Argentina wants to come back into the orchestra

On Thursday (15th of April), the news concerning a possible restructuration of a €20 billion debt seemed to be a great march for the country and for the holders of bonds still unpaid since 2001.

Argentina reimbursed on the 5th of April 2010 $203.6 million with the reserves of the Central Bank. It was the first time that the justice authorizes the country to take money from these funds in order to pay back debts to private creditors since 2001. Indeed, at the beginning of the 90s the country wanted to attract foreign investors, the "Hoodouts" and reduce inflation. It had been set up with the "currency Board" system with the creation of the local currency with foreign currency coming from the investors.

This system worked during years; companies like Ford or Carrefour invested a lot, for example. But it started to crack in 1998 when the dollar started to raise, dragging the Peso with it. Argentina had been excluded from international markets after the defection of the IMF in 2001, when the government decided to interrupt the repayment of its external debt which had reached $90 billion. After this defection the government had closed all the banks in order to avoid liquid assets crisis.

The restructuration would consist in exchanging old unpaid bonds with new ones which would represent more than the half of their value. The country needs the approval of Europe and Japan, before launching his takeover bid. A restructuration had already been rejected in 2005, but the three-thirds of creditors had approved of it. How has been perceived the news? Is it more optimistic than the first time?

Newspapers analysis:

The Financial Times seems wanting to reassure the investors. Indeed in its article entitled "Argentina plans sweetener in bonds offer" the author quotes Amado Boudou, the economy minister saying that "It would be more advantageous than the last one, which was very good', the 'last one' being the first bid in 2005. Although the newspaper reminds that Argentina in prevented by law from offering improved terms this time, it explains that better market conditions have raised expectations that the new deal could be worth 55 cents or more if acumulated interest is paid and if the country also includes a payment related to a coupon related to GDP growth issued in the 2005 to sweeten that offer. The author finishes its article with another quotation coming from the former economy minister who mastermind the 2005 bid: "I still think it's worth it for the creditors, around 40-45 cents would be a level that would still leave them with a profit".

Reuters on the 15th focuses on the fact that Argentina needs approval from Europe and Japan, but it is quite neutral, explaining the fact. Indeed according to the author the bid is being examined by the creditors who had rejected the previous offer, precising that this rejection had concerned more than $100 billion. he also explains that the country first wants to stop judicial proceedings coming from investors who want their money back. According to Reuters this offer should be accepted, which could have the effect of turning down the loan cost of the country.

The Economist is quite severe towards Argentina. The author starts its article explaining to the readers that the restructuration of $80 billion defaulted in 2005, adding that recession pushed the public finances into red and that the country is now feeling the price it had paid for excluding itself from the world financial system. Then it goes on, explaining that investors were panicking, and that the government has tried to find "unorthodox sources of revenue", with the nationalization of private pension funds. The author then explains that if the government wants to succeed it has to change its policy, which would mean to clean up the government's dodgy economic statistics and stop harassing private business. He finishes saying that there is no sign of it, and that "Argentina's debt is likely to continue to be bracketed with that of Ecuador and Venezuela as the riskiest in Latin America until the president term ends in 2011".

My opinion:

I think that it is too soon today to really see the reaction of the different newpapers concerning this news. Indeed the official plan should only be revealed at the beginning of the week, of the other countries in Europe and Japan agree. maybe the "suite" of this story in another article? To my mind it would be a good thing for Argentina to succeed in this operation. Its exclusion by the IMF did not help the country, and it has prevent Argentina from developing its international economy, and its relation with the other countries and foreign companies. Some companies still does not want to invest in Argentina anymore, and the trust is still not back. That is why the bid has to be accepted by Europe and Japan, in order to help the country to forge ahead, make the trust back and develop its international economy again.

Music of the week: a Menuet, the dance in order to seduce the countries and investors, form Bach for example...

Sources:

"Argentina plans sweetener in bonds offer", the Financial Times, 13th of April 2010

"The government tries to make peace with international capital markets", The Economist, 31st of March 2010

"Argentina could announce the details of an exchange", Reuters, 15th of April

"Argentina waiting for approval for his debt's exchange", Les Echos, 14th of April 2010

The nuptial march for Iberia and British Airways

A new couple in the aircraft industry has been announced on the 8th of April 2010, which could become the third-largest airline group.

After the mergers of Lufthansa with Swiss, and Air France with KLM, this is now the turn of British AIrways and Iberia. This merger would create a company with more than €14 billion revenues, 408 aircraft and 58 million passengers per year.

