FTSE Drops 1.1%; Rolls-Royce, Pearson Deals

Arthi Gupta
22 Nov, 2010
New York City

The UK indexes traded lower after Ireland accepted an international bailout with the

[R]4:00 PM London – The UK indexes traded lower after Ireland accepted an international bailout with the £7 billion contribution from the UK. The UK manufacturers plan to expand. Rolls-Royce won $1.8 billion order from Air China. Pearson agreed to buy stake in South Africa-based CTI Education Group for £31 million.[/R]

In London, FTSE 100 Index fell 60.36 or 1.07% to 5,673.65 and the pound edged lower to close at $1.5963.

Irish Republic Agrees to EU-IMF Rescue Deal

Ireland confirmed that it requested financial rescue package from the European Union and the International Monetary Fund to repair the country''s public finances.

The bailout will be funded from the European Financial Stabilization Mechanism and the European Financial Stability Facility, with assistance from the IMF. The UK and Sweden have also offered to provide bilateral loans to Dublin.

Prime Minister Brian Cowen announced on Sunday evening that the deal will involve restructuring Ireland''s banking system and reducing the budget deficit to under 3% of output by 2014. Finance Minister Brian Lenihan said the rescue package will be smaller than €100 billion and not all of the money on offer would be drawn.

Cowen said income taxes will be raised back to 2006 levels to increase revenues and cutbacks totaling at least €15 billion over the next four years will be unveiled this week as part of Dublin''s budgetary strategy to address the deficit.

The Taoiseach said the banking sector will be reduced in size.

The Republic of Ireland''s finance minister, Brian Lenihan told RTE radio that the three-year financial rescue deal being negotiated with Brussels estimated at around €90 billion will help the government make a rapid return to the bond markets. He further reiterated that the Republic’s four-year plan to bring down its large budget deficit is unlikely to be changed significantly by the European Union and the International Monetary Fund.

The European Commission on Monday said Ireland''s economic situation is unique and no analogies can be made to other euro area nations.

But investors fear that the debt contagion may spread to Portugal and Spain.

UK Contributes £7 Billion to Irish Bailout

British Chancellor of the Exchequer George Osborne on Monday confirmed that the UK will contribute around £7 billion to Ireland''s rescue package.

""Ireland is our very closest economic neighbor so I judged it to be in our national interest to be part of the international efforts to help the Irish,"" Osborne told BBC Radio 4.

Without elaborating about the loan offer, Osborne said details of British, International Monetary Fund and euro-zone packages are still being worked out. He is due to make a statement before the Commons later in the day.

Ireland Faces Multi-Notch Downgrade Prospects

Rating agency Moody''s said on Monday that Ireland may face a multi-notch downgrade as the EU/IMF aid package raises the country''s debt burden.

""A multi-notch downgrade, leaving the rating of the Republic still within the investment-grade category, is now the most likely outcome of our review of the sovereign credit,"" the rating agency said in its Weekly Credit Outlook.

UK Manufacturing Offsets Public Sector Cuts

The UK''s manufacturing sector is currently growing at the fastest pace in 16 years, with companies set to create jobs to offset cuts in the public sector, according to a new survey.

The Engineering Employers Federation''s poll of 300 companies found that a majority of companies intend to invest in the future and increase innovation. The survey demonstrated the potential of manufacturing to lead private sector growth and ""rebalance"" the UK economy, EEF said.

Rolls-Royce Secures Order from Air China

Rolls-Royce Group Plc said it won an order from Air China Ltd. for engines to power a total of 20 new Air China aircraft, comprising ten Airbus A350 XWBs and ten A330s. The contract, worth $1.8 billion at list prices, includes long-term service agreement.

As part of the deal, Rolls-Royce will provide Trent XWB engines for the A350 XWBs and Trent 700 engines for the A330s.

Pearson Buys Stake in CTI Education Group

Pearson PLC said it agreed to buy a 75% stake in CTI Education Group of South Africa for £31 million in cash, establishing a partnership with CTI to expand its activities and reach more students in southern Africa.

Gainers & Losers

Big Yellow Group Plc gained 0.22% to 315.90 pence after the provider of self storage and related services reported first-half revenue increased 7% to £31.12 million from £29.16 million in the comparable period a year ago. Pre-tax profit in the period was £8.59 million compared with a loss of £3.37 million last year.

Europa Oil & Gas (Holdings) plc fell 1.67% to 17.70 pence after the oil and gas explorer in the East Midlands said the workover on West Firsby-6 is complete and the well is back on jet pumped production. All five of Europa''s production wells are onstream.

Mitie Group plc increased 1.34% to 203.70 pence after the strategic consultancy provider reported first-half revenue grew 15% to £918.7 million from £801.1 million in the same period last year. Net profit in the period declined 5% to £26.9 million or 7.6 pence per share, compared to net profit of £28.2 million or 8.5 pence per share last year.

Synchronica plc climbed 0.42% to 16.82 pence after the provider of next-generation mobile messaging services, said revenues for the first nine months surged 118% to $5.75 million from $2.64 million last year. During the period, the company closed 11 new deals including a pan-African operator group with 15 subsidiaries.

Taylor Wimpey plc soared 3.31% to 25.31 pence after the homebuilding company announced that it entered into a £100 million facility agreement with Prudential/M&G UK Companies Financing Fund LP. Taylor Wimpey noted that its new facilities are conditional on the company obtaining additional debt capital market instruments in a minimum aggregate amount of £350 million.