Finance Markets

July 5, 2005

Japan to privatise post office

Filed under: Companies, Japan
Japan to privatise post office

Japan’s lower house of parliament on Tuesday voted to approve privatization of the post office in that nation.

While the upper house of parliament must now approve the legislation before it becomes law, the approval by the lower house is widely seen as a vote of confidence in prime minister Junichiro Koizumi after his own Liberal Democratic Party opposed his plan for privatization of the state-owned post office.

Mr. Koizumi had threatened to dissolve parliament if he lost the vote. After the vote, several leaders of the LDP resigned in protest.

They had been warned before the vote that cabinet members would be “severely punished” if they opposed the prime minister in the vote. Approximately 40 of the 250 members of the LDP in the lower house voted against the legislation.

Under the privatization plan the post office - which is the biggest state-owned financial services institution in the world, with responsibility for ¥350,000 billion ($3,130 billion) in funds - would be divided into four parts: savings, insurance, mail delivery, and counter services beginning in 2007, with shares offered to the public over the next ten years.

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July 4, 2005

AirAsia head predicts consolidations in air industry

Filed under: Companies, Asia
AirAsia head predicts consolidations in air industry

Tony Fernandes, the head of Malaysia-based AirAsia, Asia’s most successful discount air carrier, has predicted a series of consolidations in his sector.

He said on Sunday that many operators who got into the low-cost airline business because it looked like an easy way to make money are now finding it a much tougher go.

Oil prices are rising due to high demand, limited refining capacity, and processing bottlenecks. Jet fuel was being traded in Singapore last week at $70.47 per barrel.

Leasing costs, too, are higher as demand outstrips supply. Rates to lease the kinds of aircraft used on short- and medium-haul routes like those the no-frills carriers fly most often have increased by as much as 40 percent in the past year.

There are already signs that Fernandes might be correct. Last week Valuair and Jetstar Asia, both no-frills air carriers based in Singapore, said that they were in talks that might lead to a merger.

Valuair, which has been flying since May of last year, has been trying to subtly change the image of low-cost air carriers by adding longer routes and offering in-flight meals.

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July 3, 2005

CNOOC asks for immediate review by CFI

Filed under: Oil, Companies, US
CNOOC asks for immediate review by CFI

China National Offshore Oil Corporation has asked the US government to immediately examine its bid for Unocal.

The call for an immediate review by the Committee on Foreign Investments in the US, the group that looks into purchases of American companies by foreign investors, is seen as a move by CNOOC to prove that its bid is entirely commercial in nature and will not be subject to interference from the Chinese government, which owns the company.

The request also comes ahead of final votes on a measure meant to block the use of federal money to recommend approval of CNOOC’s bid and another piece of legislation that asks President George W. Bush to review CNOOC’s bid only if Unocal accepts the bid.

Washington, however, is not the only pace where the CNOOC’s bid for Unocal is controversial.

While some academics in China see the bid as “farsighted” in its attempt to take China’s future energy needs into account, others see CNOOC as taking on entirely too much debt in the event that the price of oil falls steeply in the future.

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Rank to delist from Nasdaq

Filed under: Companies, US
Rank to delist from Nasdaq

Rank, the UK-based leisure group, has announced that it will delist from Nasdaq.

It will also amend its Articles of Association to enable it to make US investors transfer their shares in its ordinary stock so that it can bring its registration with the US Securities and Exchange Commission to an end.

By doing this Rank, which owns the Hard Rock Café chain, will no long have to comply with SEC reporting requirements or with the provisions of the Sarbanes-Oxley Act, which requires companies trading on US exchanges to prove adequate supervision of their accounting practices.

Rank cited the costs of complying with SEC and other requirements as the reason for its decision.

A study by a Chicago law firm, published in June, showed that the cost of keeping up a public listing in the US has risen 45 percent for large companies in the past year. Most of that cost is accounted for by rising audit fees.

The study presented data showing that audit fees jumped 96 percent last year for small companies (those with less than $1 billion in annual revenues), and were up by 55 percent for large companies. Rank will continue to trade on the London Stock Exchange.

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July 1, 2005

Chevron continues poilitical obstruction of rival bid

Filed under: Oil, Companies, US, China
Chevron continues poilitical obstruction of rival bid

Chevron said on Thursday that China National Offshore Oil Corporation’s bid for Unocal should be referred to the World Trade Organization.

Chevron claimed this is because CNOOC is trying to buy what Chevron called a “critical resource” with funds subsidized by the Chinese government. It characterized the bid as a government trying to enter into a commercial venture.

