Looming Crash Prompts Most Hires for Distressed Debt Since 2002
By Kabir Chibber and John Glover
May 30 (Bloomberg) -- The biggest winners from the global buyout boom are hiring distressed-debt bankers in Europe at the fastest pace in five years.
Goldman Sachs Group Inc., the world's most profitable securities firm, hired Andrew Wilkinson, the lawyer who advised creditors in the bankruptcies of Eurotunnel Plc and Parmalat Finanziaria SpA, to help lead its restructuring business in London. Morgan Stanley, the third most-active merger adviser this year behind Citigroup Inc. and Goldman, added seven bankers in the past year, boosting its group to 61. Blackstone Group LP, poised to become the world's largest publicly traded buyout firm, is starting a corporate restructuring group in Europe.
``When the turn does come, it will be unlike anything we have ever seen before,'' said Iain Burnett, 43, managing director of Morgan Stanley's special situations unit in London. ``The scale of it could be considerable because of the size of some of these leveraged deals,'' said Burnett, who began his career in London a month before the October 1987 stock market crash.
Firms are paying as much as $3 million a year for bankers who advise bankrupt companies and for traders who specialize in defaulted debt, according to Heidrick & Struggles International Inc., the world's third-largest recruiting firm. That's on par with derivatives and commodities traders.
Adding Debt
Restructuring groups are growing faster in Europe than in the U.S. as companies in the U.K., France and Germany pile on record amounts of debt, according to Standard & Poor's. European companies borrowed a record $252.6 billion in loans and bonds rated below investment grade, according to data compiled by Bloomberg.
European companies acquired by buyout firms had debt equal to 6.2 times earnings before interest, tax, depreciation and amortization in the first quarter of this year, according to Fitch Ratings. That's up from 5.1 times in 2004 and 4.8 in 2003.
Heidrick & Struggles, based in Chicago, says it's placing more distressed-debt bankers in London than at any time since 2002, after Internet-related companies crashed. So far, there isn't much work to do. Near-record-low defaults have reduced Europe's market for distressed debt to 150 billion euros ($202 billion), a quarter of the size five years ago, according to data compiled by Deutsche Bank AG.
Little to Do
Only one European company -- Teksid SpA, an auto-parts maker based in Turin, Italy -- has defaulted this year, and only four companies worldwide have missed interest payments, according to Moody's Investors Service.
``Banks have to pay market rates to attract quality employees, but the problem is the employee may be sitting on his or her hands for six to 12 months,'' said Lee Thacker, capital markets partner at Heidrick & Struggles in London.
Companies are classified as distressed when they're in default or their bonds yield at least 10 percentage points more than similar-maturity government securities, according to S&P. Traders of distressed debt buy bonds and loans in a bet the securities will appreciate when the company's finances improve. If there's a bankruptcy, they may demand equity in the reorganized company in return for the debt.
European companies almost doubled borrowing this year to $225 billion of loans from the same period in 2006, Bloomberg data show. They sold an additional $27.6 billion of so-called junk bonds, a 30 percent increase from a year earlier. Such debt is rated below Baa3 by Moody's and BBB- by S&P.
Lowest Rates
The riskiest companies, those with a CCC credit rating or worse, are able to get the lowest borrowing rates ever, at 3.3 percentage points above benchmark European government debt, Merrill Lynch & Co. indexes show. The yield gap reached a high of 42.1 percentage points in the month after the terrorist attacks of September 2001.
``It's like a hangover, people will wake up and say, `what have I done?''' said Michael Weinstock, who helps manage $3 billion of distressed debt at private equity firm Quadrangle Group LLC in New York. Quadrangle this month hired a second banker to focus on European distressed debt. ``Record-high levels of financing now mean record levels of defaults in the future. There's every reason to believe we're near a market top.''
The ranks of distressed debt bankers in Europe have swelled by about 30 percent to 400 this year, according to London-based financial recruiter Kennedy Associates. Worldwide, there are about 1,500 bankers specializing in debt of troubled companies, including 800 in the U.S. and 300 in Asia, said Jason Kennedy, founder of Kennedy Associates.
European Pace
``The U.S. market is larger and more established,'' said Kennedy, who has hired distressed-debt bankers in London for clients including Goldman, Citigroup and Lehman Brothers Holdings Inc., all based in New York ``Many banks here are just starting to build up their distressed desks.''
Investing in Europe's troubled companies picked up 14 years ago when Frankfurt-based Deutsche Bank hired Martin Dent, followed a year later by Julian Nichols, who is head of distressed debt in Europe for Germany's largest bank. Deutsche Bank, which doubled its distressed-debt staff over three years to about 120 bankers worldwide, more than any other bank, is planning to increase, Nichols said.
``Distressed debt will continue to grow,'' Nichols said. ``As the value of leveraged loans in the market increases, the absolute level of defaulted debt will increase, even if the ratio remains similar to what it is currently.''
Goldman Hires
Goldman last year hired Lachlan Edwards from London-based investment bank NM Rothschild & Sons Ltd. to head its restructuring unit. In March, it brought in Wilkinson, the former managing partner at law firm Cadwalader Wickersham & Taft in New York.
Goldman co-President Gary Cohn said ``the institution that figures out first that the credit environment has changed will be best positioned,'' according to a May 17 note to clients by Jeffery Harte, a Chicago-based analyst for Sandler O'Neill & Partners.
Greenhill & Co., the investment bank established by former Morgan Stanley Group Inc. President Robert Greenhill, hired Martin Lewis, 52, in February from Miller Buckfire & Co., the firm advising bankrupt energy company Calpine Corp. of San Jose, California, and auto-parts maker Dura Automotive Systems Inc. of Rochester Hills, Michigan, on their reorganizations.
Greenhill, chairman and chief executive officer of the New York-based investment bank, said in a release at the time that the hiring was ``in preparation for when the economic cycle turns.''
