Gulf airline expansion to roll on despite European turbulence

Gulf airline expansion to roll on despite European turbulence

Stock Market Predictions

Dubai (Global Markets) - Gulf airlines and lessors could splash out more than $20 billion on Airbus (EAD.PA) and Boeing (BA.N) jets at next week's Dubai air show, underscoring the region's role as the industry's chief paymaster amid Europe's worsening sovereign debt crisis.

Emirates is in talks for a hefty order of at least 30 and possibly as many as 50 Boeing 777 long-range aircraft worth $8.5 billion to $14.5 billion and Qatar Airways is expected to place a $6.5-billion order for 50 fuel-saving A320neo jets and five A380s from Airbus, industry sources said.

Heightened worry about Iran's nuclear intent after a U.N. agency said it had worked to design nuclear bombs could spur defense orders at the show. Arms makers from the United States, Europe and Russia will be displaying their latest weapons.

The last air show two years ago was muted by Dubai's own crisis, but the city state is recovering after a bailout from neighboring Abu Dhabi. Burned by its reliance on property and the financial sector, Dubai is now focusing on becoming a transport and logistics hub.

"We absolutely expect the Gulf airlines to continue on the expansion trail -- they are very into having a young fleet and are determined to be superconnectors who try and hoover up traffic flows on a global basis," said Stephen Furlong, transport analyst at Davy Research in Dublin.

"While in other parts of the world you have things like the EU emission scheme and night-time flying bans, in the Gulf, the governments and the airlines are joined at the hip -- the governments are totally in line with the growth plans."

Orders are likely to include dozens of new sales for Airbus's revamped A320neo short-haul jet, which has enabled the European planemaker to pass Boeing in the order race this year.

But the EADS subsidiary will also be under pressure to explain delays in the A350 passenger jet directly to Gulf customers whose support is crucial for Europe's answer to Boeing's carbon-composite 787 Dreamliner to succeed.

Chief among those is Qatar Airways Chief Executive Akbar Al Baker who regularly blasts Airbus and Boeing over design decisions and delays and has abruptly canceled air show deals.

EURO ZONE THREAT?

Emirates and Qatar Airways have some 370 planes on order to be delivered over the next few years but the euro zone debt crisis could mean some orders being canceled or put on hold.

Financing is increasingly an issue as the industry's traditional backers -- European lenders and particularly French banks -- have become more risk averse and are shying away from new deals. Emirates CEO Tim Clark told Global Markets recently the airline was looking at the Islamic finance market to fund aircraft deliveries.

That said, the shake-out in Europe may bring advantages of cost for Gulf carriers.

Daniel Broby, chief investment officer at Silk Invest, said Gulf airlines could snap up bargain deals as the world waits for Europe to resolve its debt crisis and ease doubts over growth.

"The advantage of buying at the air show at this stage in the cycle is that they are bound to secure good prices, because there will be little demand from Europe or the United States."

Airlines placed around $14 billion in orders at the last biennial show in 2009, sharply down from $155 billion in 2007.

IRAN TENSIONS

The show, its tarmac bristling with the latest warplanes, missiles and defences, will also serve as a pressure gauge for regional tensions as the European Union considers new sanctions against Iran following an IAEA report which suggested Iran is seeking nuclear weapons.

The United States and Israel have refused to rule out any option to prevent Iran from acquiring a nuclear arsenal.

Iran denies trying to build atom bombs and its Supreme Leader Ayatollah Ali Khamenei said any U.S. or Israeli attack on its sites would be met with "iron fists.

"The fear of Iran is the main driver of armament in the region," said Riad Kahwaji, analyst at Institute for Near East and Gulf Military Analysis.

Although U.S. fighter jets are traditionally an important part of the show and its aerial displays, the business end of the show is likely to feature a publicity battle between the Eurofighter Typhoon (EAD.PA) and the Rafale (AVMD.PA) as they face off in a $11 billion contest for 127 aircraft in India.

The show is the first industry gathering since the Libyan conflict ended and both manufacturers will be keen to play up the performance of their combat jets in the NATO operation.

Analysts will be also be listening for any news about talks between the UAE and France over the purchase of 60 Rafale jets, estimated at $10 billion.

