UK Election Today, Essar IPO Stumbles

Arthi Gupta, Mayank Mehta and Sanjay Barot
06 May, 2010
New York City

U.K. stocks decline on fears of contagion. The pound falls amidst worries of a hung parliament. Britain goes to polls today. The U.K. service sector continues to expand in April. Essar Energy cuts IPO price to 420 pence. Schroders first quarter pre-tax profit rises. Vedanta Resources profit soars.

[R]4:00 PM London, 11:00 AM New York – U.K. stocks decline on fears of contagion. The pound falls amidst worries of a hung parliament. Britain goes to polls today. The U.K. service sector continues to expand in April. Essar Energy cuts IPO price to 420 pence. Schroders first quarter pre-tax profit rises. Vedanta Resources profit soars.[/R]

U.K. stocks fell and the pound weakened amid concern that Greece’s debt crisis will spread through the region. European Central Bank council member Axel Weber said Greece’s fiscal crisis is threatening “grave contagion effects” in the euro area.

The European Central Bank’s President Jean-Claude Trichet resisted pressure from economists to consider buying government bonds to help relieve the euro area’s spreading fiscal crisis. The ECB also announced today that interest rate remain unchanged at 1%.

The pound is also under pressure as Britain votes today in an election that polls show may produce a hung parliament for the first time since 1974.

The pound fell 0.2% against the dollar to $1.5075. The ten-year gilt yield was flat at 3.82%.

Britain goes to polls today in what is considered to be one of the closest elections for decades. Millions of people in constituencies across the UK are casting their votes in the general election.

David Cameron, the Tory leader, Labour leader Gordon Brown, and Nick Clegg, leader of the Liberal Democrats are in the fray.

There is a possibility that it could end in stalemate with none of the three leading contenders securing the 326 seats needed for an absolute majority in the 650-seat Parliament.

For markets, the key issue is tackling a deficit forecast this year at 11.1% of gross domestic product and avoiding a credit ratings downgrade.

The U.K. service sector continued to expand in April, but at a reduced rate as a number of temporary factors undermined increases in activity and new business, Markit Economics said today.

The headline Markit/CIPS business activity index logged 55.3 in April from 56.5 in March, thereby signaling growth of U.K. service sector activity for a twelfth successive month.

Credit-default swaps on U.K. government debt rose for a fifth day, CMA DataVision prices show. Fitch Ratings said in March the U.K. government needs to reduce its deficit at a faster rate than currently planned because its credit profile has deteriorated “pretty sharply.”

India''s Essar Energy stumbled in what was the London market''s biggest listing since December 2007 last night, with its shares slumping by more than 7% to 389.5 pence on their first day of trading

The power, oil and gas company reduced its offer price to 420 pence per share, against an initial range of 450 pence to 550 pence per share. The energy group, which was spun out of India''s giant Essar conglomerate, raised £1.2 billion from the sale of 23% of Essar Energy''s shares at the end of last week in a listing that puts Essar Energy on course for inclusion in the blue chip FTSE 100 index. Once listed, the Essar Energy stock will be the highest new entrant in the FTSE 100 with a market capitalization of $8.5 billion approximately. Essar Energy is also the largest ever London listing of an Indian company.

Essar Energy plans to increase power generation from 1,220 MW to 11,470 MW and has interests around the world in fourteen prospective oil, gas and coal seam gas exploration blocks.

The Essar Group has plans to raise its refining capacity at the Gujarat-based Vadinar refinery to 375,000 bpd by 2011 from a current capacity of 300,000 bpd.

Fund firm Schroders Plc reported a sharp rise in first-quarter pretax profit on the back of strong inflows from institutional clients, underlining a recovery in the fund management sector.

Vedanta Resources plc reported a surge in its profit for fiscal 2010, driven by higher production volumes across its businesses and increased sales.

In London FTSE 100 Index closed lower 13.99 or 0.26% to 5,327.94 and the pound edged lower to close at $1.509 and edged higher to close at €1.186.

Gainers & Losers

3i Infrastructure plc rose 0.2% to 110.10 pence after the closed-ended investment company said 2009 net profit rose 112% to £90.3 million or 11.1 pence per diluted share compared to net profit of £42.6 million or 5.4 pence per share a year ago.

Bovis Homes Group PLC, the housebuilder rose 2.1% to 411.60 pence.

Diageo plc rose 0.9% to 1,091.00 pence after the drinks business company posted third quarter organic net sales growth of 12%. In the nine months ended March 31 net sales were up 2% on an organic basis against the comparable period.

Intertek Group plc, the testing and inspections firm rose 0.6% to 1,475.00 pence.

RSA Insurance Group plc added 2.8% to 121.50 pence.

Randgold Resources Ltd closed unchanged at 5,445.00 pence after the gold miner said first quarter revenues rose 40% to $122.5 million from $87.4 million a year ago. Net profit for the quarter rose 68.5% to $18.7 million or $0.21 per diluted share compared to net profit of $11.1 million or $0.14 per share a year ago.

Rexam PLC, the consumer packaging company rose 2.0% to 319.10 pence.

Schroders plc rose 3.0% to 1,349.00 pence after the asset management company first quarter revenues rose 96% to £275.5 million from £140.8 million a year ago. Pre-tax profit for the quarter rose 664% to £93.2 million compared to pre tax profit of £12.2 million a year ago.

Smith & Nephew plc rose 0.6% to 664.50 pence after the medical devices firm said first quarter revenues rose 15% to $995 million from $865 million a year ago. Net profit for the quarter rose 62% to $159 million or 17.8 cents per diluted share compared to net profit of $98 million or 11.1 cents per share a year ago.

Tomkins plc, the engineering and manufacturing company rose 3.2% to 235.70 pence.

United Business Media Limited, the business media company fell 0.4% to 530.00 pence.

Vedanta Resources plc added 2.8% to 2,456.00 pence after the copper producer said 2009 revenues rose 3% to $7.9 billion from $6.6 billion a year ago. Net profit for the year rose 174.5% to $602.3 million or 203.2 cents per diluted share compared to net profit of $219.4 million or 75.8 cents per share a year ago.

Wm Morrison Supermarkets PLC, after the supermarket group fell 1.7% to 274.00 pence.