Santander upsets CoCo cart as floodgates prepare to open

Fri Sep 5, 2014 8:51am EDT

* Santander ploughs into bond market with 1.5bn CoCo

* UniCredit suffers as Santander struggles in secondary market

* HSBC, Credit Agricole and others line up for capital rush

By Aimee Donnellan

LONDON, Sept 5 (IFR) - Santander's push to be the first in a wave of bank capital issuance across Europe threatened to upset the CoCo market just as it is set to take off, when the seemingly oversized trade struggled to perform post-pricing.

The 1.5bn perpetual non-call seven-year Additional Tier 1 deal attracted over 3bn of demand, a far cry from the 17bn the bank received from 820 investors for its inaugural euro issue back in March.

Up until this summer, banks had been able to dictate pricing terms but heightened international political risk, a sell-off in the asset class over the summer and a bulging pipeline of deals are allowing investors to be choosier.

Santander rushed out its deal ahead of a similar trade from UniCredit, but after taking 1.5bn out of the market on the back of the relatively small order book, the deal failed to perform and was still bid below par on Friday at 99.375.

The two issuers announced their intentions of selling AT1s on the same day but Santander was able to pull the trigger faster as it had already tapped the euro market, unlike UniCredit which had only raised AT1 debt in US dollars.

"Santander was ready to go for some time so it was really just coincidental that it came at the same time as UniCredit," said a banker on the trade. The deal was led by Credit Suisse, HSBC, JP Morgan, Santander, Societe Generale and UBS.

"Some people may think they should have adjusted the size for the demand that they met but they had always said on the roadshow they were targeting 1.5bn."

By the time UniCredit was able to go out with its offer, having concluded a two-day roadshow, Santander's issue was quoted at 99.1, having priced at 100.

"Santander caused a lot of problems for UniCredit. I think at the end of the day no one is surprised by Santander's actions but it just goes against the etiquette of the market," said a syndicate banker away from both trades.

Santander declined to comment.

"UniCredit were trying to get in ahead of a lot of supply and Santander jumped in ahead of them and printed too big a deal that is not performing."

Leads Bank of America Merrill Lynch, Credit Agricole, Credit Suisse, Deutsche Bank and UniCredit's investment banking unit considered delaying the deal, expected to be rated BB- by Fitch, after spending the early part of Wednesday morning eyeing the poor performance of Santander. However, when it bounced back to 99.5, they decided to go ahead.

CHOPPY WATERS

Italy's largest bank by assets was then able to price a 1bn perpetual non-call seven in line with guidance at 6.75%, higher than the mid-6% yield the market had been expecting

Bankers reported extreme sensitivity in UniCredit's order book during execution with a number of investors pulling out just before the bond was priced.

"Overall we are pleased with the outcome of this deal," said Waleed El Amir, head of strategic funding and portfolio at UniCredit.

"The order book reached around 2bn from real-money accounts and the reason we are not seeing too much volatility post-pricing is because the deal was anchored with a buy-and-hold investor base."

By Friday morning, UniCredit paper was bid at 100.875. The deal's performance and the fact that Santander has bounced back has given bankers hope that Santander's underperformance was just a temporary phenomenon.

It does mean, however, that for other frequent AT1 issuers such as Credit Agricole, which is preparing its next capital transaction for as early as next week, the deal execution process will have to be handled with extreme caution.

The same goes for HSBC, which is planning to print a potentially large AT1 bond debut next week, too. (Reporting by Aimee Donnellan; Editing by Helene Durand, Matthew Davies and Julian Baker)

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Detroit needs to shed debt to afford improvements -witness

By Karen Pierog

DETROIT, Sept 5 Fri Sep 5, 2014 1:10pm EDT

DETROIT, Sept 5 (Reuters) - Detroit could not afford to undertake a series of necessary improvements without a court-approved plan to shed a chunk of its debt, a city consultant testified on Friday at a U.S. Bankruptcy Court hearing.

Charles Moore, a senior managing director at restructuring firm Conway MacKenzie Inc, said the six areas of Detroit's government that have been targeted for $1.7 billion of reinvestment initiatives running through June 30, 2023, were essential for the city to provide adequate levels of services to residents and businesses.

