Spanish Yields Above 7%, Germany Set to Approve Aid

Arthi Gupta
19 Jul, 2012
New York City

Spain raised

[R]1:40 PM Frankfurt – Spain raised €2.98 billion but in secondary markets surged to a sixteen-year high. Veolia agreed to sell its U.S. solid waste business for $1.9 billion. Repsol agreed to divest its Chilean business for $540 million.[/R]

European indexes wavered after Spanish bond yield surged to a new high in the last sixteen years and spreads with the German bund shot up to a near record of 580 basis points.

In light trading, indexes were vulnerable to swinging sentiment ahead of the Bundestag vote in Germany on the Spanish bank bailout and a downbeat report from the International Monetary Fund.

The latest report from the IMF was critical of the European leadership and urged the central bank to accelerate the purchase of sovereign bonds of peripheral euro zone nations.

The euro area crisis has reached a critical stage, as financial markets in parts of the region face acute stress, the International Monetary Fund said in its latest assessment of economic developments in the euro-zone.

The IMF urged for determined action from leaders towards establishing banking and fiscal unions in the euro area to bolster monetary union, but also said structural reforms are essential to raise long-term growth.

The institution also said that the euro zone economy is expected to contract at 0.3% this year and grow 0.9% in 2013. The rate of unemployment is expected to continue to vary from 5% in Germany to about 24% in Spain this year.

In another report, the International Monetary Fund decided to expand the bilateral and multilateral surveillance of the global economic and financial developments to enable early detection of risks and provide timely policy advice.

Separately, regulators are likely hold a meeting on September 9 to decide the future of the London interbank offered rate or Libor.

In Paris trading, the CAC-40 Index gained 10.57 or 0.3% to 3,245.97 and in Frankfurt the DAX Index edged higher 35.22 or 0.5% to 6,719.21.

The yields on Spain’s benchmark 10-year bonds climbed six basis points to 7.02%. Italian 10-year yields eased five basis points to 6.00%.

German lawmakers are scheduled to vote on Spanish bank bailout in Berlin later this afternoon. The measure is likely to pass as the ruling coalition only needs a simple majority but a significant dissent may crimp Chancellor Angela Merkel’s ability to win future measures.

Spanish Bond Auction

The Spanish Treasury raised €2.98 billion from the sale of its 2-, 5-, and 7-year bonds at higher yields.

The country sold €1.40 billion of October 2014 bond at an average yield of 5.204% compared to an average yield of 4.335% in the previous sale on June 7. The bid-to-cover ratio slumped to 1.90 from 4.26.

The agency raised €1.1 billion from the sale of 5.50 percent July 2017 bond at an average yield of 6.459% compared to an average yield of 6.072% in the previous sale on June 21. Demand was 2.06 times the offer, down from 3.44 times last month.

The country also sold €548 million of a bond due October 2019 at an average yield of 6.70%, higher than 4.832% paid in the previous sale on February 16. The bid-to-cover ratio fell to 2.9 from 3.3 in February.

Veolia Environnement to Sell Solid Waste Business

Veolia Environnement said its American subsidiary agreed to sell the U.S. solid waste activities to a company controlled by Highstar Capital, an infrastructure fund manager, for a total transaction value of $1.909 billion.

Following the completion of this transaction, Veolia’s net debt will be reduced by $1.82 billion or €1.489 billion.

Repsol Divests Repsol Butano Chile

Repsol YPF SA, the Spanish oil company agreed to divest its subsidiary unit, Repsol Butano Chile for $540 million to a consortium of Chilean investors led by LarrainVial.

The company stated that the sales will result in a net capital gain of $170 million and will also reduce the group''s total debt by approximately $317 million.

Gainers & Losers

Actelion Ltd. gained 2.9% to Sfr42.43 after the biopharmaceutical company reported first-half product sales fell 3% in local currencies to Sfr861.8 million. Net income for the first half swung to Sfr173.7 million compared with a net loss of Sfr262.3million in the 2011 period.

Akzo Nobel NV climbed 5% to €42.53 after the paint manufacturer stated second quarter revenues climbed 8% to €4.41 billion from the previous year. Net income from continuing operations fell 21.5% to €197 million from €251 million reported a year ago.

Alstom SA soared 3% to €26.88 after the equipment and services provider said the company booked €6 billion orders in the first quarter, up 20% compared to the first quarter last year. Sales grew 6% to €4.8 billion in the fiscal first quarter.

Electrolux AB surged 3.5% to SEK 149.80 after the Swedish appliance maker stated second quarter net rose 15% to SEK 27.76 billion compared with last year. Net income in the quarter surged 36% to SEK 763 million or SEK 2.67 per share compared to SEK 561 million or SEK 1.97 Swedish kronor per share last year.

The company said strong organic growth, especially in Latin America and Asia, contributed to the favorable development of net sales.

Euler Hermes SA rose 0.7% to €48.25 after the credit insurance company said first-half consolidated revenue rose 21.9% to €1.59 billion at current exchange rates from the prior-year period.

Novartis AG climbed 0.5% to Sfr55.35 after the drugmaker said second quarter net sales fell 4% to $14.3 billion from the same quarter a year earlier. Net income stood flat at $2.73 billion. Earnings per share dropped to $1.12 from $1.13 earned a year ago.

Alcon net sales grew 1% to $2.6 billion in the quarter.

Rémy Cointreau increased 4.7% to €91.90 after the wines and spirits manufacturer said first quarter sales surged 36.8% to €271.6 million from last year.

Saab AB inched 0.3% to SEK 116.90 after the Swedish aerospace and defense firm said second quarter sales climbed 6.3% to SEK 6.23 billion compared with a year earlier. Net income increased 28.7% to SEK 538 million from SEK 418 million last year.

Tele2 AB edged higher 3% to SEK 114.90 after the Swedish telecom operator said second quarter net sales rose 10% to SEK 11.06 billion from last year. Net profit in the quarter fell 23% to SEK 849 million or SEK 1.90 per share compared with SEK 1.11 billion or SEK 2.49 per share a year ago.