Others to watch are UAE early warning system orders -- with Boeing, Northrop Grumman (NOC.N) and Swedish aerospace group Saab (SAABb.ST) likely to be in competition -- and purchases by Qatar, which is modernizing its air force.

(Additional reporting by Tim Hepher in Paris, Mahmoud Habboush in Dubai and Kyle Peterson; Editing by Sophie Walker)

Read More

Few banks to follow UniCredit share sale example

Few banks to follow UniCredit share sale example

Stock Market Predictions

LONDON (Global Markets) - Markets will breathe a sigh of relief as beleaguered Italian bank UniCredit (CRDI.MI) completes its 7.5 billion euro ($9.7 billion) rights issue on Friday, but few expect it to prompt a flurry of share sale activity from other lenders.

Some 31 European banks have been told to fill a 115 billion euro collective hole in their balance sheets by the end of June as part of moves to tackle the continent's sovereign debt crisis.

But most are finding ways to boost their capital buffers without issuing new shares.

"The fact UniCredit gets done is obviously a positive ... but I'm not sure it necessarily swings the needle in terms of other banks thinking of coming to market," said one equity capital markets (ECM) banker. "It is still a last resort."

UniCredit's offering, keenly watched as a litmus test of investor appetite to support European banks, got off to a rocky start, with its shares dropping as much as 47 percent in the four days after the 2-for-1 issue was announced.

Retail demand was stronger than expected, a source close to the deal said, with good interest coming from U.S. investors.

The sale also received a boost from a plan by Abu Dhabi's investment vehicle Aabar INPTVA.UL to raise its stake in the bank to 6.5 percent.

The bank's stock is now at around 3.82 euros, well above the 1.943 euro offer price and sources close to the deal expect take-up, due to be announced by Monday, to be above 95 percent.

Although the cash call will put its core Tier 1 capital adequacy ratio above the 9 percent of risk-adjusted assets required by the European Banking Authority, UniCredit remains vulnerable to the country's sovereign debt woes, analysts say.

A source close to Italy's largest bank by assets said it had readied a 25 billion euro Italian covered bond program which it planned to use to boost collateral available for refinancing operations, while on Wednesday it announced plans to buy back up to 3 billion euros of hybrid debt, adding to efforts aimed at strengthening its capital base.

UNDERWHELMING

"UniCredit failing would have meant the door was shut (for other banks). But the door is still open, the question is who, how much and how," said a second ECM banker.

Germany's Commerzbank (CBKG.DE), which had been among those seen as most likely to issue new shares, has instead set out a range of other steps to boost its core capital.

Bankers highlight Deutsche Bank (DBKGn.DE) along with France's BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA) as those which may be both willing and able to get a share sale done.

Analysts at Mediobanca, one of the top advisers on UniCredit's rights issue, said the French banks should consider a rights issue as a less costly alternative to deleveraging.

"(The) UniCredit rights issue shows that the lack of private investors' appetite is no longer a good reason for French banks to ignore such an option," they said in a note.

But investor appetite remains limited.

"How do I rate the recapitalization efforts of European banking sector so far? A bit underwhelming I would suggest," said Stephen Adams, head of UK equities at Kames Capital, confirming his team's relative underweight to financials.

"I expect a lot of rights issues over the short to medium term ... Would I expect investors to support them? I think here and now probably not," he added.

EARLY BIRDS

Investors are weary of pumping yet more money into European banks and face heavy dilution. UniCredit's offering will dilute 2012 earnings per share by around 65 percent, according to analyst estimates.

While Adams predicts more rights issues by banks, he says investors will be very selective about the banks they back unless there is a significant rotation in asset allocation, out of cash and into equities.

"We have the classic situation whereby the early birds would be supported and then you would have that drag because of the sheer weight of requirement that has to come out," he said.

Smaller lenders are more likely to struggle to come to market, bankers said, as new investors are steering clear of the periphery and banks will be less keen to underwrite an offering.

But they do not rule out pursuing alternative structures.

"We have seen before major shareholders underwriting larger than their weight in the company," said the second ECM banker.

Shareholders in Austria's Raiffeisen RZB.UL have backed the option to issue new shares as part of its capital strengthening plans, while Spain's Banco Sabadell aims to raise up to 1 billion euros from a rights issue following its acquisition of rescued regional savings bank CAM.