"Without the plan, it's uncertain to me how the reinvestment initiatives can be funded," Moore testified during the fourth day of a key hearing to determine whether the city's debt adjustment plan is fair and feasible.

Detroit last year filed the largest municipal bankruptcy in U.S. history. It would shed about $7 billion of its $18 billion of debt and obligations under the plan and the city has reached settlements with most of its major creditors, including pension funds and unions.

Hold-out creditors remain, including Syncora Guarantee Inc and Financial Guaranty Insurance Co, which backed payments on $1.4 billion of pension debt and are facing recoveries of just 10 cents on the dollar or nothing if the city succeeds in voiding the debt all together. Both bond insurers have argued the plan shortchanges them while allowing fatter recoveries for others, including the city's retired workers.

The city would spend the $1.7 billion to eradicate blighted buildings, improve public safety services, update information technology and address other neglected areas.

Moore said the initiatives are expected to boost city revenue by $483 million and cut costs by $358 million through mid-2023. That would leave about $877 million to be covered by debt reductions and other funding sources in the city's plan.

Moore followed Detroit Chief Financial Officer John Hill on the stand. Hill wrapped up his testimony on Friday with questions from Judge Steven Rhodes, who is overseeing the case.

Hill, who previously testified that he is willing to continue as CFO for the post-bankruptcy city, said while the plan will not be easy to implement, Detroit has to maintain a "crisis mentality" to ensure it continues to move forward.

An oversight commission that would be created for Detroit once it leaves bankruptcy should include business professionals who will not hesitate to act, Hill added.

"I believe that pressure will help keep things on track," he said.

On Thursday, the city used most of last week's $1.8 billion refunding bond issue to repurchase $1.47 billion of water and sewer revenue bonds. That means the objections to the plan by owners of the now-repurchased bonds are withdrawn, according to a court filing.

The hearing could take several weeks, with many witnesses including the state-appointed emergency manager and Detroit's mayor called to testify. (Additional reporting by Lisa Lambert in Washington; editing by Matthew Lewis)

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UPDATE 1-Detroit needs to shed debt to afford improvements -witness

Fri Sep 5, 2014 5:58pm EDT

(Adds summary of hearing so far, filing of sealed order)

By Karen Pierog

DETROIT, Sept 5 (Reuters) - Detroit could not afford to undertake a series of necessary improvements without a court-approved plan to shed a chunk of its debt, a city consultant testified on Friday at a U.S. Bankruptcy Court hearing.

Charles Moore, a senior managing director at restructuring firm Conway MacKenzie Inc, said the six areas of Detroit's government that have been targeted for $1.7 billion of reinvestment initiatives running through June 30, 2023, were essential for the city to provide adequate levels of services to residents and businesses.

"Without the plan, it's uncertain to me how the reinvestment initiatives can be funded," Moore testified during the fourth day of a hearing to determine whether the city's debt adjustment plan is fair and feasible.

Detroit last year filed the largest municipal bankruptcy in U.S. history. It would shed about $7 billion of its $18 billion of debt and obligations under the plan and the city has reached settlements with most of its major creditors, including pension funds and unions.

Hold-out creditors remain, including Syncora Guarantee Inc and Financial Guaranty Insurance Co, which backed payments on $1.4 billion of pension debt and are facing recoveries of just 10 cents on the dollar or nothing if the city succeeds in voiding the debt all together. Both bond insurers have argued the plan short changes them while allowing fatter recoveries for others, including the city's retired workers.

The city would spend the $1.7 billion to eradicate blighted buildings, improve public safety services, update information technology and address other neglected areas.

Moore said the initiatives are expected to boost city revenue by $483 million and cut costs by $358 million through mid-2023. That would leave about $877 million to be covered by debt reductions and other funding sources in the city's plan.

While the confirmation hearing on the plan is scheduled to last through Oct. 17, its first four days were consumed by opening statements from plan supporters and opponents, leaving time for testimony from only two witnesses: Moore and Detroit Chief Financial Officer John Hill. Moore is due back on the stand on Monday for continued cross examination.

