Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

European Event-Driven Analyst

Jesus Rodriguez Aguilar

International Consolidated Airlines Group / Event-Driven

International Consolidated Airlines Group

IAG launched the rights issue announced on 31 July and approved at the AGM on 8 September.
<ul>
<li>EUR 2,741 mn (GBP 2,491 mn), c. 63% of its current market capitalisation.</li>
</ul>
The funds will be used to strengthen the balance sheet and reduce debt (increasing for solvency). This approach rules out state aid, as has happened with Lufthansa or KLM-AirFrance. Qatar Airways (25.1% holding), has irrevocably undertaken to subscribe for its pro-rata entitlement.
The right issue would be expected to be completed by the end of September.
This rights issue will have a positive impact in the cost of debt for IAG, allowing 2020 losses to be shared among a larger number of shares; and be highly dilutive in 2021.
Upon announcement, the discount to TERP was 35.86%. Discount and dilution (60%) are higher than what was expected by the market.
Vs. peers, IAG is hit by the higher dependency of profits on premium long-haul traffic, especially the North Atlantic corridor, where some analysts estimate that IAG obtains almost half of its profits.
On today's session, there has been high volatility in the share price with a day high/low of 207.7p/190.7p, and closed at 200.0p vs a prior closing of 200p, with roughly GBP 30 mn traded in London; similar story in Madrid, a day range of EUR 2.1-2.28, with roughly EUR 23 mn traded there.
The theoretical value of the subscription rights is EUR 0.7716 (according to my calculations), therefore IAG should trade around EUR 1.43 ex-rights. The low subscription price should ensure the success of the rights issue, but high volatility is to be expected. The rights will start trading on 14 September and I will update on any further developments.

IAG launched the rights issue announced on 31 July and approved at the AGM on 8 September.

EUR 2,741 mn (GBP 2,491 mn), c. 63% of its current market capitalisation.

The funds will be used to strengthen the balance sheet and reduce debt (increasing for solvency). This approach rules out state aid, as has happened with Lufthansa or KLM-AirFrance. Qatar Airways (25.1% holding), has irrevocably undertaken to subscribe for its pro-rata entitlement.
The right issue would be expected to be completed by the end of September.
This rights issue will have a positive impact in the cost of debt for IAG, allowing 2020 losses to be shared among a larger number of shares; and be highly dilutive in 2021.
Upon announcement, the discount to TERP was 35.86%. Discount and dilution (60%) are higher than what was expected by the market.
Vs. peers, IAG is hit by the higher dependency of profits on premium long-haul traffic, especially the North Atlantic corridor, where some analysts estimate that IAG obtains almost half of its profits.
On today's session, there has been high volatility in the share price with a day high/low of 207.7p/190.7p, and closed at 200.0p vs a prior closing of 200p, with roughly GBP 30 mn traded in London; similar story in Madrid, a day range of EUR 2.1-2.28, with roughly EUR 23 mn traded there.
The theoretical value of the subscription rights is EUR 0.7716 (according to my calculations), therefore IAG should trade around EUR 1.43 ex-rights. The low subscription price should ensure the success of the rights issue, but high volatility is to be expected. The rights will start trading on 14 September and I will update on any further developments.

Credit

With the end of the cycle, precipitated by the coronavirus pandemic, central banks will step in and there is no risk of interest rates increasing anytime soon.
Redemptions and lack of liquidity have brought down bond prices, and have, therefore, created attractive entry points for some issuers. Prices may not be as extreme as two weeks ago, but still there are opportunities aplenty.
The European Central Bank will purchase sovereign and corporate debt at a pace never seen before. It will provide a strong support for investment grade issuers. However, the credit market remains fragmented. The activity on primary market has not recovered for riskier issuers.
I have compiled a list of bonds by Spanish issuers (or whose parent is Spanish) in a variety of sectors. Most are multinational companies and should be able to emerge less harmed by the looming crisis.
Please read on.
(All data have been sourced from Capital IQ)