UniCredit's smaller Italian peers Banca Monte dei Paschi (BMPS.MI), Banco Popolare (BAPO.MI) and UBI Banca (UBI.MI) are still striving to avoid cash calls.

"People will still look at their stock price and say 'I need to be very sure that I need to do it and want to do it and need to make sure that my shareholders, especially the large ones, are in the right place before I go ahead'," said the banker.

($1 = 0.7708 euros)

(Additional reporting by Sinead Cruise in London and Silvia Aloisi in Milan; Editing by David Cowell)

Read More

Bouygues shares jump on buyback plan

Bouygues shares jump on buyback plan

Stock Market Predictions

PARIS (Global Markets) - French conglomerate Bouygues (BOUY.PA) moved to address the sharp fall in its share price on Wednesday with a planned 1.25 billion euro ($1.81 billion) share buyback program, sending the stock higher.

The telecoms, media and construction group also tweaked its sales target for the year higher after a 4 percent increase in first-half sales as its construction unit returned to growth.

Bouygues shares have fallen around 26 percent in the last three months on concerns about the impact of the global economic slowdown on its construction unit and increasing competition in the mobile telecoms market.

As a result, the company's market capitalization has shrunk to around 8.4 billion euros, below the group's shareholders equity of 9 billion euros at the end of June.

At 1217 GMT, Bouygues was the best-performing stock on the CAC-40 index .FCHI, up 16.87 percent at 26.99 euros.

Bouygues's plan to support its share price and lift earnings per share was seen as a positive signal on the market, sparking hopes of more buybacks by companies, and sending the STOXX construction and materials sector .SXOP up 3.4 percent, strongly outperforming the broad market.

Bouygues' larger rival Vinci (SGEF.PA) and Vivendi (VIV.PA), the telecom and entertainment group, said on Wednesday that they are not planning share buybacks.

The move also signals that Bouygues is set to favor internal growth over acquisitions in the absence of interesting targets, as indicated by Chief Executive Officer Martin Bouygues.

Speaking at a press conference, he ruled out any plans for large mergers or acquisitions, dismissing speculation of possible interest in French cable operator Numericable.

Bouygues' buyback might boost earnings per share by 11 percent if all shareholders take up the offer, which is due to be voted at a meeting on October 10.

The repurchase covers 11.7 percent of the company's capital and will be made at 30 euros per share, representing a premium of 30 percent on the closing price of 23.07 euros on Tuesday, Bouygues said on Wednesday.

Chief Financial Officer Philippe Marien told reporters on a conference call that Bouygues would finance the operation, expected to be a one-off, through its own resources, which total 8 billion euros.

"This proposal benefits all of our shareholders," Martin Bouygues said in a statement. "It is good financial management and does not alter our industrial strategy."

The company also slightly upgraded its sales target for 2011 to 32 billion euros from 31.9 billion as it reported a 27 percent fall in first-half net profit to 391 million euros from 532 million a year earlier.

The decline in net profit, which beat an average of 348 million in a Global Markets poll of four analysts, reflected a lower contribution from Bouygues' 31 percent stake in power and transport engineering company Alstom (ALSO.PA).

The group reported a 4 percent increase in first-half sales to 15.2 billion euros as the construction business returned to growth.

Speaking on the sidelines of the press conference, Martin Bouygues said there could be opportunities for its construction unit in Libya as part of the country's reconstruction after the end of Muammar Gaddafi's 42 year old rule.

($1=.6897 Euro)

(Editing by Helen Massy-Beresford and Jon Loades-Carter)

Read More

BNP Paribas and Credit Agricole shares tumble

BNP Paribas and Credit Agricole shares tumble

Stock Market Predictions

LONDON/PARIS (Global Markets) - Shares in French lenders BNP Paribas (BNPP.PA) and Credit Agricole (CAGR.PA) dived on Friday, underperforming the European banking sector on growing concern about the euro zone debt crisis.

BNP Paribas shed more than 8 percent, while Credit Agricole lost 4.7 percent and Societe Generale (SOGN.PA) lost 0.9 percent. That compared with a 1.1 percent gain in the STOXX Europe 600 banking index .SX7P.

Two Paris-based traders blamed the drop on expectations that the Moody's agency may cut Italy's credit rating after the market close on Friday. BNP Paribas and Credit Agricole are the two French banks most exposed to Italy.