Detroit had submitted a list of 26 witnesses, including Kevyn Orr, Detroit's state-appointed emergency manager, and the city's mayor, Mike Duggan. One of the city's lawyers has said Detroit may not finish laying out its case until the first week in October.

Judge Steven Rhodes, who is overseeing the case, has allocated each side 85 hours to present their cases.

On Friday, a sealed order was filed in the case, meaning its contents were not publicly disclosed. Previous sealed orders dealt with mediation matters and the judge's bus tour of Detroit.

Hill wrapped up his testimony earlier on Friday with questions from the judge. Hill said that while the plan will not be easy to implement, Detroit has to maintain a "crisis mentality" to ensure it continues to move forward.

An oversight commission that would be created for Detroit once it leaves bankruptcy should include business professionals who will not hesitate to act, he added.

"I believe that pressure will help keep things on track."

(Additional reporting by Lisa Lambert in Washington; editing by Matthew Lewis)

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AriZona iced tea brand co-founders make final pitch in NY trial

By Nate Raymond

MINEOLA, N.Y., Sept 4 Thu Sep 4, 2014 5:31pm EDT

MINEOLA, N.Y., Sept 4 (Reuters) - The privately held U.S. producer of AriZona iced tea might face insolvency if the judge overseeing a dispute between its founders sets its value at $3 billion or greater, a lawyer for the co-owner running the company said Thursday.

During closing arguments in New York state court, Louis Solomon, an attorney for Beverage Marketing USA Inc co-owner Domenick Vultaggio, said the AriZona beverage maker should not be forced to buy out estranged business partner John Ferolito based on "la la land" numbers.

"I do not want to find myself in bankruptcy court," Solomon told a judge.

The closing arguments capped a valuation trial to determine how much Vultaggio and Beverage Marketing must pay to buy the 50 percent stake held by the Ferolito and his son's trust.

Nicholas Gravante, Ferolito's attorney, countered the company has many suitors willing to pay billions of dollars, including Tata Global Beverages Ltd, Nestlé SA and Coca-Cola Co, among others.

While the company's valuation will be determined as of 2010, Gravante said a sale based on AriZona today could easily fetch $6 billion.

"Everybody wants a piece of this company," he said.

Based in Woodbury, New York, Beverage Marketing and its related companies have 1,000 employees and annual sales of $1 billion, Solomon has said.

AriZona had a 37.4 percent share for U.S. ready-to-drink tea by case volume in 2013, according to Beverage Digest, ranking No. 1 above PepsiCo Inc's Lipton and Coca-Cola.

The non-jury trial before state Supreme Court Justice Timothy Driscoll followed six years of litigation between Ferolito and Vultaggio, onetime friends from Brooklyn who launched AriZona in 1992.

The partners in 1998 agreed to restrict the transfer of company stock to outsiders. But by 2005, Ferolito wanted to sell his stake and began pushing for a corporate sale.

After Vultaggio, its chairman, refused, Ferolito asked a court to declare the stock sale restrictions unenforceable.

Following unfavorable court rulings, Ferolito filed a lawsuit to dissolve Beverage Marketing. Vultaggio later elected under state law to buy out his partner.

Later court rulings allowed Beverage Marketing itself to buy Ferolito's stake. The trial covers all AriZona entities.

Solomon, who argues the company is worth just $426 million, said Ferolito's multibillion dollar valuation wrongly assumes continued growth and ignores increased costs.

"That's not grounded in reality," he said. "It's grounded in fantasy."

But Gravante, Ferolito's attorney, said his expert's analysis along with one Morgan Stanley conducted for management in 2010 showed the company was worth at least $3 billion.

"Now we have to get this family out of this company," he said.

Driscoll has said he will rule by Oct. 13.

The case is Ferolito v. AriZona Beverages USA LLC, et al, New York Supreme Court, Nassau County, No. 004058-12. (Reporting by Nate Raymond in New York; Editing by Tom Brown)

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UPDATE 1-Detroit CFO sees tough climb to reach revenue targets

Thu Sep 4, 2014 7:18pm EDT

(Recasts, adds cross examination of CFO by Syncora attorney)

By Karen Pierog

DETROIT, Sept 4 (Reuters) - Revenue projections in Detroit's debt adjustment plan will be hard to achieve, but restructuring initiatives will bring in new money and help make Detroit's plan feasible, Detroit's chief financial officer said Thursday in the city's historic bankruptcy hearing.