Ramping Up
ABN Amro Holding NV doubled a group that deals with troubled companies to 20 in the past year, and plans to have 40 in the ``medium term,'' said Boe Pahari, global head of special situations and distressed capital in London for Amsterdam-based ABN Amro, the largest Dutch bank.
New York-based Merrill Lynch in November hired Ben Babcock from Lazard Ltd. to set up a corporate restructuring business in London. Babcock has since added one person dedicated to restructuring and can pull in people from Merrill Lynch's corporate finance business as needed, he said.
BNP Paribas SA, France's biggest bank, hired Steven Franck from New York-based Morgan Stanley this year to increase its distressed debt operation in London to four.
``People have been forecasting a meltdown in credit in the next 12 to 18 months,'' said Michael Gibbons, head of the special situations desk at Paris-based BNP Paribas. ``We tend to crash when we least expect it, rather than when we forecast it.''
Adding Staff
New York-based Blackstone in December hired Close Brothers Group Plc's Martin Gudgeon, who advised creditors of Eurotunnel and the management of Polestar Group, a Milton Keynes, England- based magazine printer that agreed to a $1.6 billion restructuring in December to avoid collapse.
Houlihan Lokey Howard & Zukin, the Los Angeles-based investment bank, employs 20 in Europe for its restructuring business, up from two when it started in 2002. The bank is looking to build a similar group in Asia, according to Joseph W. Swanson, its London-based managing director.
Zurich-based UBS AG, Europe's largest bank by assets, has been adding staff to its distressed-debt business this year, said Doug Morris, a spokesman in New York who declined to provide details.
Jeff French, a spokesman in London for Citigroup, the most active merger adviser this year, declined to comment. JPMorgan Chase & Co. spokeswoman Stefania Signorelli, Credit Suisse spokeswoman Rebecca O'Neill and Lehman Brothers spokeswoman Ruth Lavelle, all reached at their offices in London, also declined to comment.
Apollo Coup
Banks are looking for opportunities like the 2003 takeover of Zurich-based Cablecom AG by Apollo Capital Management LP, along with Goldman and Soros Private Equity Partners. They bought the distressed debt of Switzerland's largest cable TV company, swapped it for equity and in 2005 sold it to John Malone's Liberty Global Inc. for $2.2 billion.
S&P forecasts the default rate, which was 2.3 percent in April, will rise above 2.5 percent by year-end in Europe. In the U.S., the 12-month default rate is 1.4 percent.
``The risk in all of this is that the higher we fly, the further we could fall as and when the market turns,'' said Paul Watters, S&P's London-based director of debt recovery ratings. ``Many borrowers are tacitly acknowledging the growing vulnerability.''
Wednesday, May 30, 2007
Tuesday, May 29, 2007
KKR walks away from another deal
KKR Quits Coles Buyout Group, Boosting Wesfarmers Bid (Update6)
By Robert Fenner and Joyce Moullakis
May 29 (Bloomberg) -- Kohlberg Kravis Roberts & Co. abandoned its nine-month pursuit of Coles Group Ltd., Australia's second-largest retailer, boosting the prospects Wesfarmers Ltd.'s A$19.7 billion ($16.1 billion) offer will succeed.
New York-based KKR withdrew from a buyout group it formed to bid for the retailer after CVC Asia Pacific quit yesterday, Ian Smith, a spokesman for the firms, said today. Coles' bigger rival, Woolworths Ltd., is in talks to join the remaining partners of the group, two people with knowledge of the matter said.
KKR and CVC withdrew after gaining two weeks of access to the financial data of Coles, whose latest quarterly sales growth was the lowest on record. Coles stock tumbled as investors bet Wesfarmers, the nation's biggest home improvement retailer, won't have to raise its record bid for an Australian company.
``This changes the landscape, as it makes the bidding less competitive and may result in a lower price for Coles,'' said Tony Pearce, who helps manage the equivalent of $3.5 billion at Legg Mason Asset Management in Melbourne, including Coles stock.
Coles stock slumped 73 cents, or 4.2 percent, to A$16.65 at the 4:10 p.m. close of trading in Sydney. Today's fall, the largest in seven months, wiped A$875 million off Coles' market value, with the company now worth A$20 billion. Shares of Wesfarmers rose 25 cents, or 0.7 percent, to A$38.04.
Final Bids
Melbourne-based Coles, the owner of 3,000 supermarkets, liquor stores and discount outlets, has called for final bids in the week starting June 25, with Wesfarmers currently examining the retailer's financial records.
The Perth-based owner of home-improvement chain Bunnings plans to keep Coles' office supply and discount department stores and spin off the grocery business to a venture with its buyout partners.
The decision by KKR and CVC to withdraw leaves TPG Inc., Blackstone Group LP, Carlyle Group and Bain Capital LLC in the bidding group. The four remaining buyout firms will discuss their concerns about the deterioration of the business with Coles management and its advisers over the next two days before deciding whether to proceed with a bid, two people with knowledge of the matter said today.
Sydney-based Woolworths, Australia's largest retailer, is yet to make a decision on whether to join the offer, the two people said, declining to be identified because details of the talks aren't public.
Woolworths Interest
Woolworths Chief Executive Officer Michael Luscombe said April 17 he may bid for some of Coles' non-food assets, which include the Target discount department store chain and Officeworks stationery and business supplies division.
Woolworths, the country's biggest grocer, can't buy Coles' second-ranked supermarkets unit because of antitrust issues.
Jim Cooper, a Melbourne-based spokesman for Coles, declined to comment. Ian Smith declined to comment further on the process. Fiona Breen, a spokeswoman for Sydney-based Woolworths, wasn't immediately available to comment.
The KKR-led group first bid A$14.50 a share for the retailer in September, then sweetened the offer to A$15.25. Both offers were rejected by Coles as too low.