Chevron is trying to make a case that the money to be used by CNOOC to buy Unocal is a subsidy because the financing provided by the Chinese government is low- or no-interest. CNOOC insists that its bid is completely commercial in nature.

It is unlikely that the issue will be taken up by the WTO because it does not have rules concerning mergers across national borders. Chevron’s efforts, however, will likely cause more heat in the controversy over the CNOOC bid.

And, in fact, in Washington, DC, on Thursday, the US House of Representatives voted 328 - 91 to block CNOOC’s bid for Unocal by denying the Bush administration money to look into the deal.

Under the provision, the Treasury Department would be barred from using federal funds to recommend approval of the CNOOC’s bid.

There is no guarantee that the measure will pass and be signed, but it signals a growing opposition to the deal in Washington.

Meanwhile, a Chevron official also claimed once again that his company’s bid for Unocal is superior even though it is lower because it could be closed sooner and carried no security risks or long regulatory delays.

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June 30, 2005

Nymex struggles to rival IPE Brent trading

Filed under: Oil, Companies, US
Nymex struggles to rival IPE Brent trading

As investors have grown accustomed to trading Brent crude oil futures electronically since the International Petroleum Exchange closed its trading floor in London in April, the New York Mercantile Exchange is finding it difficult to make its presence felt in the trade of Brent futures as it waits for approval to open a planned open-outcry exchange in London.

The temporary exchange Nymex has opened in Dublin while it waits has had only limited success.

While the goal of Nymex is to gain control of trade in Brent futures from IPE, the volume of Brent contracts trade on IPE’s electronic exchange has grown to around 130,000 contracts per day, up from 100,000 per day before IPE went electronic.

In contrast, since Nymex opened its Dublin trading floor in December, its volume of Brent contracts traded has averaged only between 5,000 and 20,000 contracts per day.

At the same time, Nymex is looking for minority investors as the president of Nymex characterized the current climate in futures markets as one in which every exchange is talking to every other exchange in an attempt to form partnerships.

So far, the Chicago Mercantile Exchange has expressed an interest in buying into Nymex.

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June 29, 2005

UK insurers warn of environmental costs

Filed under: Companies, Economy, UK
UK insurers warn of environmental costs

Some insurers have joined the chorus of voices telling the G8 industrialized nations that they must act to reduce greenhouse gas emissions.

The Association of British Insurers are expected to say in a report to be published on Wednesday that the cost of storm damage would side will likely grow due to climate change by two thirds to £15 billion ($27 billion) per year over the next 70 years.

By the year 2040, the group will say, the cost of US hurricanes alone will go up to $11.4 billion, from $9.5 billion. In a bad year in the 2040s, US hurricanes could cost $71 billion.

The ABI also said that in bad years the cost of typhoons in Japan could rise to £19 billion per year by 2080.

One advisor to the ABI said that these estimates were probably low due to the fact that they did not take into consideration the likely increase in property values and increased volatility in insurance markets.

The report will also say that some costs could be avoided if preventative measures, including the improvement of coastal defenses, are taken.

A separate poll taken by market research group TNS discovered that 7 out of 10 people polled in Europe believe that governments will only act on environmental concerns in the event of an environmental disaster of catastrophic proportions.

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Chevron accused on CNOOC bid for Unocal

Filed under: Oil, Companies, US
Chevron accused on CNOOC bid for Unocal

There are potential conflict-of-interest issues arising over the vocal opposition among US politicians to China National Offshore Oil Corporation’s bid to purchase Unocal for $18.5 billion.

There are reports that over half of the members of Congress who have signed a letter of opposition to the sale have received campaign contributions in the past from Chevron, which is also bidding to buy the California-based energy company.

That letter raises the possibility that a sale of Unocal to CNOOC poses a threat to US national security.

An earlier letter raising concerns about the CNOOC bid to president George W. Bush was written by a Republican congressman who has received $13,500 in contributions from Chevron, according to the Center for Responsive Politics.

An individual close to the CNOOC bid has charged that Chevron is orchestrating opposition to the Chinese bid because it is less expensive to raise political questions about the deal than it is to raise its own bid.

Sources close to Chevron, however, have denied those charges and have reiterated Chevron’s belief that its bid is the superior offer.

One of the claims of opponents to CNOOC’s bid is that the purchase of Unocal would give China access to technology that could be put to military use.

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Tiger Airways to buy eight Airbus A320

Filed under: Companies, Asia
Tiger Airways to buy eight Airbus A320

Less than a year after starting operations, Singapore-based no-frills air carrier Tiger Airways has announced that it would purchase eight Airbus A320 aircraft by, 2007, tripling its fleet to twelve planes.

