Casino Shares Surge After French Grocer Sells Stake in Big C

“The valuation should be a positive surprise to the market,” Fabienne Caron, an analyst at Kepler Cheuvreux, said in a note. The price and speed of the divestment “could lead to a short squeeze” on the stock.

The shares were up 3.3 percent at 44.06 euros as of 11:54 am Big C stock jumped 9.7 percent to 249 baht in Bangkok, the highest close in about a year.

Big C

TCC agreed to buy the stake in Big C for 252.88 baht a share, 11 percent higher than the Thai grocer’s Feb. 5 closing price. Big C runs more than 700 stores,ranging from hypermarkets to convenience shops.

Casino said the transaction will reduce debt by 3.3 billion euros, including Big C’s borrowings.The grocer is “very confident that it can execute the debt-reduction plan completely or even exceed the goal,” Chief Financial Officer Antoine Giscard-D’Estaing said in a phone interview. The retailer is also selling a business in Vietnam, which analysts at Kepler value at 740 million euros.

Will Chesapeake Energy Be Able To Avoid A Bankruptcy Filing?

Chesapeake Energy[ticker symb=CHK] said Monday that it doesn’t have plans right now to file for bankruptcy protection. Analysts doubt that bankruptcy is an immediate threat, though a default is possible in 2017.
The No. 2 producer of natural gas and No. 12 producer of oil and natural gas liquids in the US has already been forced to halt its preferred stock dividend amid the collapse in energy prices. And in December, a bond swap meant to reduce debt flopped.
Reports that Chesapeake had hired the Kirkland amp; Ellis law firm to look at restructuring sparked fears of a bankruptcy filing. Chesapeake said Monday that the firm has been its counsel since 2010 and is advising the company as it seeks to further strengthen its balance sheet following its recent debt exchange.
Chesapeake closed down 33% at 2.04 in the stock market today.
Mark Hanson, an equity analyst at Morningstar, said oil prices would have to hit zero and natural gas prices would have to go negative for Chesapeake to go bankrupt this year.
If they were really that close to bankruptcy, they would be out front and center about it, he told IBD.
But there is a risk of a covenant breach next year as Chesapeakes $2 billion in debt matures, he added. Still, a lot of things could happen between now and then, like oil and gas prices recovering.
In December, Chesapeake’s plan to ease liquidity woes appeared to be in jeopardy. Debt-swap participation rates for 2017 and 2018 bond holders were so low that Chesapeake secured only $252 million tendered overall on $1.7 billion in face value, according to Reuters.
Also that month, research firm CreditSights said that it sees Chesapeake filing for bankruptcy in 2018, unless prices rebound sharply. When asked Monday about a possible bankruptcy filing, Chesapeake re-sent its earlier statement.
Chesapeakes denial that it will file for bankruptcy comes after dozens of smaller companies filed for protection last year. More are expected to file this year as prices stay lower for longer. On Monday, Brent crude futures fell 3.5% to $32.88 a barrel, and US crude dropped 3.9% to $29.69.
On Thursday, oil and gas producer Linn Energy[ticker symb=LINE] and affiliate LinnCo[ticker symb=LNCO] said that they would explore strategic alternatives but said they have enough resources to continue operations.
The companies didnt give any details about the types of alternatives they are looking at. Linn shares sank 58% Friday and 34.7% Monday. LinnCo lost 65% Friday and 42% Monday.

Glencore Copper Output Falls as Franco to Buy Gold Supply

Glencore Plc’s copper production fell last year after it suspended output from mines in Africa following a plunge in prices. The trader and miner also agreed a $500 million deal with Franco-Nevada Corp. to sell precious-metals output from a mine in Peru.

Glencore mined 374,700 metric tons of copper in the final quarter of 2015, 6 percent less than year earlier, the company said in a statement Thursday. Output for the whole year fell 3 percent to 1.5 million tons, reflecting the suspension of operations at Katanga in the Democratic Republic of Congo and a curtailment at Mopani in Zambia. The company said it plans to cut copper output about 7.5 percent this year and reduce zinc supply by a quarter.

The rout in commodities from copper to coal has left mining companies battling for survival. Billionaire Chief Executive Officer Ivan Glasenberghas scrapped Glencore’s dividend payments and sold new shares to rein in debt accumulated during a commodities boom. The company said in December that it planned to reduce debt to as low as $18 billion by the end of this year. It’s cutting output and has started asset sales.