The retailer put itself up for sale in February after Chief Executive Officer John Fletcher slashed the profit forecasts used to justify his rejection of the KKR bids.
Building Stake
Wesfarmers paid A$16.47 a share to build a 12 percent stake in the retailer before announcing its cash and stock bid in April at the same price. An offer to buy more stock at A$17.25 was rebuffed by investors, the Australian Financial Review reported May 2.
The KKR group said April 10 it was ``confident'' of matching or beating Wesfarmers' offer.
``Wesfarmers, with the structure of their bid and the stake they hold, meant KKR would have to offer something like A$17.50 to get it across,'' Legg Mason's Pearce said. ``Wesfarmers had a competitive advantage by ticking those boxes early so it doesn't mean they are overpaying, but beating them would have been hard and required a much higher price.''
By offering its own shares in the bid, Wesfarmers has an advantage over buyout firms because investors accepting stock in a takeover can defer potential capital gains taxes, something that can't be done with an all-cash bid. Analysts at UBS AG estimate the tax relief is worth 30 cents a share to Coles investors.
KKR's move ``leaves Wesfarmers in a much stronger position,'' said Atul Lele, who helps manage about $380 million at White Funds Management in Sydney. The future of the group KKR had led ``depends on whether the other members can raise the funds,'' he said.
Slowing Growth
Coles on May 17 said sales growth slowed to 0.6 percent in the 13 weeks ended April 13, ceding market share to Woolworths, whose sales in the period climbed 8.8 percent.
CVC Asia quit the buyout group because of concerns about the state of the retailer's business, the Australian newspaper said yesterday.
``The turnaround of Coles is not a two-year story, it's more like a four-year story,'' said Legg Mason's Pearce. ``Some private equity firms may not want to hang around that long.''
Credit-default swaps, used to speculate on Coles' ability to repay its debt, declined as perceptions of the company's credit quality improved. Five-year contracts based on $10 million of the company's bonds fell to $64,000 from $73,000 yesterday, according to data compiled by Bloomberg.
Turnaround Potential
The Wesfarmers group, which also includes Macquarie Bank Ltd., Australia's largest securities firm, and buyout firms Pacific Equity Partners and Permira Holdings Ltd., started due diligence on Coles May 25.
Deutsche Bank AG and Melbourne-based Carnegie, Wylie & Co. are advising Coles. Goldman Sachs JBWere Pty and UBS AG are advising the KKR group. Wesfarmers is being advised by Gresham Partners and Macquarie Bank.
TPG, formerly known as Texas Pacific Group, has demonstrated the turnaround potential of Coles. In March it announced an 84 percent increase in first-half earnings at Myer, the department store chain it bought from Coles last year for A$1.4 billion.
KKR agreed to sell Cleanaway Holdings Ltd. to Transpacific Industries Ltd. on May 16 for A$1.25 billion, 11 months after buying the business from Brambles Ltd. The Cleanaway purchase was KKR's first transaction with a publicly traded Australian company.
By Robert Fenner and Joyce Moullakis
May 29 (Bloomberg) -- Kohlberg Kravis Roberts & Co. abandoned its nine-month pursuit of Coles Group Ltd., Australia's second-largest retailer, boosting the prospects Wesfarmers Ltd.'s A$19.7 billion ($16.1 billion) offer will succeed.
New York-based KKR withdrew from a buyout group it formed to bid for the retailer after CVC Asia Pacific quit yesterday, Ian Smith, a spokesman for the firms, said today. Coles' bigger rival, Woolworths Ltd., is in talks to join the remaining partners of the group, two people with knowledge of the matter said.
KKR and CVC withdrew after gaining two weeks of access to the financial data of Coles, whose latest quarterly sales growth was the lowest on record. Coles stock tumbled as investors bet Wesfarmers, the nation's biggest home improvement retailer, won't have to raise its record bid for an Australian company.
``This changes the landscape, as it makes the bidding less competitive and may result in a lower price for Coles,'' said Tony Pearce, who helps manage the equivalent of $3.5 billion at Legg Mason Asset Management in Melbourne, including Coles stock.
Coles stock slumped 73 cents, or 4.2 percent, to A$16.65 at the 4:10 p.m. close of trading in Sydney. Today's fall, the largest in seven months, wiped A$875 million off Coles' market value, with the company now worth A$20 billion. Shares of Wesfarmers rose 25 cents, or 0.7 percent, to A$38.04.
Final Bids
Melbourne-based Coles, the owner of 3,000 supermarkets, liquor stores and discount outlets, has called for final bids in the week starting June 25, with Wesfarmers currently examining the retailer's financial records.
The Perth-based owner of home-improvement chain Bunnings plans to keep Coles' office supply and discount department stores and spin off the grocery business to a venture with its buyout partners.
The decision by KKR and CVC to withdraw leaves TPG Inc., Blackstone Group LP, Carlyle Group and Bain Capital LLC in the bidding group. The four remaining buyout firms will discuss their concerns about the deterioration of the business with Coles management and its advisers over the next two days before deciding whether to proceed with a bid, two people with knowledge of the matter said today.
Sydney-based Woolworths, Australia's largest retailer, is yet to make a decision on whether to join the offer, the two people said, declining to be identified because details of the talks aren't public.
Woolworths Interest
Woolworths Chief Executive Officer Michael Luscombe said April 17 he may bid for some of Coles' non-food assets, which include the Target discount department store chain and Officeworks stationery and business supplies division.
Woolworths, the country's biggest grocer, can't buy Coles' second-ranked supermarkets unit because of antitrust issues.
Jim Cooper, a Melbourne-based spokesman for Coles, declined to comment. Ian Smith declined to comment further on the process. Fiona Breen, a spokeswoman for Sydney-based Woolworths, wasn't immediately available to comment.
The KKR-led group first bid A$14.50 a share for the retailer in September, then sweetened the offer to A$15.25. Both offers were rejected by Coles as too low.
