UK

A repricing of capital is coming soon. But advances in risk management suggest it will be a prolonged process, not a quick flip into deflation.

Japanese companies are now creditworthy and the banks are recapitalized but neither side seems keen to enter into loan transactions. But companies can see the long-term value of establishing access to capital markets. And lenders are keen to repackage and redistribute credit risk in new ways and define a new relationship with corporate customers. Peter Lee reports

UK breakfast cereal maker Weetabix will be one of the first companies this year to test the market for leveraged recapitalizations. The deal, expected to come to market in the next few weeks, will be lead arranged by JPMorgan. It takes out the £450 million ($803 million) leveraged loan backing the £642 million buyout of Weetabix in 2004 by private equity firm Hicks Muse Tate and Furst.

Peter Weinberg, former head of European investment banking at Goldman Sachs, will join former Morgan Stanley star banker Joseph Perella in his as yet unnamed investment banking boutique. Perella left Morgan Stanley last April during the battle over the leadership of the firm and soon after was sole adviser to MBNA on its $35.8 billion sale to Bank of America.

Those banks distributing goodies in the hope of influencing the poll (against the rules, we hasten to add) might do well to remember that clients are often an ungrateful bunch. Apparently, one Japanese client of a UK clearing bank complained about the iPod Shuffles it received for Christmas. It was not the fact that iPods are made by one of its competitors that caused the problem. No, it was the fact that the Shuffle is at the bottom of the iPod range.

The biggest LBO club deals of 2005 will soon be surpassed.

by John Ferry

Equine expectations

With India’s aviation sector already hopelessly overcrowded, consolidation started in January when Jet Airways India and Sahara Airlines announced an agreement for Jet to acquire Sahara. Although the deal is subject to a confidentiality agreement, the companies announced that the acquisition would be for cash based on an enterprise value of approximately $500 million for Sahara. Pending regulatory approval, both airlines will continue to operate independently. Despite the deal, overcapacity continues to plague the industry and more deals are likely.

It might make sense for hedge funds to buy traditional asset managers. When Citigroup sold off its asset management arm to Legg Mason last year, leaving the focus on its separate alternatives business, it supported the belief of many in the market that traditional asset management was becoming something of a dinosaur.

Eurex’s US woes are continuing. Last month the derivatives exchange’s chief executive, Rudolf Ferscha, stepped down. Ferscha had been behind the launch of Eurex US in Chicago in 2004 but sources say he was not given the support he needed to develop the US effort properly.

594,900,000,000 The global dollar value of equity capital raised in 2005. The figure is up 4% from 2004 and is the highest since 2000.

Foreign hedge fund managers registering with the SEC might be caught out by a NASD ruling on IPOs, say lawyers. Foreign managers investing in US or non-US IPOs are subject to the US securities regulator’s ‘new issue’ ruling if those managers use a US broker/dealer.

CNOOC finally closed a significant Nigerian oil deal in January.

The Philippines’ capital markets have started 2006 positively. Capitalizing on the immediate strength of the peso, the Republic of the Philippines was Asia’s first sovereign to tap the market when it raised $2.1 billion from a $1.5 billion 25-year bond and a €500 million 10-year bond, one of the largest fund raisings from Asia for several years.

Asia Debt Management, a successful distressed debt fund manager based in Hong Kong, has teamed up with the Asian Development Bank to launch a $338 million closed-end fund targeting financially distressed companies that need rehabilitation. This is the second Maculus fund: the ADB also invested in Maculus I and this time has committed $45 million to the Maculus Fund II. The new fund will invest primarily in the capital structure (securities, loans, equity or other assets) of potentially viable, listed or unlisted companies, in financial distress due to excessive debt or unsustainable capital structures. The fund has a five-year life but might be extended for up to two consecutive one-year periods at Asia Debt Management’s option.

Happy New Year to the Tokyo Stock Exchange. The exchange needs all the good wishes it can get after getting off to a bad start this year. On January 18 the market was forced to close early when trading exceeded its troubled computer system’s daily capacity.

SAB Miller, the world’s third-largest brewer, announced in January its intention to establish a brewery in Vietnam through a 50:50 joint venture with Vinamilk, Vietnam’s leading dairy products company. The $45 million venture will be based near Ho Chi Minh City and will make use of Vinamilk’s extensive distribution network. The aim is to develop a Vietnamese beer brand that will be supported by a premium SAB Miller brand.

Japan might finally be on the road to recovery from its economic downturn but recent events have revealed a crisis of a different sort. After a human input error to a trade by Mizuho Securities in December that the Tokyo Stock Exchange trading system refused to cancel, despite requests from the broker, the TSE was rocked by another crisis in January when panic selling forced the exchange to shut early since the trading system was unable to cope with the flood of orders.

Vanilla deals fell out of favour in equity-linked issuance in 2005, with highly complex, structured transactions building unprecedented dominance. Despite higher volatility levels than in 2005 and a very promising M&A outlook, this trend is likely to continue in 2006. Peter Koh reports.

Like so many other aspects of Japan’s financial system, its pensions schemes are paying for the sins of the past and struggling to pay for the future. Existing reforms do not go far enough, says Chris Leahy, and flirt dangerously with the country’s future prosperity.

With hedge funds collapsing at record rates, funds of hedge funds will need to reassess their strategies. If you can’t beat them, join them.

The country’s stock indices are rising as the prospect of a coherent market looms into view.

“I was meant to buy a new house today. All the financing was in place. Everything was agreed. Then a Russian turned up with a bag of cash and gazumped me. My wife’s not very happy.”

Second-tier triple-A issuers have an opportunity to close the funding gap on KfW and EIB.

Few financial issues in Asia are debated as hotly as the state of China’s banking system and the billions continually poured into mainland lenders by foreign financial institutions and lenders as the banking market is slowly opened up.

The only court-sanctioned committee representing shareholders in the Winn-Dixie Chapter 11 restructuring has been disbanded by a US Justice Department official at the request of a group of unsecured creditors. This leaves shareholders without any official representation in the reorganization plans of the chain-store group.

Japan’s corporate sector has spent the past few years selling businesses off to pay down debts and restructure but there is gathering evidence of the emergence of a more acquisitive bent.

US carrier United Airlines has pledged the rights to some of its most valuable routes as collateral for a new loan that it hopes will take it out of Chapter 11 bankruptcy protection. As well as route rights between the US and London Heathrow and Japan, China, Hong Kong and Japan, it is also pledging $2.6 billion in aircraft and spare parts in a desperate bid to find collateral for the six-year $3 billion syndicated loan. United needs the new cash to pay off its debtor-in-possession financing. The company filed for bankruptcy in December 2002.