Nation moving too slowly to reduce debt

I’m not sure if columnist Ron Eachus is so focused on cheering for his side that he doesn’t see the big picture or if he is just being disingenuous. In his Feb. 2 column, he talks about reducing the deficit, when it is our total debt that is the greatest threat to our economic stability.

We used to have a currency backed by gold. Now our gold reserve won’t pay a dime on a dollar of our debt. All the gold mined in the world since the Pharaohs won’t pay a quarter on a dollar. Our debt has taken 220 years to reach $9 trillion and we double it in seven years.

Eachus brags about the current administration reducing the deficit and all he is doing is bragging about digging a deeper debt hole more slowly.

Lowell Smith

Salem

Debt Levels Double for Older Americans

Older Americans have more than doubled their amount of debt over a dozen years, and many of them make ends meet by forgoing home or car repairs and cutting medications in half, according to a new report by the National Council on Aging.

“We need to recognize that debt is a problem among this population, and help prepare older adults to better manage their future medical, housing and other daily expenses as they age,” Maggie Flowers, the council’s associate director for economic security, said in a statement.

The council looked at government figures on the debt levels of households headed by adults age 60 and older as of 2013. Among the findings:

  • The median total debt has more than doubled from $18,285 in 2001 to $40,900 in 2013.
  • One in 25 households had a negative net worth, meaning their liabilities surpassed their assets. In 2001, 1 in 50 had a negative net worth.
  • More households carry credit card debt and more of it. Nearly one-third of households owed money on a credit card — up from just over a quarter of them a dozen years ago. And the median credit card debt over that time doubled to $2,450.

Mortgage loans make up the largest slice of debt among older consumers, as homeowners over the past decade have taken advantage of historically low interest rates to refinance and tap the equity in their houses, says Lori Trawinski, director of banking and finance at the AARP Public Policy Institute.

Borrowers typically don’t take out loans that they don’t expect to repay, although unexpected setbacks such as an illness or the loss of a job or spouse can make that debt unmanageable, Trawinski adds. And the older you are, the harder it is to overcome these setbacks, she says.

The council surveyed some professionals who work at senior centers, Area Agencies on Aging and other agencies to find out what trade-offs older consumers are making to manage their debt. Many report that seniors forgo needed home or car repairs, cut pills, avoid social engagements, skip medical appointments and meals, and miss rent and mortgage payments to try to make ends meet.

The council offers two online services to assist seniors. The EconomicsCheckUp can help older adults reduce debt, find work and cut spending, while BenefitsCheckUp posts information on federal, state and local benefits available to lower-income households.

AARP also offers online calculators to help with budgeting and managing debt. And AARP’s Work amp; Jobs site can help with a job search.

Photo: TimArbaev/istock

Aim to reduce Rs 100 crore debt annually: Meghmani Organics

It was a stellar third quarter performance for Meghmani Organics . The company reported significant gross margin expansion on curtailed costs. Lower finance costs and higher other income boosted profits. The YoY consolidated gross margins for the quarter expanded 950 basis points to 49.7 percent and finance costs were down 29 percent at Rs 14.9 crore versus Rs 21 crore YoY.

Ashish Soparkar, MD, Meghmani Organics is confident of 10-15 percent volume growth and expect margin expansion in the coming quarters on back of higher productivity and capacity utilisation.

The company is also confident of reducing debt to the tune of Rs 100 crore both in FY16 and FY17 as well.

The consolidated year-on-year (YoY) revenues were up 2.3 percent at Rs 311 crore versus Rs 303.9 crore reported for the same quarter in the earlier fiscal. EBITDA too was up 71 percent at Rs 70.8 crore versus Rs 41.3 crore YoY and the YoY EBITDA margins were up 22.8 percent versus 13.6 percent for Q3FY15.

The basic chemical business is seeing very good growth because it is directly related to Indias growth, said Soparkar, adding that the capacity utilisation for the segment is also at its optimum currently.

Below is the verbatim transcript of Ashish Soparkars interview with Reema Tendulkar amp; Nigel DSouza on CNBC-TV18.

Nigel: Let us go through your revenues first as there is mild growth of around 2 percent. Could you break it up for us first in terms of your exports as well as your domestic revenues? Where exactly was the growth and also the gross margin expansion is it sustainable has it peaked out?

A: Our export is around 65 percent of our revenue. The topline has not grown because our finished products, raw material depend upon the oil pricing. So, as oil prices have gone down considerably our finished product prices have also reacted as per the market. As you can understand the topline has not grown but bottomline has become very strong.

