In this briefing:
- Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
- Free Money Has Flown
- StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels
- Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data
1. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).
2. Free Money Has Flown
The world will soon discover that debt matters.
The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.
3. StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels
This week in StubWorld …
- Can One Bhd (CAN MK)‘s gets shareholder approval to launch a Mandatory General Offer for 33%-held Kian Joo Can Factory (KJC MK). (note, both legs are illiquid)
- Curtis Lehnert sees Mahindra & Mahindra (MM IN)‘s discount to NAV at its widest since 2015.
Preceding my comments on Can One/Kian Joo, Mahindra and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.
4. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data
Last week, Uzbekistan placed a debut Eurobond, which attracted high interest from investors. Following a change of leadership in 2016, the country embarked on a path or rapid development. So far, its reform record has been quite impressive. However, new challenges often arise during periods of rapid transition. We expect both demand and supply-related pressures to lead to a rise in headline inflation towards the 20% mark in the next 12 months. We think that given the evidence of a rapid deterioration in the trade and current accounts in 2018, further depreciation of the local currency should be expected in the short term. Investors who have bought the Eurobond, or consider participation in further placements by Uzbek corporate issuers in the coming months, should watch out for signs of the build-up of persistent imbalances in Uzbekistan’s economy.
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