It also said that it will add staff and routes and open joint-venture franchises away from its base of operations at Changi Airport.

The airline declared that its goal is to rival the Malaysia-based AirAsia. The expansion would cost over $500 million at regular prices, but some analysts think it likely that the airline will be able to get a discount from Airbus.

Tony Davis, the chief executive of Tiger Airways, said that the expansion would be financed largely from start-up funds, most of which he said are still available.

Singapore Airlines owns 49 percent of Tiger Airways. Temasek Holdings owns 11 percent, while the private investment firm of Tony Ryan, founder of RyanAir holds 16 percent of the airline, and a US businessman owns the other 24 percent.

In other airline news from Asia, Jetstar Asia, supported by Qantas Airways, and Singapore-based airline Valuair are talking about a possible merger.

Valuair has been flying since May 2004 and has expanded traditional low-cost airline services by offering longer routes and serving basic meals.

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June 28, 2005

US proposes end to credit rating monopolies

Filed under: Equities, Companies, US, Politics
US proposes end to credit rating monopolies

Legislation introduced last week in the United States would open up the credit rating industry to more competition.

It would end the current system in which the Securities and Exchange Commission designates only select ratings agencies as “nationally recognized statistical rating organizations.”

Only credit ratings issued by those designated agencies are considered legally valid in the US.

The new legislation would allow any rating agency to register with the SEC as long as it meets certain standards.

Not only would the change open up competition, but it would substantially reduce the power of agencies such as S&P and Moody’s, which together currently hold an 80 percent market share in the industry.

The legislation would also let the SEC inspect rating agencies and regulate how they must handle conflicts of interest and non-public information.

Representative Michael Fitzpatrick, who authored the legislation, criticized the near monopoly of S&P and Moody’s, as well as their failure to warn of the collapses of Enron and WorldCom.

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AMD action helps NYSE technology stock rally

Filed under: Equities, Companies, US
AMD action helps NYSE technology stock rally

The technology sector got more than its share of attention on the New York equities markets on Tuesday as Advanced Micro Devices announced that it has filed a lawsuit against Intel.

The suit charges that Intel forced clients to buy their chips rather than AMD’s product.

The suit comes after AMD’s complaint of anti-competitive practices by Intel to the European Commission and after a ruling by the Fair Trade Commission in Japan which found that Intel had violated anti-trust laws when it offered rebates to five Japanese companies on condition that they would limit purchases of chips made by AMD.

Two investigations by the US Federal Trade Commission have been closed without finding any wrongdoing.

After news of the lawsuit was released, AMD’s shares rose 6.3 percent to $17.70, and Intel’s stock advanced by 1.8 percent to $26.33.

Overall in New York, the Dow Jones Industrial Average rose 1.1 percent to 10,405.63, the S&P 500 was up 0.9 percent to 1,201.57, and the Nasdaq Composite was up 1.2 percent to 2,069.89.

Factors in the advances included a drop in crude oil prices, news of a 3-year high in the consumer confidence index, and labor market conditions that look to be improving.

Airlines saw their shares gain value on the news that oil prices were declining. Delta Air Lines gained 12.8 percent to $3.97, AMR was up 9.3 percent to $12.3, and Air Tran Holdings rose 6.1 percent to $9.47.

Some energy stocks declined as investors interpreted lower oil prices as a threat to profits. Amerada Hess lost 3.8 percent to $106.26, while Marathon Oil fell 2.9 percent to $53.96.

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June 27, 2005

British airways increases surcharge

Filed under: Companies, Markets, UK
British airways increases surcharge

British Airways announced on Friday that it will increase its fuel surcharge to passengers beginning on Monday.

The BA announcement was followed shortly by a similar announcement from Virgin Atlantic, which will rise to £24 per flight leg, and other airlines are expected to follow their example soon.

The surcharge on BA long haul flights originating in the UK will go up 50 percent, from £16 to £24 per flight leg, or by £48 for return trips. For shorter flights in Europe, the surcharge will rise from £6 to £8. BA first introduced fuel surcharges on passenger tickets in May 2004.

The latest increase is the fourth in a year. Previous increases have not seemed to impact ticket sales in a significant way.

BA called the increase “unavoidable” and said that its fuel bill would increase by about £450 million this year, to £1.6 billion, 16 percent of its total costs, while Virgin Atlantic said that its fuel bill amounted to 22 percent of its costs.

The director general of the International Air Transport Association has said previously that rising oil prices were destroying the profitability of airlines worldwide and that the industry as a whole is looking at losses of $6 billion this year, the fifth year in a row of such losses.