John Hill, who was appointed the city's CFO last November, testified that the plan would eventually gain money for Detroit as the restructuring initiatives bring about changes, including higher collections of unpaid taxes. Hill was the first witness called by the city of Detroit as it seeks a federal bankruptcy judge's endorsement of its financial restructuring plan.

"Revenue targets in the plan are going to be difficult to meet," said Hill, in answer to a question from an attorney for hold-out city creditor Syncora Guarantee Inc.

If revenue comes in below projections after Detroit emerges from bankruptcy, that would lead to changes in the plan, which would require the approval of an oversight commission created for the city under Michigan law, according to Hill.

The CFO referred to the city's plan to shed about $7 billion of its $18 billion of debt and other obligations as a road map for operating Detroit once it exits the biggest-ever U.S. municipal bankruptcy.

The plan came under fierce attack in U.S. Bankruptcy Court this week as Syncora and others blasted it for skirting state and federal laws and discriminating against certain creditors.

Syncora and fellow bond insurer Financial Guaranty Insurance Co guaranteed payments on $1.4 billion of Detroit pension debt and are facing recoveries of just 10 cents on the dollar - or perhaps nothing at all if the city succeeds in its effort to void the debt altogether. Both insurers have argued the plan short-changes them, while allowing fatter recoveries for others, including the city's retired workers.

The federal court hearing to determine if the plan is fair and feasible began on Tuesday with an opening statement from Detroit's attorney, Bruce Bennett, who defended it as the best hope for saving the city.

On Thursday, Douglas Smith, a Kirkland & Ellis lawyer representing Syncora, peppered Hill with questions for 90 minutes in an effort to bolster Syncora's contention the city did not adequately analyze how creditors would fare should the bankruptcy case be dismissed.

Hill, the former executive director of Washington, D.C.'s control board of the late 1990s and early 2000s, said he was not aware of any study or discussions on raising Detroit's tax rates. Detroit's taxes already have reached limits set by the state of Michigan.

Hill also testified that Detroit's financial situation when it filed for bankruptcy in July 2013 was more serious than what Washington, D.C., faced and overcame without the help of municipal bankruptcy, for which it is not allowed to file.

Smith's questioning of the CFO, which is expected to continue on Friday, also touched on improvements in Detroit's economy and the city's potential for gaining more revenue in the future through new kinds of taxes and the privatization of assets.

Hill also discussed projects to replace Detroit's "antiquated" information technology and improve the city's financial reporting. He said he was willing to stay on with the city to see the projects through, noting some may take two years to complete.

The hearing is scheduled to continue through Oct. 17

(Additional reporting by Lisa Lambert in Washington; Editing by Matthew Lewis, David Greising and Dan Grebler)

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Fitch Affirms China Orient Asset Management at 'A-'; Outlook Stable