The retailer put itself up for sale in February after Chief Executive Officer John Fletcher slashed the profit forecasts used to justify his rejection of the KKR bids.
Building Stake
Wesfarmers paid A$16.47 a share to build a 12 percent stake in the retailer before announcing its cash and stock bid in April at the same price. An offer to buy more stock at A$17.25 was rebuffed by investors, the Australian Financial Review reported May 2.
The KKR group said April 10 it was ``confident'' of matching or beating Wesfarmers' offer.
``Wesfarmers, with the structure of their bid and the stake they hold, meant KKR would have to offer something like A$17.50 to get it across,'' Legg Mason's Pearce said. ``Wesfarmers had a competitive advantage by ticking those boxes early so it doesn't mean they are overpaying, but beating them would have been hard and required a much higher price.''
By offering its own shares in the bid, Wesfarmers has an advantage over buyout firms because investors accepting stock in a takeover can defer potential capital gains taxes, something that can't be done with an all-cash bid. Analysts at UBS AG estimate the tax relief is worth 30 cents a share to Coles investors.
KKR's move ``leaves Wesfarmers in a much stronger position,'' said Atul Lele, who helps manage about $380 million at White Funds Management in Sydney. The future of the group KKR had led ``depends on whether the other members can raise the funds,'' he said.
Slowing Growth
Coles on May 17 said sales growth slowed to 0.6 percent in the 13 weeks ended April 13, ceding market share to Woolworths, whose sales in the period climbed 8.8 percent.
CVC Asia quit the buyout group because of concerns about the state of the retailer's business, the Australian newspaper said yesterday.
``The turnaround of Coles is not a two-year story, it's more like a four-year story,'' said Legg Mason's Pearce. ``Some private equity firms may not want to hang around that long.''
Credit-default swaps, used to speculate on Coles' ability to repay its debt, declined as perceptions of the company's credit quality improved. Five-year contracts based on $10 million of the company's bonds fell to $64,000 from $73,000 yesterday, according to data compiled by Bloomberg.
Turnaround Potential
The Wesfarmers group, which also includes Macquarie Bank Ltd., Australia's largest securities firm, and buyout firms Pacific Equity Partners and Permira Holdings Ltd., started due diligence on Coles May 25.
Deutsche Bank AG and Melbourne-based Carnegie, Wylie & Co. are advising Coles. Goldman Sachs JBWere Pty and UBS AG are advising the KKR group. Wesfarmers is being advised by Gresham Partners and Macquarie Bank.
TPG, formerly known as Texas Pacific Group, has demonstrated the turnaround potential of Coles. In March it announced an 84 percent increase in first-half earnings at Myer, the department store chain it bought from Coles last year for A$1.4 billion.
KKR agreed to sell Cleanaway Holdings Ltd. to Transpacific Industries Ltd. on May 16 for A$1.25 billion, 11 months after buying the business from Brambles Ltd. The Cleanaway purchase was KKR's first transaction with a publicly traded Australian company.
Macquarie's Fund Model may be unsustainable
The market seems to agree with Jim Chanos.
Macquarie's Moss Says Model Can Withstand a Decline (Update2)
By Joyce Moullakis
May 29 (Bloomberg) -- Macquarie Bank Ltd., Australia's biggest securities firm, uses a model that can withstand a decline in financial markets, Chief Executive Allan Moss said today.
``I think that our track record will continue to stand us in good stead through a whole range of market conditions,'' Moss said at a lunch in Sydney.
Macquarie has delivered a decade and a half of record annual profit by acquiring assets and bundling them into funds it manages for a fee.
Moss, 57, was responding to comments from Jim Chanos, the fund manager who predicted the collapse of Enron Corp. and last week said Macquarie has ``an inherently unstable platform.''
Chanos said the bank's shares will fall. The stock, which has gained 36 percent in past 12 months, has declined 4.2 percent since the fund manager's comments.
Macquarie's shares rose A$1.52, or 1.7 percent, to A$89.20 at 3:08 p.m. in Sydney.
The bank ``doesn't care what it pays for assets and flips those assets to entities funded by other investors,'' Chanos said last week.
Moss said that Macquarie, which scours the globe for assets with steady cash flows, pays sustainable prices when it makes acquisitions.
Macquarie's Moss Says Model Can Withstand a Decline (Update2)
By Joyce Moullakis
May 29 (Bloomberg) -- Macquarie Bank Ltd., Australia's biggest securities firm, uses a model that can withstand a decline in financial markets, Chief Executive Allan Moss said today.
``I think that our track record will continue to stand us in good stead through a whole range of market conditions,'' Moss said at a lunch in Sydney.
Macquarie has delivered a decade and a half of record annual profit by acquiring assets and bundling them into funds it manages for a fee.
Moss, 57, was responding to comments from Jim Chanos, the fund manager who predicted the collapse of Enron Corp. and last week said Macquarie has ``an inherently unstable platform.''
Chanos said the bank's shares will fall. The stock, which has gained 36 percent in past 12 months, has declined 4.2 percent since the fund manager's comments.
Macquarie's shares rose A$1.52, or 1.7 percent, to A$89.20 at 3:08 p.m. in Sydney.
The bank ``doesn't care what it pays for assets and flips those assets to entities funded by other investors,'' Chanos said last week.
Moss said that Macquarie, which scours the globe for assets with steady cash flows, pays sustainable prices when it makes acquisitions.
Monday, May 28, 2007
Another Carbon Credit Fund created
South Korea to Start State-Led Carbon Fund in July (Update1)
By Meeyoung Song
May 28 (Bloomberg) -- South Korea, which imports 97 percent of its energy and mineral needs, plans to set up the nation's first government-led carbon fund in July.
The fund may be as large as 200 billion won ($215 million), the Ministry of Commerce, Industry and Energy said in an e-mailed statement today. It will invest in carbon-reducing businesses approved by the United Nations and profit from selling carbon credits these businesses produce, the ministry said.