With the end of the cycle, precipitated by the coronavirus pandemic, central banks will step in and there is no risk of interest rates increasing anytime soon.
Redemptions and lack of liquidity have brought down bond prices, and have, therefore, created attractive entry points for some issuers. Prices may not be as extreme as two weeks ago, but still there are opportunities aplenty.
The European Central Bank will purchase sovereign and corporate debt at a pace never seen before. It will provide a strong support for investment grade issuers. However, the credit market remains fragmented. The activity on primary market has not recovered for riskier issuers.
I have compiled a list of bonds by Spanish issuers (or whose parent is Spanish) in a variety of sectors. Most are multinational companies and should be able to emerge less harmed by the looming crisis.
Please read on.
(All data have been sourced from Capital IQ)

Founder, Riedel Research

David Riedel

Founder

Independent equity research on GEM Markets

Riedel Research

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Thematic (Sector/Industry)

<ul>
<li>Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.</li>
<li>Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.</li>
<li>South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)</li>
<li>India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.</li>
</ul>


Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)
India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.


RRG Weekly - Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

<ul>
<li>The risk of Britain crashing out of the European Union (EU) is very real and not currently priced in to markets.</li>
<li>The idea that the world’s fifth largest economy will abruptly crash out of the world’s largest economy (the EU bloc is larger than the US) and not roil markets is naive.</li>
<li>UK/EU trading relationship is very significant with 44% of UK exports and 53% of UK imports going to/coming form EU.</li>
<li>The market needs to consider the impact of three possible outcomes: Negotiated Departure Approved by UK Parliament, Crash Out with No Deal, Delay.</li>
<li>We believe that any three of these outcomes are a negative for markets with the worst-case being a no-deal crash out.</li>
<li>Specific names to avoid include: International Consolidated Airlines Group SA (IAG), Easyjet (EZJ), Thomas Cook (TCG), Xpo Logistics Europe SA (XPOP) and H &amp; M Hennes &amp; Mauritz AB (HM-B).</li>
</ul>


The risk of Britain crashing out of the European Union (EU) is very real and not currently priced in to markets.
The idea that the world’s fifth largest economy will abruptly crash out of the world’s largest economy (the EU bloc is larger than the US) and not roil markets is naive.
UK/EU trading relationship is very significant with 44% of UK exports and 53% of UK imports going to/coming form EU.
The market needs to consider the impact of three possible outcomes: Negotiated Departure Approved by UK Parliament, Crash Out with No Deal, Delay.
We believe that any three of these outcomes are a negative for markets with the worst-case being a no-deal crash out.
Specific names to avoid include: International Consolidated Airlines Group SA (IAG), Easyjet (EZJ), Thomas Cook (TCG), Xpo Logistics Europe SA (XPOP) and H &amp; M Hennes &amp; Mauritz AB (HM-B).


BREXIT Risk Not Priced In - Watch for Volatility and Weakness - Look to SARS 2003 for Parallels

United Kingdom

International Consolidated Airlines Group S.A. provides transportation services. The Company offers international and domestic air passenger and cargo transportation services. International Consolidated Airlines Group serves customers worldwide.

International Consolidated Airlines Group (IAG LN)

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International Consolidated Airlines Group (IAG LN)

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

Last Week in Event SPACE ... Plus, other events, CCASS movements and Mood Spins. (This insight covers specific insights & comments...

David Blennerhassett

IAG's Jumbo Rights Issue Takes Off

Largely expected, no hit 0.8% less

Jesus Rodriguez Aguilar

Spanish Issuers' Credit Opportunities

With the end of the cycle, precipitated by the coronavirus pandemic, central banks will step in and there is no risk of interest rates increasing...

Jesus Rodriguez Aguilar

RRG Weekly - Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue. Singapore: MAS...

David Riedel

BREXIT Risk Not Priced In - Watch for Volatility and Weakness - Look to SARS 2003 for Parallels

The risk of Britain crashing out of the European Union (EU) is very real and not currently priced in to markets. The idea that the world’s fifth...

David Riedel

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