Fri Sep 5, 2014 3:37am EDT

(The following statement was released by the rating agency) HONG KONG/BARCELONA, September 05 (Fitch) Fitch Ratings has affirmed China Orient Asset Management Corporation's (COAM) Long-Term Foreign- and Local- Currency Issuer Default Ratings (IDRs) at 'A-'. The Outlook is Stable. A full list of rating actions may be found at the end of this commentary. KEY RATING DRIVERS COAM's ratings are linked to those of the Chinese sovereign (A+/Stable) and rated two notches lower. This reflects COAM's state ownership, strong control and strategic ties with the state, which result in a strong likelihood of extraordinary state support, if required. COAM is classified as a dependent public-sector entity under Fitch's rating criteria, and the agency has applied a top-down approach in its analysis of COAM. While the Ministry of Finance (MoF) owns 100% of COAM and controls the entity through COAM's management, the agency expects MoF to dilute its shareholding in COAM in the near future, although it will still maintain a majority controlling stake. COAM is one of four big asset management companies (AMCs) established to mitigate financial risks, preserve state-owned assets, and promote the reform and development of China's financial system. These AMCs are also the premium wholesalers for non-performing assets (NPAs) in China. COAM has no board of directors - major strategic decisions are made by MoF. Daily operations are managed by its president and seven executives appointed by the China Banking Regulation Commission (CBRC), which acts as regulator for the asset management activities. COAM's management reports to the MoF and CBRC about its operational and financial performance on a regular basis. The fast growth in COAM's distressed asset portfolio in the past three years has given rise to concerns over execution risk and potential pressure on capital adequacy. Its fast growing restructured assets portfolio have yet to weather through cycles and may face pressure on asset quality in the event of an economic downturn. However, Fitch believes COAM's industry experience and seasoned management partly mitigate this risk. The agency expects COAM's total assets and net profit to grow by around 15-20% per annum in the next two to three years. As a distressed asset manager, COAM's portfolio carries more inherent credit risk than a normal loan portfolio. Concentration risk arises from COAM's meaningful exposure to the Chinese property sectors in its portfolio. However, the low loan/value ratio of its distressed loan and receivables portfolio partly neutralises the concentration risk. COAM's relies on wholesale funding. This makes it more vulnerable to the rise in interest rates. Therefore, tight liquidity conditions in the domestic market may result in higher borrowing costs and may depress the company's profitability. RATING SENSITIVITIES Positive or negative rating action may result from a similar sovereign ratings change. Stronger explicit support from the government or COAM's stronger performance and capitalisation may lead to a ratings upgrade. Any significant dilution of COAM's core activities in the acquisition and management of NPAs may lead to a widening in notching. Significant changes to its strategic importance or a dilution of the state's shareholding to below 51% may result in COAM no longer being classified as a dependent public-sector entity and, therefore, no longer being credit-linked to the sovereign rating. The full list of rating actions is as follows: COAM Long-Term Foreign Currency IDR affirmed at 'A-'; Outlook Stable Long-Term Local Currency IDR affirmed at 'A-'; Outlook Stable USD2bn Medium Term Note Programme affirmed at 'A-'; Outlook Stable Century Master Investment Co., Ltd USD600m 4.75% senior unsecured notes due 2018 affirmed at 'A-' Starway Assets Enterprises Inc. CNY2.5bn 4.1% senior unsecured notes due 2017 affirmed at 'A-' Charming Light Investments Ltd. USD600m 3.75% senior unsecured notes due 2019 affirmed at 'A-' USD400m 5% senior unsecured notes due 2024 affirmed at 'A-' Contact: Primary Analyst Terry Gao Director +852 2263 9972 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Fernando Mayorga Managing Director +34 93 323 8400 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012 and 'Rating of Public Sector Entities Outside the United States', dated 4 March 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Rating of Public-Sector Entities - Outside the United States Tax-Supported Rating Criteria Applicable Criteria and Related Research: Tax-Supported Rating Criteria here Rating of Public Sector Entities - Outside the United States - Effective from 4 March 2013 to 4 March 2014 here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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UPDATE 1-Court grants Saab carmaker NEVS creditor protection

Fri Aug 29, 2014 9:12am EDT

(Adds court decision, defence firm Saab's decision to recall NEVS right to use Saab brand)

STOCKHOLM Aug 29 (Reuters) - China's National Electric Vehicle Sweden (NEVS), which bought bankrupt carmaker Saab in 2012, won protection from creditors from a Swedish court on Friday while it concludes funding talks.

The decision gives the company, which has not built any cars since May because of a shortage of money, breathing space from creditors to whom it owes some 400 million Swedish crowns (57.56 million US dollar).

Separately, Saab AB, the defence firm from which Saab Automobile was created in 1990, added to loss-making NEVS' troubles on Friday by saying it had withdrawn its right to use the brand name Saab.

Swedish business daily Dagens Industri quoted a Saab AB spokesperson as saying a NEVS application for creditor protection gave Saab AB the right to cancel the brand agreement.

A spokesman for NEVS said it expected to be able to renegotiate the Saab brand agreement following a solution to its funding woes.

The court had rejected NEVS first application for creditor protection on Thursday. The company then filed a new application on Friday.