South Korea wants to reduce reliance on oil and diversify energy sources after crude oil prices more than doubled since 2001. The country joins Japan and China in trying to expand the use of cleaner fuels to address concerns that power generation is harming the environment. Energy and industrial activity account for more than 90 percent of the country's greenhouse gas emissions, the ministry said.
The Clean Development Mechanism under the 1997 Kyoto Protocol allows companies in industrialized nations including Japan and most of Europe to buy carbon credits from developing countries to comply with requirements to cut emissions. The credits are derived from projects such as wind farms that are approved by the UN.
The fund will be managed by Korea Investment Trust Management Co., while Korea Energy Management Corporation will invest an initial 20 billion won and act as an adviser, the ministry said.
Kookmin Bank
Kookmin Bank, South Korea's largest lender, will establish a 330 billion won fund that will invest in companies dealing with renewable energy such as solar power, the ministry said on May 20.
Kookmin Bank's fund will be in operation for 15 years, with a yield of more than 7 percent annually after exemptions, the ministry said at the time.
There are more than 30 carbon funds worldwide, valued at at least 2.5 billion euros ($3.4 billion), the ministry said today.
South Korea is among 21 Asia-Pacific Economic Cooperation member nations meeting in Darwin this week to discuss energy- supply security and climate change. The group is responsible for 60 percent of world energy use.
Global energy demand is set to increase by 50 percent by 2030, resulting in an increase in carbon dioxide emissions of between 35 percent and 55 percent, according to International Energy Agency forecasts.
By Meeyoung Song
May 28 (Bloomberg) -- South Korea, which imports 97 percent of its energy and mineral needs, plans to set up the nation's first government-led carbon fund in July.
The fund may be as large as 200 billion won ($215 million), the Ministry of Commerce, Industry and Energy said in an e-mailed statement today. It will invest in carbon-reducing businesses approved by the United Nations and profit from selling carbon credits these businesses produce, the ministry said.
South Korea wants to reduce reliance on oil and diversify energy sources after crude oil prices more than doubled since 2001. The country joins Japan and China in trying to expand the use of cleaner fuels to address concerns that power generation is harming the environment. Energy and industrial activity account for more than 90 percent of the country's greenhouse gas emissions, the ministry said.
The Clean Development Mechanism under the 1997 Kyoto Protocol allows companies in industrialized nations including Japan and most of Europe to buy carbon credits from developing countries to comply with requirements to cut emissions. The credits are derived from projects such as wind farms that are approved by the UN.
The fund will be managed by Korea Investment Trust Management Co., while Korea Energy Management Corporation will invest an initial 20 billion won and act as an adviser, the ministry said.
Kookmin Bank
Kookmin Bank, South Korea's largest lender, will establish a 330 billion won fund that will invest in companies dealing with renewable energy such as solar power, the ministry said on May 20.
Kookmin Bank's fund will be in operation for 15 years, with a yield of more than 7 percent annually after exemptions, the ministry said at the time.
There are more than 30 carbon funds worldwide, valued at at least 2.5 billion euros ($3.4 billion), the ministry said today.
South Korea is among 21 Asia-Pacific Economic Cooperation member nations meeting in Darwin this week to discuss energy- supply security and climate change. The group is responsible for 60 percent of world energy use.
Global energy demand is set to increase by 50 percent by 2030, resulting in an increase in carbon dioxide emissions of between 35 percent and 55 percent, according to International Energy Agency forecasts.
Wednesday, May 23, 2007
SIA may expand routes to China
Singapore Airlines Shares Gain on China Eastern Talks (Update2)
By Chan Sue Ling and Chua Kong Ho
May 23 (Bloomberg) -- Shares of Singapore Airlines Ltd., Asia's most profitable airline, rose on speculation it's close to buying a stake in China Eastern Airlines Corp. to expand its reach in the world's fastest-growing major economy.
Singapore Airlines is in ``advanced'' talks for a potential investment, it said late yesterday, without elaborating. China Eastern today said it's preparing to disclose ``important matters.'' China's third-largest airline said on May 14 it had begun government-level talks about selling a stake.
The investment would give Singapore Airlines more access to passengers and cargo in an air travel market forecast to grow fivefold by 2025. China Eastern, the nation's only unprofitable carrier last year, would reduce debt and gain a partner to help fend off competition from Cathay Pacific Airways Ltd. and Air China Ltd. in its Shanghai base.
``Getting that foothold is important,'' said Christopher Wong, who helps manage $25 billion at Aberdeen Asset Management in Singapore, including shares of Singapore Airlines. ``Shanghai is an important hub and having a foothold can bring the wider operations of Singapore Airlines to a different level.''
Shares of Singapore Airlines added 20 cents, or 1.1 percent, to S$18.60 as of the 12:30 p.m. trading break in Singapore.
Singapore Airlines, which made a record S$2.12 billion ($1.39 billion) profit last fiscal year, can buy a maximum 25 percent stake in a Chinese carrier, according to China's rules.
A quarter of China Eastern will cost HK$9.55 billion ($1.22 billion), based on the company's current market capitalization.
``Hidden Gem''
The purchase will help Singapore Airlines build on its 104 flights a week to Chinese cities including Beijing and Shanghai. It may also complement the cargo operations.
``Cargo is the hidden gem in this deal,'' said James Chua, who helps manage about $200 million at Phillip Capital Management in Singapore, including shares of Singapore Airlines. ``If you want to ship goods from one part of China to another, you have to use a Chinese airline.''
Singapore Airlines' cargo unit, the state-owned investment company Temasek Holdings Pte, and China Great Wall Industry Corp. in 2005 announced a joint venture cargo carrier in China.
``The domestic aviation market in China is restricted and there's no way foreign airline can get routes unless they pair up with a local player,'' said James.
