WHILE the International Monetary Fund (IMF) and finance ministers from the eurozone fail to agree on how Greece can bring down its debt load, Spanish bonds are reacting.
The price of the bonds fell on Tuesday, pushing the 10-year yield to a six-week high as concern over the failure to reach common ground on Greece puts the region’s sovereign debt crisis back on the agenda. Spain’s 10-year yield reached 5.96%, the highest level since October 1. In July, the country’s bonds surged above 7% — levels that prompted bail-outs for Greece, Portugal and Ireland.
They’ve eased because of the European Central Bank’s September announcement that it would buy the bonds of struggling nations if the affected country asked for aid. To receive the aid, countries will have to in essence surrender sovereignty over their finances to the IMF, the European Central Bank and the European Union.
It’s a condition that the Spanish prime minister, who isn’t even a year into his job, would like to avoid. And as long as his country’s bond yields don’t rise to those levels seen in July, he gets more time to not make a decision to request aid.
If the Greek rumblings blow out into a full-scale crisis in the weeks to come, he may not have that breathing space for too long. Over the past couple of days, investors have been in a panicky frame of mind.
The rand, along with other emerging market currencies, weakened against the dollar, with the local currency nudging its way to its weakest level since April 2009. Stock markets, including the JSE, came under pressure as investors flocked to safe-haven assets.
OVER the past seven years, Lonmin, the world’s third-largest platinum miner, has met its output guidance only once. In that time, its stock has plunged by more than 60%, compared to the platinum index, which has gained over 14%.
Production from the company’s operations in the platinum belt has consistently underperformed its peers and in August a labour revolt started at its Marikana operation that has cast a long and dark cloud over the future of mining in South Africa.
These are just some of the issues behind Lonmin, the London-based miner that is now trying to fend off the interest of Xstrata with a $817m rights issue.
On Tuesday, Lonmin released a statement rejecting an approach by the Mick Davis-led miner — which is on the cusp of merging with commodities trader Glencore — and urged shareholders to participate in the stock sale otherwise it would become vulnerable to new offers.
The question for a Lonmin shareholder is whether the rights issue is the final and long-term solution to its problems. For instance, by participating will the company’s costs, which have escalated well in excess of its rivals, be better contained in future ?
It’s a hard ask. Some analysts are already writing off the rights issue as a short-term balance sheet fix and you’d be hard pressed not to agree given the company’s deep fundamental problems.
VODACOM’s importance to its UK parent has just increased a notch if you look at Vodafone’s numbers for its first half, released on Tuesday.
The second-biggest mobile operator, which owns 65% of Vodacom, reported a first-half loss on a poor performance from southern Europe, where the sovereign debt crisis has been most severe.
Vodafone had a write-down of close to $10bn in Spain and Italy as consumers and businesses reduced their spending.
It’s the same bad news for most other mobile firms operating across the region. Deutsche Telekom last week reported a decline in third-quarter revenue, while Spain’s biggest telecommunications firm, Telefonica, reported a drop in sales over the same period.
With the outlook for Europe not likely to improve in the near future (the European Commission has already cutting its growth forecast for the eurozone to 0.1%) companies with a better geographical footprint are going to have a leg up on their rivals.
Vodafone is going to rely on investments outside of its home market, such as Verizon Communications and Vodacom, for cash and growth.
It owns 45% of the US broadband and telecommunications company, which will distribute an $8.5bn dividend to its owners.
Earlier this week, Vodacom boosted its interim dividend by 36.5% and kept its dividend policy of paying out 90% of headline earnings per share because of a dearth of acquisition opportunities.