Reema: What was the decline in prices of your finished products and is there a way for you to tell us what the volume growth was?

A: The volume growth was around 10-15 percent that has come out of utilising spare capacity that is installed much earlier and that is sustainable because we have been able to produce and sell 15 percent or more in all our three divisions.

Nigel: What is your total capacity utilisation? Is it at optimum capacity currently?

A: For basic chemicals we are at optimum capacity. However, it will go up further by 10-15 percent in next two years. In agro and pigments we are at around 70 percent capacity utilisation.

Nigel: Just a follow-up question since you mentioned a basic chemical business over there what went so right? Your revenues have jumped up close to 30 percent. Your earnings before interest and taxes (EBIT), margins have come in close to around 30 percent. Is this kind of a performance sustainable because that is really what has led the big beat on the margins as well as on the bottomline front?

A: Basic chemicals are directly related to the growth of India which is 7 percent and as you can see from drawing board to finish it takes 4 years for project to finish. We dont see any new project coming very soon. We believe the margins are maintainable and we are very happy with the position as of now in basic chemicals. In pigments and agro chemicals also the margin has gone up.

Reema: Yes, that is a reason why your consolidated margins have gone up so much. It now stands at nearly 23 percent. Do you believe margins are sustainable at these levels?

A: In coming at least couple of quarters I believe they will be strengthening further. As we will be ramping up higher productivity and from 70 percent capacity utilisation we believe that we will be able to reach 75-80 capacity utilisation in the next year from April 2016 onwards.

Nigel: Then could you tell us what is your balance sheet position currently because that has what given to your net profit this time around. Your finance costs have come down considerably. What exactly is it looking like and also what is your capital expenditure (Capex) plans going ahead?

A: We have done all the capex that is necessary. On the contrary we are reducing our debt every year by Rs 100 crore. This year also we will reduce debt by Rs 100 crore and next year also we plan to reduce our debt by further Rs 100 crore approximately. This is as per what is the schedule given by the banks and the financial institute. We dont intend to pre-pay and they dont want us to pre-pay also.

We also renegotiated our term loan to take advantage of falling rates as indicated by Reserve Bank of India (RBI) that has also saved us. So, that combined efforts have reduced our financial cost by at least 12 percent. We believe this will be sustainable and next year also we believe it will go down by 10-15 percent.

Reema: What about the topline growth? We understand that it is on account of a decline in your finished products prices because of the way crude prices have weakened. However, is that the trend we should expect even in FY17? What is your internal forecast on revenues?

A: I dont think so that topline will go down further because oil prices have almost reached bottom of around USD 30-35 per barrel. I dont feel that it will go to USD 15-20 per barrel. So, it will be in our opinion, our estimate the oil price will remain between USD 25-40 per barrel and at this line our topline will be this or higher. If we ramp-up 10-15 percent more capacity we believe the topline will go up by 10-15 percent. There is no likely fall in topline.

Are we about to witness global financial meltdown again?

Many investors were nervous about the outlook for this year, but few expected it to begin with a full-blown stock market bloodbath.

The first full trading day ended in carnage, as Chinese share prices crashed 7 per cent and global stock markets followed.

Chinese regulators halted trading in a bid to stem the panic and three days later had to trigger their new #x201c;circuit-breaker#x201d; system again, closing the market after less than 15 minutes, making it the shortest trading day in the country#x2019;s history.

The United States suffered the worst opening week to a year since records began, with the Dow Jones Industrial Average falling 6.2 per cent while the United Kingdom, Europe, Asia and other emerging markets also crashed.

In the Arabian Gulf region, Dubai#x2019;s financial market fell 5.8 per cent in that first desperate week. Abu Dhabi was down 4 per cent, while Saudi Arabia was the hardest hit, falling almost 10 per cent.

More than US$2.3 trillion was wiped off the value of global share prices in just five days, according to the Samp;P Global Broad Market index.

UAE and Saudi markets fell again on Tuesday after oil sank to a 12-year low of about $30.50 per barrel amid growing talk that it could fall to $20 or even lower. Throw rising US interest rates into this toxic mix and you can see why growing numbers of analysts believe there is a reckoning at hand.

Don#x2019;t panic

The sense of panic only grew when the British bank RBS issued a note advising clients to #x201c;sell everything except high-quality bonds#x201d;, as this would be a #x201c;cataclysmic#x201d; year for markets, with share prices likely to fall another 20 per cent, and oil to plunge to $16 per barrel.

It urged clients to beat the forthcoming rush to sell, warning that: #x201c;In a crowded hall, exit doors are small#x201d;.