Shares of China Eastern, the nation's third-largest carrier, have more than doubled in Hong Kong this year, raising its market capitalization to $4.88 billion, according to data compiled by Bloomberg. The stock rose 7.8 percent to HK$3.73 in Hong Kong Monday and gained 3.6 percent to 9.59 yuan in Shanghai.
Competition
China Eastern shares will resume trading after the announcement. The carrier expects to post a first-half loss because of debts and more competition, it said on April 27. The airline is facing increasing competition from Cathay Pacific and other carriers in Shanghai, China Eastern's home market.
``Nothing has been finalized,'' Luo Zhuping, China Eastern's board secretary said by telephone today. The carrier has no timetable set to make an announcement, he said.
Any agreement ``is subject to official approval,'' Singapore Airlines said in its statement yesterday.
The purchase may help the Singapore carrier to compete with Hong Kong's Cathay Pacific in the north Asian market.
Cathay Pacific, Hong Kong's largest airline, has built a 17.5 percent stake in Air China, the nation's largest international carrier. Air China controls a similar-sized stake in Cathay Pacific following a wider deal last year, centered on Cathay Pacific's takeover of Hong Kong Dragon Airlines Ltd.
Qantas, British Airways
Qantas Airways Ltd., Australia's largest airline, last month agreed to buy 30 percent of Vietnam's Pacific Airlines. British Airways Plc said yesterday it plans to support private- equity investor TPG Inc.'s bid for Iberia Lineas Aereas de Espana SA to protect the U.K. airline's stake in the carrier.
Singapore Airlines hasn't taken a stake in another passenger carrier since Chief Executive Officer Chew Choon Seng took office in June 2003.
``This is a clear message that SIA wants a deal that makes sense,'' Peter Negline and Winnifred Heap, analysts at JP Morgan Securities Ltd., which has a ``neutral'' rating for shares of Singapore Airlines, or SIA, wrote in a note yesterday.
``If anything, we see this as a point scored for SIA's CEO, who has clearly indicated that he will not do just any deal.''
Under his predecessor, Cheong Choong Kong, the carrier bought 49 percent of Virgin Atlantic Airways Ltd. and a 25 percent stake in Air New Zealand Ltd. This was written off in 2002 when the New Zealand government bailed out the carrier.
Singapore Airlines history dates back to 1947 when Malayan Airways Ltd. Airspeed Consul started, according to its Web site. The carrier was known as Malaysian Airways Ltd. in 1963, when Singapore and Malaysia were united under a federation, and was renamed Malaysia-Singapore Airlines three years later.
The airline split into Singapore Airlines Ltd. and Malaysian Airline System Bhd. in 1972.
By Chan Sue Ling and Chua Kong Ho
May 23 (Bloomberg) -- Shares of Singapore Airlines Ltd., Asia's most profitable airline, rose on speculation it's close to buying a stake in China Eastern Airlines Corp. to expand its reach in the world's fastest-growing major economy.
Singapore Airlines is in ``advanced'' talks for a potential investment, it said late yesterday, without elaborating. China Eastern today said it's preparing to disclose ``important matters.'' China's third-largest airline said on May 14 it had begun government-level talks about selling a stake.
The investment would give Singapore Airlines more access to passengers and cargo in an air travel market forecast to grow fivefold by 2025. China Eastern, the nation's only unprofitable carrier last year, would reduce debt and gain a partner to help fend off competition from Cathay Pacific Airways Ltd. and Air China Ltd. in its Shanghai base.
``Getting that foothold is important,'' said Christopher Wong, who helps manage $25 billion at Aberdeen Asset Management in Singapore, including shares of Singapore Airlines. ``Shanghai is an important hub and having a foothold can bring the wider operations of Singapore Airlines to a different level.''
Shares of Singapore Airlines added 20 cents, or 1.1 percent, to S$18.60 as of the 12:30 p.m. trading break in Singapore.
Singapore Airlines, which made a record S$2.12 billion ($1.39 billion) profit last fiscal year, can buy a maximum 25 percent stake in a Chinese carrier, according to China's rules.
A quarter of China Eastern will cost HK$9.55 billion ($1.22 billion), based on the company's current market capitalization.
``Hidden Gem''
The purchase will help Singapore Airlines build on its 104 flights a week to Chinese cities including Beijing and Shanghai. It may also complement the cargo operations.
``Cargo is the hidden gem in this deal,'' said James Chua, who helps manage about $200 million at Phillip Capital Management in Singapore, including shares of Singapore Airlines. ``If you want to ship goods from one part of China to another, you have to use a Chinese airline.''
Singapore Airlines' cargo unit, the state-owned investment company Temasek Holdings Pte, and China Great Wall Industry Corp. in 2005 announced a joint venture cargo carrier in China.
``The domestic aviation market in China is restricted and there's no way foreign airline can get routes unless they pair up with a local player,'' said James.
Shares of China Eastern, the nation's third-largest carrier, have more than doubled in Hong Kong this year, raising its market capitalization to $4.88 billion, according to data compiled by Bloomberg. The stock rose 7.8 percent to HK$3.73 in Hong Kong Monday and gained 3.6 percent to 9.59 yuan in Shanghai.
Competition
China Eastern shares will resume trading after the announcement. The carrier expects to post a first-half loss because of debts and more competition, it said on April 27. The airline is facing increasing competition from Cathay Pacific and other carriers in Shanghai, China Eastern's home market.
``Nothing has been finalized,'' Luo Zhuping, China Eastern's board secretary said by telephone today. The carrier has no timetable set to make an announcement, he said.
Any agreement ``is subject to official approval,'' Singapore Airlines said in its statement yesterday.
The purchase may help the Singapore carrier to compete with Hong Kong's Cathay Pacific in the north Asian market.