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Brazil threatens action over AIDS drugs

Filed under: Companies, Americas
Brazil threatens action over AIDS drugs

Brazil is threatening to break the patent on an anti-retroviral drug for the treatment of AIDS if Abbot Laboratories, the holder of the patent, will not lower the price of the drug.

At the same time, the Brazilian government is in talks with two other US drug companies, Merck and Gilead Sciences, over the prices of their AIDS drugs.

Brazilian health minister Humberto Costa has said that if those companies will not cut the prices on their drugs, Brazil might break the patents on them as well.

Mr. Costa insisted that if Brazil does take this action, it will do so because it is in the “public interest.”

An official of a US industry lobby, the Pharmaceutical Research and Manufacturers of America, called the threat “troubling”, and Abbot Laboratories said that if Brazil begins to manufacture the drug itself, there could be a negative impact on the development of new drugs to treat not only AIDS but all diseases.

The World Trade Organization allows countries to break patents in circumstances of national emergency, but critics of Brazil’s potential move say that isn’t the case here and that Brazil is spending less on drugs to treat AIDS than it was five years ago.

Brazil wants Abbot to cut the price on the drug in question, Kaltera, by 42 percent. Abbot charges $1.17 per pill for the drug, but Brazil claims that a state owned laboratory could sell the drug for 68 cents per pill.

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June 24, 2005

South Korea considers suspension of Deutsche Bank

Filed under: Companies, Countries & Regions, South Korea
South Korea considers suspension of Deutsche Bank

South Korea is looking at the possibility of suspending Deutsche Bank from engaging in derivatives trading for three months on accusations that the bank had not adequately advised state-run companies of the risks involved in investing in derivatives.

The allegations emerged from a tax investigation into foreign private equity funds operating in the Asian nation.

The investigation, by the Financial Supervisory Service, had included not only Deutsche Bank, Germany’s biggest bank, but BNP Paribas, Barclays Capital, and JP Morgan, has been criticized as the beginning of a crackdown on foreign capital.

The FSS began its investigation in February, looking into whether the banks had signed derivatives contracts with state-run companies that contained terms unfavorable to those Korean companies, and whether they had been warned of the risks inherent in the deals.

One contract in question was a currency option with Korea Highway Corp. The deal was worth Won115.5 billion ($114 million). While FSS officials would not enumerate the losses likely on the contract, an official with Korean Highway Corp said that there had been no irregularities with the contract, that there had been a warning on risks, and that the company is making a profit on the deal.

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June 23, 2005

IFPI blames pirates for falling music sales

Filed under: Companies
IFPI blames pirates for falling music sales

According to the International Federation for the Music Industry (IFPI), over one-third of all music CDs sold in the world last year were pirated.

The IFPI, which represents over 1,400 record labels, also said that sales of pirated CDs amounted to more than legitimate sales in 31 countries around the world in 2004.

This was the case even though the music industry was successful in closing down pirate plants with the capacity of producing 380 million CDs per year.

The IFPI laid much of the blame for the continuing success of CD pirates on governments and police agencies that do not do enough to stop the sale of illegal copies of CDs.

The sale of pirated CDs was alleged to have brought pirates and organized crime $4.6 billion in 2004 and was claimed to be a major factor in the decline in legitimate CD revenues, which are down 30 percent in the past four years.

Some of the nations targeted as particular offenders in allowing piracy to flourish are Mexico, Brazil, Canada, and China. China’s trade in pirated CDs alone is believed worth $411 million (£225 million) per year.

However, some analysts point out that DVD revenues have eaten into CD sales as the markets often overlap. Other analysts point to the poor quality of music acts released by major labels as not encouraging consumers to want to buy their products.

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June 21, 2005

AMC and LCE to merge in face of declining cinema attendances

Filed under: Companies, US
AMC and LCE to merge in face of declining cinema attendances

As attendance at movie theaters in the United States is at its lowest in a decade, AMC Entertainment and Loews Cineplex Entertainment have agreed to a merger that will create the second-biggest theatre chain in the US.

The two companies were already in talks in 2004 before each was purchased by separate groups of private equity firms.

Terms of the present deal were not made public, but when each company was purchased last year, AMC cost JP Morgan Partners and Apollo Management $1.67 and Bain Capital, Carlyle, and Spectrum Equity Investors paid $1.46 billion for Loews.

The group that owns AMC will own 60 percent of the new company, and the Loews group will control the remaining 40 percent.

Once the deal is closed and regulators approve it, the company is expected to be taken public next year.