The drums join the orchestra for this news!!

What are the reasons which have pushed the two companies to "tune" not their violin but their planes in order to play their music together, forming the new duo in the sky?

British airways recorded revenues of £8.992 million during the financial year ended March 2009, an increase of 2.7% over 2008, and has more than 40,000 employees. Iberia recorded revenues of €5,223 million during the same financial year, and has around 22,500 employees.

The two companies gathered a total amount of €750 million last year for net profits, but the aircraft market is sensitive to the competition of low-cost companies such as easyJet, or the oil prices and the economic slow-down. This merger will let them be more important in the negociation of the oil prices and the planes for example. The two companies also have different strenghts, such as the North America for BA and the South America for Iberia; and will weiht around €6 billion on the stock exchange.


Newpapers analysis:

The Telegraph only gives key facts (coming from Reuters) of the merger in its first article "BA and Iberia complete merger:key facts". Indeed the new CEO will be the BA one, Willie Walsh, the chairman the former Iberia's CEO Antonio Vazquez, and the headquarter will be situated in London, even though the operations will be in Euro.

In the second article entitled "Ba and Iberia sign €5.8bn merger deal", Alistair Osborne starts saying that is was the most important news of the day, because this merger would create a company with more than €14 billion revenues, and a market vaue of €5.8bn. He then explains that the two subsidiaries will retain their own brands in order to preserve existing traffic rights, even if it will be listed as International Airlines Group. The name has been chosen for the company to become the "top company" and the author explains that the regulations will allow future mergers, their first target being American Airlines. According to the Telegraph, this new company has everything to become a leader of the aircraft market in the future.

Les Echos, a French newspapers, in its article entitled "British airways and Iberia will birth to the European number three in the air transport", seems to be optimistic by the news at the beginning of the article. indeed it gives positive figures such as 408 planes, more than 60 million passengers per year, trhough 200 destinations. But then is specifies that the report still has to be approved by the shareholders of the two groups, and more important by the competition authorities in Brussels. Then the authof states that Iberia can still cancel this merger if BA cannot reduce its deficit of £3.7bn. He finishes in insisting on the fact that BA is always in conflict with its staff through the trade union Unite, and that the strike in March had cost £45 million.
It seems that the companies still have to tune their instruments for good music, or maybe should BA practice more its financial scales...

Jane Wardell, an Ap Business Writer, explains in her article "BA and Iberia sign merger deal" that the industry is broken by the global financial crisis and "wracked" by the industrial unrest. She quotes an analyst at Davy Stockbrockers in Dublin: "The Problem is that there are too many airlines. To be a major player in global aviation going forward, you are going to have size and scope and a network". But Jane Wardell explains that the companies have structured their deal, and that their rivals have worries because the new company hopes to extend this alliance with American Airlines. But she then quotes Bob Atkinson, the director of the web site Travelsupermarket.com in order to show that consumers groups have been skeptical in some points: "Any cost savings will only be felt by passengers if the business integrates quickly". It shows that some points in the merger are not clear, and form like a cluster.

My opinion:

I think that this new has been well perceived by the different newspapers, even if there are always the questions of the BA's staff recently on strike and the problem of its debt, as well as the result concerning the consumers cost savings which seems not to have been specified yet. To my opinion I think this merger is a good thing with the current crises, and I wonder with the issues the aviation has presently, how companies like BA or Iberia do not go bankrupt. But I do not think tjat prices will go down. it did go down for the other merger of Air France of Lufthansa. I onder if it would make a bigger difference on prices if there was a merger between a low-cost and a non-low-cost?

the music for this week is of course the Nuptial March of Mendelssohn:

http://www.youtube.com/watch?v=4tDYMayp6Dk

Sources:

"British Airways and Iberia will give birth to the European number third of the air transport", Les Echos, 9th of April 2010

"BA and Iberia sign €5.8bn merger deal", Telegraph, 9th of April 2010

"BA and Iberia complete merger: key facts", Telegraph, 8th of April

"Ba and Iberia sign merger deal", AP, 8th of April 2010

Is it the end of a sportive rhythm for Porsche ?

After a merger process with Volkswagen which should be done in 2011, Porsche has just announced its results...

Porsche Automobile Holding SE announced on the 17th of March 2010 a turnover of 3.16 billion Euros under the first half of the year 2009/2010, which will finish at the end of July, but also confirmed his forecast given last November according to which it would record a loss.