Cathay Pacific, Hong Kong's largest airline, has built a 17.5 percent stake in Air China, the nation's largest international carrier. Air China controls a similar-sized stake in Cathay Pacific following a wider deal last year, centered on Cathay Pacific's takeover of Hong Kong Dragon Airlines Ltd.
Qantas, British Airways
Qantas Airways Ltd., Australia's largest airline, last month agreed to buy 30 percent of Vietnam's Pacific Airlines. British Airways Plc said yesterday it plans to support private- equity investor TPG Inc.'s bid for Iberia Lineas Aereas de Espana SA to protect the U.K. airline's stake in the carrier.
Singapore Airlines hasn't taken a stake in another passenger carrier since Chief Executive Officer Chew Choon Seng took office in June 2003.
``This is a clear message that SIA wants a deal that makes sense,'' Peter Negline and Winnifred Heap, analysts at JP Morgan Securities Ltd., which has a ``neutral'' rating for shares of Singapore Airlines, or SIA, wrote in a note yesterday.
``If anything, we see this as a point scored for SIA's CEO, who has clearly indicated that he will not do just any deal.''
Under his predecessor, Cheong Choong Kong, the carrier bought 49 percent of Virgin Atlantic Airways Ltd. and a 25 percent stake in Air New Zealand Ltd. This was written off in 2002 when the New Zealand government bailed out the carrier.
Singapore Airlines history dates back to 1947 when Malayan Airways Ltd. Airspeed Consul started, according to its Web site. The carrier was known as Malaysian Airways Ltd. in 1963, when Singapore and Malaysia were united under a federation, and was renamed Malaysia-Singapore Airlines three years later.
The airline split into Singapore Airlines Ltd. and Malaysian Airline System Bhd. in 1972.
Buyouts fueled by EBLs
Buyout Firms Engage Banks in Financing LBOs With Novel Bridge
By Jason Kelly and Edward Evans
May 23 (Bloomberg) -- Kohlberg Kravis Roberts & Co. wanted Alliance Boots Plc, owner of the U.K.'s largest drugstore chain, for itself. Instead of teaming up with another private equity firm, a practice known as clubbing, KKR kept all of the bragging rights to the 11.1 billion pound ($22 billion) deal, Europe's biggest buyout ever.
``It enabled us to have a very straight and clear discussion with the Alliance Boots board,'' says Dominic Murphy, 40, the London-based KKR partner who led the acquisition. ``We could make decisions very quickly and effectively. We didn't need to revert to other partners.''
Private equity's record war chests are giving firms the power to make billion-dollar deals by themselves, avoiding the cumbersome clubs that spurred U.S. prosecutors last year to begin an antitrust probe, according to a person familiar with the matter. As buyout shops drive the value of acquisitions past last year's record $701.5 billion, they're pushing fee-hungry banks into providing new kinds of financing for their solo purchases.
Buyout partnerships rose to prominence in the past three years, highlighted by the deal in which Blackstone Group LP and six other firms paid $10.4 billion for Wayne, Pennsylvania-based software developer SunGard Data Systems Inc. in March 2005.
Less than two years later, in February, New York-based Blackstone took the opposite approach, single-handedly paying $39 billion for Equity Office Properties Trust, the second- biggest buyout on record. That was followed by Cerberus Capital Management LP's $7.4 billion agreement in May to take over Chrysler from DaimlerChrysler AG.
Boost From Equity Bridges
``You'll see more of it,'' says David Rubenstein, co- founder of Washington-based Carlyle Group. ``Private equity firms realize they can get the money they need for these deals.''
As the buyout firms fly solo, they're getting a boost from banks, which are providing so-called equity bridges to help them purchase companies. In a bridge, banks buy equity in the target company, reducing the amount of money required from the private equity firm.
After the deal is completed, banks sell their stake, often to limited partners -- pension funds, university endowments and wealthy individuals -- in the private equity firm's funds. New York-based KKR received a 1.39 billion pound equity bridge from Barclays Plc and six other banks in April to buy Alliance Boots, marking the first use of this type of financing in Europe.
Banks are providing bridges to get a bigger share of the advisory fees from today's buyout boom. ``We have to do it,'' says Piero Novelli, co-head of global takeovers at UBS AG in London. ``It's certainly not something most banks would be delighted to be doing. In very large, lucrative buyouts, clients demand it.''
Pension Funds Take Stakes
Pension funds and endowments are also helping buyout firms go it alone, Rubenstein, 57, says. Institutional investors are beginning to take stakes directly in the acquired companies because the payoff is likely to be bigger than returns from buyout funds, which charge fees of up to 20 percent of the profit from each deal.
``It has better economic terms, and the investors like those terms,'' Rubenstein says. ``They like to pick individual deals.'' The Canada Pension Plan Investment Board, the country's second-biggest public pension fund manager, in April joined KKR in an undisclosed bid for BCE Inc., Canada's largest telephone company.
Buyout firms raised an all-time high of $210 billion in 2006, a 57 percent jump from the prior year, according to London-based research firm Private Equity Intelligence Ltd. In April, Goldman Sachs Group Inc. collected $20 billion for the world's biggest fund. The rising pool of capital is fueling another unprecedented year for leveraged buyouts: Firms announced $409.8 billion in deals this year.
Justice Department Probe
Private equity firms prefer sole ownership because it gives them more control in boosting the performance of companies, says Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's Tuck School of Business in Hanover, New Hampshire.
Blaydon says club deals such as SunGard make it difficult for owners to hammer out strategic decisions about acquisitions and selling shares to the public. SunGard's seven owners say they're now trying to expand the company through acquisitions in China and Europe.
``No one talks about these situations enthusiastically,'' Blaydon says. ``Everyone seems more than happy to go back to sole control.''
Buyout firms may also dodge further scrutiny from the U.S. Department of Justice by avoiding the partnerships. In October 2006, the government launched an informal inquiry into club deals to determine whether firms were colluding to thwart competition and artificially hold down the prices paid for companies, say lawyers at Bingham McCutchen LLP.