NEVS has been in talks with two unnamed car firms to secure additional money. It made a pretax loss of 601 million crowns on sales of 41 million last year, it said in its first application. (1 US dollar = 6.9494 Swedish crown) (Reporting by Sven Nordenstam and Johannes Hellstrom. Editing by Jane Merriman)

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Part of Espirito Santo empire may try to block sale of insurer

LISBON Fri Aug 29, 2014 1:38pm EDT

LISBON Aug 29 (Reuters) - Part of the troubled business empire of Portugal's Espirito Santo family said on Friday it may try to block the planned sale of an insurance company it once controlled, adding to opposition already expressed by a group of investors.

The challenges highlight the difficulties that bailed-out Banco Espirito Santo (BES) and its successor Novo Banco face as they try to recover some of the family's massive debts.

Luxembourg-registered Espirito Santo Financial Group (ESFG), a holding company that used to own insurer Tranquilidade and is now under creditor protection after defaulting on its debt, said in a statement the transfer of shares in Tranquilidade to Novo Banco - which is trying to sell the insurer - may be illegal.

It said it had not been notified of the execution of the transfer after the termination of a financing agreement, "and therefore concludes that it is still the owner of the shares". It added it was carrying out a full due diligence on the terms and conditions of a pledge it made to transfer the shares.

"ESFG thinks that the pledge may be illegal," it said.

Should the final conclusion of the due diligence confirm its preliminary view, "ESFG will legally react against the pledge of the shares, its execution and any sale of the same" that could be carried out by Novo Banco in the meantime, it said.

Once Portugal's largest listed lender, BES lost billions of euros from dealings with its Espirito Santo founding family. Regulators decided on Aug. 3 to put its healthy assets into a new entity, Novo Banco, and leave family borrowings, shareholders and junior creditors behind in BES.

Novo Banco's share of the spoils included Tranquilidade, a large Portuguese non-life insurer, and sources told Reuters last week that the new bank was close to sealing a 200 million euro ($264 million) deal to sell Tranquilidade to U.S. fund Apollo Global Management.

A Novo Banco spokesman said "the process of Tranquilidade's sale remains on course". The sale process started in early 2014 before the family financial problems became public knowledge.

Earlier, lawyers representing about 10 individual bondholders of Espirito Santo Financial (Portugal) (ESFP), who hold 12 percent of a 70 million euro bond issued in May 2013, said they were challenging Novo Banco's claim on Tranquilidade because it disadvantaged creditors of ESFP, which is the indirect owner of 45 percent of the insurer.

The shares in Tranquilidade were pledged to BES as a guarantee ESFG would make sure that BES retail clients who were sold about 2 billion euros of Espirito Santo debt would be repaid. ESFG is the 100 percent owner of ESFP, so it beneficially owned all of Tranquilidade.

BES could face similar challenges as it tries to secure repayment of 1.6 billion euros of borrowings by an array of companies related to Espirito Santo.

The complex structure of the Espirito Santo empire, which spanned from Panama and Luxembourg to Dubai, means there are dozens of borrower companies across different jurisdictions. (Reporting by Andrei Khalip and Laura Noonan; Editing by Mark Potter)

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Bahrain Batelco says India ex-partner is bankrupt, seeks $212 mln owed

By Matt Smith

DUBAI Sun Aug 31, 2014 4:30am EDT

DUBAI Aug 31 (Reuters) - Batelco will pursue its former Indian business partner for $212 million it says he owes the company, even though he was declared bankrupt last week, the Bahraini telecom operator said on Sunday.

Chinnakannan Sivasankaran, the chairman of Chennai-based Siva, filed for bankruptcy in the Seychelles after a British court in June ordered Siva and Sivasankaran to pay the money to Batelco's wholly owned subsidiary BMIC. This related to their failed Indian joint venture.

The court also issued an indefinite worldwide freeze on the defendants' assets.

"Mr Sivasankaran's bankruptcy will not thwart our determination to recover the substantial monies that he owes us," Batelco chief executive Alan Whelan said in a company statement.

An official receiver has been appointed as the manager of Sivasankaran's assets and BMIC is the largest creditor, Batelco said.

