Rates in Australia; Amcor, Rio Tinto Deal

Darlington Musarurwa
18 Aug, 2009
New York City

Reserve Bank of Australia highlighted that risks to global economies are reduced but not declined. The latest monetary policy committee meeting suggested that bank is worried about too accommodative interest rate regime. Amcor Ltd offered $2 billion to acquire the packaging unit of Rio Tinto.

[R]1:00AM New York, 6:00PM Sydney – Reserve Bank of Australia highlighted that risks to global economies are reduced but not declined. The latest monetary policy committee meeting suggested that bank is worried about too accommodative interest rate regime. Amcor Ltd offered $2 billion to acquire the packaging unit of Rio Tinto. NAB acquires mortgage business of Challenger Financial.[/R]

Australian markets turned cautious after the latest statement from the Reserve Bank of Australia raised the prospect of higher rates. Commodity stocks extended losses, as concerns over the health of the global economy continue the sap the market of renewed confidence.

Amcor proposed to acquire packaging business of Rio Tinto and National Australia Bank agreed to purchase the mortgage loan portfolio from Challenger Financial.

In Sydney trading ASX 200 index fell 0.2% or 6.8 to 4,381.60 and the Australian dollar rose 0.5% to 82.41 against the dollar.

Of the ASX 200 index stocks, 56 gained, 124 declined, and 2 were unchanged. James Hardie-CDI led gainers in the index shares with a rise of 22.3% followed by Ansell Ltd. increasing 9.1%.

RBA Prepared to Increase Rates

Reserve Bank of Australia in its latest minutes of meeting highlighted the risks to global economy decline have been reduced but “not diminished.” The central bank noted that economies in China and the rest of Asia (ex-Japan) are returning to more normal level.

The bank also noted recent improvement in domestic economy and improvement in consumer confidence. The lending in the banking system has still not returned to normal level and conditions for loans have been tightened significantly.

The members of committee are more concerned about keeping the monetary policy too accommodative and too long.

The statement noted, “Given the recent improvement in the global and domestic outlooks, it now appeared unlikely that this would be necessary. In fact, if the economy evolved as anticipated in the forecasts, the Bank would in due course need to adopt a less expansionary policy stance.”

The central bank is likely to focus on understanding the recent rebound in the economic conditions are due to the temporary fiscal measures or a decline in general risk aversion or from the effects of low interest rates.

The benchmark interest rates were left unchanged at 3%.

Amcor to Acquire Alcan Packaging for US$2 billion

Global packaging manufacturer, Amcor has offered to acquire parts of Alcan Packaging for US$2 billion from Rio Tinto.

Parts of Alcan Packaging to be acquired include food packaging businesses in Europe and Asia and tobacco and pharmaceuticals.

The report notes that the acquisitions will add an estimated US$4.1 billion in sales, 14,000 employees and 80 plants in 28 countries to Amcor.

Separately, the company reported today its full-year net profit in the year ended June 30 declined 18% to A$211.7 million from a year ago. Sales in the period increased 3.3% to A$9.54 billion. The company will pay a final dividend of 17 cents.

National Australia Bank to Buy Challenger Financial Services Business

National Australia Bank reported in a statement today the lender will purchase Challenger Financial Services’ mortgage management business for A$385 million.

NAB has agreed to buy Challenger’s three main aggregator businesses and a portfolio of around A$4 billion of residential mortgages at a discount to face value.

Through the deal, the lender will also acquire 10.7% equity in Homeloans, with the possibility of increasing its holding to 41% subject to approval by Homeloans shareholders.

NAB’s Tier 1 capital ratio is expected to be cut by 15 basis points as a result.

However, Challenger will be left with an A$11 billion mortgage portfolio and a funds management and retail annuities business.

Gainers & Losers

Commodity stocks slipped after gold prices declined 1.4% to $935.8 per ounce and crude oil prices dipped 1.1% to $66.8 per barrel. Mincor Resources shed 9.2%, Minara Resources tumbled 6.3% and Murchison Metals dropped 6.2%.

Earnings Review

Ceramic Fuel Cells Limited, a developer of high efficiency and low emission power said full-year revenues rose 172.1% to A$1.7 million from A$617,000 a year ago. Net loss in the year was A$42.2 million or 8.58 cents per diluted share compared to net loss of A$21.1 million or 7.52 cents per share a year ago.

OneSteel Limited, the steel producer said full-year revenues fell 2% to $7.31 billion from $7.49 billion a year ago. Net profit in the year fell 6% to $230 million compared to net profit of $245 million a year ago.

United Group Limited, the engineering and property services company said full-year revenues rose 37% to $4.75 billion from $3.48 billion a year ago. Net profit in the year rose 10.4% to $150.3 million or 91.9 cents per diluted share compared to net profit of $136.1 million or 84.9 cents per share a year ago.

ASX 200 Index Movers

ING Industrial Fund led the decliners in the ASX 200 index of 9.3% followed by losses in Mincor Resources NL of 9.1%, in Western Areas NL of 8.3%, in DEXUS Property Group of 7.1% and in Commonwealth Property Office Fund of 6.8%.

James Hardie Industries NV led gainers in the ASX 200 index with a rise of 22.3% followed by gains in Ansell Limited of 9.1%, in Monadelphous Group Ltd of 7.1% and Billabong International Limited of 6.4%.