Megadeal Buzz
Michael Flynn, a partner who works on private equity transactions at Sonnenschein Nath & Rosenthal LLP, says single- buyer deals eliminate any appearance of impropriety.
``Nobody wants the DOJ sniffing around,'' says Flynn, who's based in New York.
A DOJ spokesperson didn't return a phone call.
The biggest buyout ever -- the $45 billion deal in February for Dallas-based power producer TXU Corp. -- took the combination of KKR and TPG Inc., formerly known as Texas Pacific Group. Such partnerships will occur less often as a growing number of private equity firms battle to distinguish themselves, says Stefan Selig, global head of mergers and acquisitions at Banc of America Securities LLC.
The best way for a firm to attract investment from a limited partner or be chosen by a company for an LBO, Selig says, is to be named in a blaring headline as the sole master of a megadeal.
By Jason Kelly and Edward Evans
May 23 (Bloomberg) -- Kohlberg Kravis Roberts & Co. wanted Alliance Boots Plc, owner of the U.K.'s largest drugstore chain, for itself. Instead of teaming up with another private equity firm, a practice known as clubbing, KKR kept all of the bragging rights to the 11.1 billion pound ($22 billion) deal, Europe's biggest buyout ever.
``It enabled us to have a very straight and clear discussion with the Alliance Boots board,'' says Dominic Murphy, 40, the London-based KKR partner who led the acquisition. ``We could make decisions very quickly and effectively. We didn't need to revert to other partners.''
Private equity's record war chests are giving firms the power to make billion-dollar deals by themselves, avoiding the cumbersome clubs that spurred U.S. prosecutors last year to begin an antitrust probe, according to a person familiar with the matter. As buyout shops drive the value of acquisitions past last year's record $701.5 billion, they're pushing fee-hungry banks into providing new kinds of financing for their solo purchases.
Buyout partnerships rose to prominence in the past three years, highlighted by the deal in which Blackstone Group LP and six other firms paid $10.4 billion for Wayne, Pennsylvania-based software developer SunGard Data Systems Inc. in March 2005.
Less than two years later, in February, New York-based Blackstone took the opposite approach, single-handedly paying $39 billion for Equity Office Properties Trust, the second- biggest buyout on record. That was followed by Cerberus Capital Management LP's $7.4 billion agreement in May to take over Chrysler from DaimlerChrysler AG.
Boost From Equity Bridges
``You'll see more of it,'' says David Rubenstein, co- founder of Washington-based Carlyle Group. ``Private equity firms realize they can get the money they need for these deals.''
As the buyout firms fly solo, they're getting a boost from banks, which are providing so-called equity bridges to help them purchase companies. In a bridge, banks buy equity in the target company, reducing the amount of money required from the private equity firm.
After the deal is completed, banks sell their stake, often to limited partners -- pension funds, university endowments and wealthy individuals -- in the private equity firm's funds. New York-based KKR received a 1.39 billion pound equity bridge from Barclays Plc and six other banks in April to buy Alliance Boots, marking the first use of this type of financing in Europe.
Banks are providing bridges to get a bigger share of the advisory fees from today's buyout boom. ``We have to do it,'' says Piero Novelli, co-head of global takeovers at UBS AG in London. ``It's certainly not something most banks would be delighted to be doing. In very large, lucrative buyouts, clients demand it.''
Pension Funds Take Stakes
Pension funds and endowments are also helping buyout firms go it alone, Rubenstein, 57, says. Institutional investors are beginning to take stakes directly in the acquired companies because the payoff is likely to be bigger than returns from buyout funds, which charge fees of up to 20 percent of the profit from each deal.
``It has better economic terms, and the investors like those terms,'' Rubenstein says. ``They like to pick individual deals.'' The Canada Pension Plan Investment Board, the country's second-biggest public pension fund manager, in April joined KKR in an undisclosed bid for BCE Inc., Canada's largest telephone company.
Buyout firms raised an all-time high of $210 billion in 2006, a 57 percent jump from the prior year, according to London-based research firm Private Equity Intelligence Ltd. In April, Goldman Sachs Group Inc. collected $20 billion for the world's biggest fund. The rising pool of capital is fueling another unprecedented year for leveraged buyouts: Firms announced $409.8 billion in deals this year.
Justice Department Probe
Private equity firms prefer sole ownership because it gives them more control in boosting the performance of companies, says Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's Tuck School of Business in Hanover, New Hampshire.
Blaydon says club deals such as SunGard make it difficult for owners to hammer out strategic decisions about acquisitions and selling shares to the public. SunGard's seven owners say they're now trying to expand the company through acquisitions in China and Europe.
``No one talks about these situations enthusiastically,'' Blaydon says. ``Everyone seems more than happy to go back to sole control.''
Buyout firms may also dodge further scrutiny from the U.S. Department of Justice by avoiding the partnerships. In October 2006, the government launched an informal inquiry into club deals to determine whether firms were colluding to thwart competition and artificially hold down the prices paid for companies, say lawyers at Bingham McCutchen LLP.
Megadeal Buzz
Michael Flynn, a partner who works on private equity transactions at Sonnenschein Nath & Rosenthal LLP, says single- buyer deals eliminate any appearance of impropriety.
``Nobody wants the DOJ sniffing around,'' says Flynn, who's based in New York.
A DOJ spokesperson didn't return a phone call.
The biggest buyout ever -- the $45 billion deal in February for Dallas-based power producer TXU Corp. -- took the combination of KKR and TPG Inc., formerly known as Texas Pacific Group. Such partnerships will occur less often as a growing number of private equity firms battle to distinguish themselves, says Stefan Selig, global head of mergers and acquisitions at Banc of America Securities LLC.
The best way for a firm to attract investment from a limited partner or be chosen by a company for an LBO, Selig says, is to be named in a blaring headline as the sole master of a megadeal.
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