German direct investment into the Middle Kingdom. BASF wants to add another 5,000 people to its 15,000-strong workforce in the next decade, about half of which would be hired in China. CDS spreads for BASF are currently 1bp tighter at 52bps.
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