If the financial world is in disarray, the political world looks equally desperate, with global acts of terror almost a daily occurrence and Saudi Arabia and Iran squaring up to each other, which will only make finding a solution to the Syrian civil war even harder.

Joshua Mahoney, a market analyst at IG Index, says the investor uncertainty has further to run. #x201c;If markets abide by the mantra of starting as you mean to go on, we could be in for a seriously messy 2016.#x201d;

Fear over China is at the heart of this year#x2019;s problems, as the authorities continue their increasingly desperate battle to avoid a hard economic landing.

Mark Mobius, the renowned fund manager at Templeton Emerging Markets, says the #x201c;entire psychology of the market#x201d; has been hit by China#x2019;s plunging currency and fears over how the US Federal Reserve#x2019;s decision to raise interest rates would hit other economies.

Further interest rate hikes are likely to follow, possibly as many as four this year, raising global borrowing costs and upping the pressure on indebted businesses and individuals.

Like most analysts, Mr Mobius predicts more trouble to come. #x201c;Volatility is increasing in many markets, and it#x2019;s something investors will likely need to learn to live with.#x201d;

However, he denies the Chinese economy will come crashing down, as its GDP is expected to grow 6 per cent this year. #x201c;The fundamentals in China are still excellent, in our view. It is one of the fastest-growing economies in the world, even if the growth rate has decelerated.#x201d;

After a dogged 2015, when the Middle East was in turmoil, oil and commodity prices slumped, global deflation reared its head and China went through Black Monday, this year was always going to be tough.

HSBC delivered an early signal by listing the 10 risks investors face this year, including a fresh euro-zone crisis, Chinese corporate defaults, a US recession and a rise in the number of stock market #x201c;flash crashes#x201d;.

Jeremy Batstone-Carr, the head of private client research at Charles Stanley Stockbrokers, has been a worried man for some time.

His faith in the global economy was shaken by the volatile start to the millennium, which featured the technology crash, September 11 terror attacks, the financial crisis, a euro-zone meltdown, Middle East instability and increased sabre-rattling by China and Russia.

But his biggest worries are two underlying dangers that most people choose to ignore: debt and demographics.

Mr Batstone-Carr says: #x201c;The world is drowning in debt while developing countries face falling birth rates and ageing populations.#x201d;

Both contributed to the financial crisis, and both have only worsened since, he says. #x201c;Global debt has increased rather than fallen, while the only positive action on demographics was China#x2019;s recent decision to scrap the one-child rule.#x201d;

Japan is the poster child for both problems, Mr Batstone-Carr says, with debts worth a staggering 245 per cent of its annual GDP and a fertility ratio of just 1.42, against the 2.07 that countries need to keep their populations stable.

Debt levels

Where Japan leads, the West is following. Mr Batstone-Carr says this paves the way for an even bigger financial crisis, and central bankers have already expended their ammunition, such as quantitative easing and low interest rates, on the last one.

All major economies have higher levels of borrowing relative to GDP than they did in 2007, according to the McKinsey Global Institute.

Global debt has grown by $57 trillion, posing new risks to financial stability and threatening global economic growth, it warns.

Last year, total debt stood at 286 per cent of global GDP, and the pile continues to rise as emerging markets try to prop up their ailing economies. China#x2019;s has quadrupled in just seven years, to $28tn from $7tn.

These challenges are harder to bear as ageing populations demand expensive pensions and health care, and will have to be supported by a dwindling band of younger workers.

Mr Batstone-Carr says: #x201c;No amount of economic chicanery can get around the two unavoidable threats of debt and demographics.#x201d;

Plenty of people saw this year#x2019;s crisis coming. Last year, the fund manager Crispin Odey, of Odey Asset Management Group, argued that stimulatory measures such as quantitative easing and low interest rates have bloated asset prices, and stocks in developed markets #x201c;need to fall 30 to 40 per cent to be compelling#x201d; again.

Robin Griffiths, the chief technical strategist at ECU Group, said last year that stock market valuations, as measured by the price-to-earnings ratio, have only been this high on three occasions since 1882: in 1929, 2000 and 2007. No prizes for guessing what happened next.

Ashley Owen, the head of investment strategies at advisers AES International in Dubai, says the pessimists look prescient today. #x201c;Global debt levels are still at record highs, and prolonged low interest rates only made things worse.#x201d;

Mr Owen says the world also remains vulnerable to #x201c;great unknowns#x201d; such as geopolitical risk, which seems to be worsening by the day. #x201c;Shocks seem to come out of nowhere.#x201d;

One shock that certainly came out of nowhere was the collapse in the oil price, which traded at about $115 per barrel just 18 months ago, a figure unthinkable today.