Siva sold a 43 percent stake in now-defunct mobile operator S Tel to Batelco in 2009.

S Tel struggled to compete against its better-resourced and longer-established rivals and as of the end of 2011 had 3.55 million mobile subscribers, a 0.4 percent market share.

In February 2012, S Tel was ordered stripped of its licences as part of a wider corruption investigation affecting India's mobile market that pre-dated Batelco's investment.

Batelco subsequently agreed to sell its stake back to Siva according to the terms of their original agreement, but then sued its former partners after it was not paid. (Editing by David French, Larry King)

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Additional Tier 1 market poised for revival

By Helene Durand and Anna Brunetti

Fri Aug 29, 2014 9:09am EDT

LONDON, Aug 29 (IFR) - Banco Santander and UniCredit will provide the first test of investor appetite for Additional Tier 1 debt in Europe after the asset class was buffeted by serious headwinds during the summer months.

Banks have not tapped the European AT1 market since a triple-tranche 3.5bn-equivalent deal from Deutsche Bank in mid-May when demand for the product was still strong.

However, since then, banks' subordinated debt and AT1 in particular has been hit by volatility with cash prices yo-yoing five to six points from week to week. Banco Popular Espanol was one of the victims and had to pull a transaction in early July.

Meanwhile, the Banco Espirito saga, which saw the bank's subordinated debt left in the bad bank following its restructuring, acted as a reminder of the depth of losses investors can be exposed to, while the lack of secondary liquidity amplified some of the moves.

The market has since recovered and bankers believe that the backdrop to sell AT1 has improved markedly.

"The BES situation had a massive impact on the market initially but it has since recovered and has been to compartmentalise the situation and it was not a point of contagion," said a syndicate banker. "We have had three/four months of no supply and there is a lot of cash to be put to work."

Banco Santander, rated Baa2/BBB/BBB+, mandated Credit Suisse, HSBC, JP Morgan, its own syndicate team, Societe Generale and UBS, and is expected to go first.

The issuer is planning a one-day roadshow on Monday and execution is expected the following day.

Meanwhile, UniCredit, rated Baa2/BBB/BBB+, which mandated Bank of America Merrill Lynch, CA-CIB, Credit Suisse, Deutsche Bank and UniCredit, will see investors over two days with pricing expected for Wednesday.

"It'll be certainly interesting to see how that will work," another syndicate banker said.

"It's likely that the market is strong enough at present to take both deals, so we expect them to be complementary rather than competing."

RARITY VALUE

It will be UniCredit's first euro-denominated AT1, following the launch of a US$1.25bn perpetual non-call 10-year that priced with an 8% coupon in March.

"There is serious rarity value in Italy and I would expect UniCredit to benefit from that," the banker said.

UniCredit's dollar issue is the only outstanding Additional Tier 1 deal from an Italian bank. That transaction was quoted at a cash price of 105 on Friday, giving a 7.3% yield and spread of 495bp over swaps.

Santander will not benefit from the same rarity value given two previous issues in the format, while BBVA has also tapped both dollars and euros.

Santander's euro note priced at a yield of 6.25% and has tightened to 5.86%, or a cash price of 102. The May dollar bond, which priced at 6.375%, has failed to perform so well, widening to 6.6% to trade at 99.3 according to Tradeweb.

The new deal is expected to mirror the structure of the previous euro bond, a syndicate official said, with the same low trigger of 5.125% for conversion into equity.

While UniCredit will have the same low 5.125% Common Equity Tier 1 trigger, it will have a temporary write-down structure - the first time that the two structures go head to head in the market.

"It might be a test of what investors prefer in terms of loss absorption mechanism but at the end of the day, technicals will dominate where the deals price, and they are very strong right now," said the first syndicate banker.

With pressure mounting for banks to shore up their capital beyond minimum requirements, the second syndicate official said that at least one more peripheral lender is poised to follow in the AT1 space in the next couple of months.

He also expects Irish and Portuguese lenders to come to the market with debut AT1 deals in 2015. (Reporting By Helene Durand, Anna Brunetti, Editing by Julian Baker)

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