The merger is expected to give the new company, which will be run by the current AMC chief executive, a better position in negotiating exhibitor’s rights with Hollywood studios.

It is also expected to bring cost cuts at a time when US movie ticket sales are down 11 percent from last year since the summer movie season began on May 6.

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Hyundai targets increased Beijing demand

Filed under: Companies, China, South Korea
Hyundai expands on US market presence

South Korea’s Hyundai Motor signed a preliminary agreement on Tuesday with China’s Guangzhou Motor Group to form a joint venture to make commercial vehicles.

Hyundai’s new partner already makes vehicles in China with Honda and Toyota.

The project is worth $1.24 billion and is intended to meet what Hyundai said is an “explosive” demand for commercial vehicles in China, especially in taking account of expected increased demand for the Beijing Olympic games in 2008.

It forecast that by 2010, demand for trucks and buses will reach 3.5 million units per year.

The project, scheduled to begin production in 2007, is expected to have a capacity to produce 200,000 units each year by 2011. Each party to the venture will make an initial investment of $430 million.

Hyundai is already a top seller in China, but it hopes with this project to increase its total vehicle production in china to 1 million units per year.

That would take its Chinese production to one-fifth of its total output.

In the first quarter of 2005, Beijing Hyundai Motor, Hyundai’s passenger car joint venture, was the top seller of passenger vehicles in China, with 56,100 units sold in the quarter.

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June 20, 2005

US politicians target Airbus

Filed under: Companies, US, Europe, Politics
US politicians target Airbus

The Republican chairman of the aviation subcommittee of the US House of Representatives, John Mica, has introduced a bill which would, if passed and signed by President George W. Bush, require aircraft carrying more than 800 passengers to install the technology to combat Stinger missiles and similar weapons.

That would mean that European aircraft manufacturer Airbus would have to put such technology on its A380 if that aircraft is to fly in US airspace.

While the bill does not specifically mention the Airbus aircraft, the A380 is the only plane currently under development that could carry that many passengers.

The legislation comes at a time when the US and the European Union are engaged in a dispute concerning subsidies to both Airbus and its US rival, Boeing.

Mr. Mica insists that his legislation is not aimed at Airbus, but the European aircraft maker has dismissed the bill as aimed at giving Boeing an advantage over Airbus, and one Airbus official called the legislation “silly”.

The Air Transport Association, which represents US airlines, oppose the legislation as a congressional attempt to mandate aircraft technology.

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June 17, 2005

All England Tennis Club told to commercialise Wimbledon more

Filed under: Companies, UK
All England Tennis Club told to commercialise Wimbledon more

The private club that hosts the annual tennis tournament at Wimbledon are being told that they must allow the tournament to be commercialized to a greater extent than it is now to increase the amount of money generated by the tournament.

The All England Lawn Tennis and Croquet Club allows agreements with 14 official suppliers, and the financial director of the club believes that the present arrangement is the most beneficial to the club.

These 14 official sponsors generate approximately £10 million to £12 million for the club, well under the approximately $50 million (€40.8 million) generated by sponsorships at the US Open, another grand slam tournament.

The total amount generated by the Wimbledon tournament has fallen from a peak of £33 million (€49.2 million) in 1998 to less than £28 million.

The club puts the blame for the decline on the cost of insurance and on lower fees from broadcast rights to the tournament. Critics of the club believe that it should be more forward in pursuing sponsorships.

The chief executive of Sport England believes that Wimbledon should be promoted more vigorously all year long and on a worldwide basis.

Another analyst said that the club needs to increase the amount of money generated by merchandising and sponsorships and depend less on the funds generated by broadcast rights.

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June 16, 2005

BofA buys into CCB

Filed under: Companies, Countries & Regions, US, China
BofA buys into CCB

It will be announced in Beijing on Friday that Bank of America has agreed to purchase a 9 percent stake in China Construction Bank for approximately $2.5 billion.

BofA is also expected to invest $500 million more in CCB’s upcoming initial public offering.

In return for its purchase, the largest foreign investment in the Chinese banking sector to date, BofA is expected to receive one seat on CCB’s board.

CCB has been looking for a foreign investor for some time, but the search has been complicated by the reluctance of foreign companies to invest in Chinese banks over concerns about bad debts, corruption, and management issues.

Also at issue has been the large size of investments required, with very little return in terms of having a say in management.
Several international banks are thought to have been approached by CCB about buying into the bank before its IPO.

Bank of America has been looking for further growth opportunities overseas after it bought a 25 percent stake in Mexican bank Grupo Financiero Santander Serfin in 2003. BofA currently generates only 6 percent of its revenues outside the US.

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