Cheaper petrol may help to sustain spending in consumer countries such as the US, China and India and in Europe, but it has come at the expense of producer nations in the Middle East and beyond.

The oil sector now accounts for about 50 per cent of Abu Dhabi#x2019;s GDP, according to data from Statistics Centre Abu Dhabi.

Dubai has far greater diversification, with oil making up less than 2 per cent of GDP, the Dubai Economic Council recently calculated.

Property

Faisal Durrani, the head of research at the global property consultant Cluttons, says low oil prices will raise the pressure on the UAE property market.

In November, Cluttons reported that residential property prices in Dubai had fallen for five successive quarters, and were likely to fall another 3 to 5 per cent over the next year.

Mr Durrani says Abu Dhabi#x2019;s property market is in the firing line: #x201c;Office space consolidation by local and global oil corporates threatens to undermine rents and may lead to a supply glut.#x201d;

But he remains optimistic, arguing that this may be offset by government investment in sectors such as health care, aviation, education and hospitality. #x201c;Growth in these areas may offer some respite to the residential property market.#x201d;

Mr Durrani says the outlook for Dubai remains positive. #x201c;With mega infrastructure such as the $32 billion expansion of Al Maktoum International Airport and the hosting of the World Expo in 2020, the prospects for the residential and commercial markets are brighter.#x201d;

Your portfolio

Keren Bobker, a senior consultant at Holborn Assets and a columnist for The National, warns that markets have to cope with another toxic element this year: the US presidential election, so far dominated by the Republican hopeful Donald Trump.

Ms Bobker says investors need to stay calm, rather than simply panic and sell. #x201c;If your portfolio is properly diversified across several markets and reflects your attitude to risk, you should be able to tolerate any short-term falls in value.#x201d;

You need to review your portfolio to see whether this is the case. #x201c;Far too many people have been unwittingly put into volatile, high-risk funds, which makes them vulnerable.#x201d;

There is no such thing as a safe bet these days, Ms Bobker says. #x201c;No one can buck markets, but the fluctuations tend to be ironed out over time.#x201d;

In volatile times it makes sense to invest small regular amounts every month rather than making large lump sum investments. This way you can turn volatility to your advantage, because your contribution payment will buy more units in your chosen funds when markets fall, and you will benefit when they recover.

Ms Bobker adds: #x201c;I expect further turbulence this year, but if you are sensibly invested for the long term you should be able to ride it out.#x201d;

Equities

Dan Dowding, an investment adviser at Killik amp; Co in Dubai, says investors can still make money from the stock market, but through careful stock picking rather than simply buying index trackers.

#x201c;Too many big companies are boring businesses with little competitive advantage and second-rate management. The UK#x2019;s FTSE 100 index is a good example. Today it is about 10 per cent lower than it was 15 years ago.#x201d;

The major indexes fail to reflect the technological revolution affecting transport, energy, health care and social media, he says.

Mr Dowding says: #x201c;Facebook recently reported 1.49 billion monthly active users and WhatsApp has 900 million users. These two companies did not even exist 15 years ago.#x201d;

He says we live in an age of #x201c;creative destruction#x201d;. #x201c;Just look at the businesses that have been destroyed by Apple, Netflix, Google and Amazon. The numbers will be dwarfed when the same thing happens in the oil, auto and pharmaceutical industries.#x201d;

The world may be heading for further turbulence, but if Mr Dowding is right, short-term destruction will fire new types of creativity.

Good news

There is other good news out there, if you look for it. US employment figures continue to rise. Europe is growing thanks to monetary stimulus. The UK remains robust, although growth is easing off.

Tim Edwards, the senior investment director of index investment strategy at Samp;P Dow Jones Indices, says history suggests worse is to come: #x201c;Historically speaking, years that have started badly have more frequently ended badly #x2013; and to a greater extent than might be supposed.#x201d;

The truth is that nobody can predict the future, and investors who try to do so invariably fail. By selling up now, you will only crystallise your losses.

Brave investors might even want to take advantage of market falls to pick up shares at reduced prices.

They should heed recent comments from Christian Mueller-Glissmann at Goldman Sachs. He said the China-led rout may get worse, and when it does, that is the time to buy. Are you brave enough to buy shares today?

pf@thenational.ae

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