Further dampening sentiment was talk Germany had delayed discussing the European Stability Mechanism and that legislation for the rescue fund was not likely to be in place until early 2012.

Credit Agricole in particular was being hurt by its planned exit from the Stoxx 50 index, traders said.

The declines come at the end of a week in which the heavily sold French banking sector had shown signs of rebounding, although BNP is still down on the week.

(Reporting by Dominic Lau, Juliette Rouillon, Joanne Frearson and Elena Berton; Editing by David Hulmes)

Read More

Europe's banks, insurers jump on Greece rescue deal

Europe's banks, insurers jump on Greece rescue deal

Stock Market Predictions

LONDON (Global Markets) - Europe's banks and insurers rose on Friday after Greece's private sector creditors agreed to take a 21 percent loss on their debt holdings as part of a rescue plan.

Although the deal will force many banks to take a big hit -- non-Greek banks face a 5.4 billion euros ($7.7 billion) loss -- the Greek deal was seen as reducing the threat the euro zone crisis will spread to Spain and Italy. But risks remain.

"It is good that everybody has been able to make a compromise, but it still needs to be detailed and implemented," said Francois Savary, chief investment officer at Geneva-based fund managers Reyl.

Other investors and analysts also gave it a cautious welcome, saying the threat of further contagion remains.

"There is still the need for a strong policy response, but the market's reaction this morning shows it is willing to give them (EU leaders) credibility," said Paola Biraschi, an analyst at RBS in London. "There is more to come ... but it has restored credibility."

By 0830 GMT the STOXX Europe 600 banking index .SX7P was up 1 percent, pulling back from an early 2.6 percent rally. The index jumped 4 percent on Thursday as a Greek deal neared. The STOXX Europe 600 insurance index .SXIP was up 1.1 percent in early trade.

Four options are being offered to creditors, including bond exchange and rollover offers as well as a bond buyback scheme as part of a 37 billion euro private sector contribution to Greece's rescue plan.

Financial firms are likely to write down the value of Greek bonds in the second quarter, possibly by 21 percent, but more losses could follow. The change in the terms on Greek bonds means ratings agencies are likely to downgrade Greece to selective default soon.

"We have long thought that the most likely outcome for Greek bondholders would be that they would take a small haircut first followed by a larger one at a later date. To give Greece a fighting chance they probably need a write down close to 65 percent," said Gary Jenkins, head of fixed income research at Evolution.

Top early gainers included firms that have been hit hard by the threat the Greek crisis could spread.

Belgian-French Dexia (DEXI.BR) jumped 4 percent and France's BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA), Italy's Unicredit (CRDI.MI), Germany's Commerzbank (CBKG.DE) and Britain's Barclays (BARC.L) all gained over 2 percent. Insurers AXA (AXAF.PA) and Ageas (AGES.BR) were each up about 2 percent.

The Institute of International Finance (IIF), which has led the negotiations for private investors, reckons 90 percent of creditors will sign up. Deutsche Bank (DBKGn.DE), HSBC (HSBA.L), BNP Paribas, Allianz and AXA are among the firms to already sign up.

There is about 150 billion euros of outstanding Greek sovereign debt, so a 90 percent take-up would account for 135 billion euros, including about 54 billion euros in the period up to mid-2014.

Europe's banks held 98 billion euros of Greek debt at the end of last year, with two-thirds of that in domestic hands. They will be recapitalized under the rescue plan, with about 15 billion euros likely to be pumped in, on top of 10 billion already earmarked for them.

About four-fifths of debt is typically held in banking books that may now face a haircut, indicating non-Greek banks face a loss of 5.4 billion euros.

BNP Paribas has the biggest holding outside Greece, with 4.5 billion euros of bonds in its banking book, according to data released last week as part of an industry health check. A 21 percent loss on that would be 945 million euros.

Dexia held 3.5 billion euros and Cyprus's Marfin CPBC.CY held 3.4 billion, indicating a hit to each of over 700 million euros. Commerzbank held 3 billion euros and Societe Generale (SOGN.PA) held 2.4 billion, so they face haircuts of 630 million and 500 million euros respectively. ($1 = 0.695 Euros)

(Reporting by Steve Slater, Myles Neligan and Sudip Kar-Gupta in London and Michel Rose in Milan; Editing by Mike Peacock)

Read More