This loss could go up to 5 billion Euros for 2009/2010 because of countable adjustments, like the deconsolidation of Volkswagen AG on the 3rd of December 2009.

The speed seems to slow down for the sports cars...


Why such a current situation?

The company recorded revenues during the financial year ended July 2008 was 7,466.4 million Euros, an increase of 1.3% over 2007, But Porsche had to completely consolidate Volkswagen in his assessment after having carried his share of the rights to vote beyond 50% at the beginning of 2009. In December 2009, Volkswagen repurchased 49.9% of the artivities of Porsche for 3.9 billion Euros, within the framework of a process of fusion which must finish in 2011.

The German luxury manufacturer, which has been founded in 1900 by Ferdinand Porsche, is specialized in sports cars and all-terrain vehicles, but provides also services consisting of financing and leasing business for customers and dealerships. The Porsche Group consists of 23 German and 62 international subsidiaries and operates through 670 dealerships and 107 countries, with 12,200 workers.

What is the possible future for Porsche? how was perceived the forecast in the newspapers? The company had a strong and brilliant image for cars lovers... how would it end?

Is Porsche going to managed it with Volkswagen, or is it the end of the purrings of the luxury engines?

Newspapers analysis:

The Financial Times is optimistic about Porsche future. Indeed with the headline "Porsche shrinks ahead VW takeover" of the first of the two articles published on the 17th of March, day of the announcement, the tone is positive. The FT gives as usual lots of figures for its readers. Quoting that "it [Porsche] achieved a double-digital operating margin [...] having reduced its heavy debt loan", the FT explains that the company made an operating profit of 329 million Euros in its sports cas business in the first half of the year. Remembering the readers that Porsche sold half its business to VW to prevent itselm from being crushed, the newspapers quoters the manager: "We used most of the proceeds from the €3.9 billion sale to pay back debt, reducing the debt from about €10 billion a year earlier to €6.1 billion at the end of January". This quotation shows the tone and according to the author, Daniel Scheafer, "the company thanks to a positive accounting effect".

The second article explains that investors are getting a better view of the potential value, and focuses on the fact that toyota's recalls (explained in my first article) have helped VW to overtake Toyota as the world's largest carmaker. The good health of VW would help Porsche, according to the FT.

Le Figaro, a French newspaper, is using lots of figures, like the FT, in its article "Porsche remains profitable, reduced debt", and is also positive, quoting a Merck Finck's analyst: "The turnover is slightly higher than our estimation". Explaining that the sales had a light decrease of 1.7% compared to the first half of the year of 2008/2009, Le Figaro focuses on the fact that eventhough the sales have dropped on the North-American and European markts, it has risen in the rest of the world.

The headline "VW, Porsche merger faces risk,, delay-analysts" of the article from Reuters published on the 8th of April, goes to a completely different way than the FT or Le Figaro. According to the author, the risks from potential liabilities and hedge fund lawsuits could force the companies (Porsche and Volkswagen) to delay or abandon the planned merger next year. The author quotes a banker saying the "the level of risk factors was unusual".

Les Echos, a French newspaper, sides with Reuters, focusing on the loss forecasted, even in the headline "Porsche confirms to forecast a loss in 2009/2010", and remembers that cars manufacturer recorded a loss before tax of €4.4 billion in 2008/2009 because of the depreciation of the value of its options on the Volkswagen titles.

My Opinion:

To my point of view it is too soon to know what will happen to Porsche in the future. I will try to follow this news in the next few weeks. The company has still some debts, but has reduced them in a short term. The merger with Volkswagen, which is in a good health, is good news, but I hope that the issues which are still remaining for Porsche will not prevent Volkswagen from saving the luxury cars.

Porsche should accelerate the rhythm for the debt pay-off. The noise of cars is not very good for music to me, but Porsche cars' noise is better than others, and would be sad if this company would go bankrupt.

The relationship between a Porsche and its driver is often a "love story", that is why for the music of the week there is the Porsche's song.!!


http://www.youtube.com/watch?v=FhzyDfDetIg&feature=related

Sources:

"Porsche shrinks debt ahead of VW takeover", the Financial Times, 17th of March 2010
"Volkswagen/Porsche", the Financial Times, 17th of March 2010
"Porsche reste rentable, dette réduite", Le Figaro, 17th of March 2010
"Volkswagen: Porsche confirme prévoir une baisse en 2009/2010", Les Echos, 17h of March 2010,
"VW, Porsche merger faces risks, delay-analysts", Reuters, 8th of April 2010