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November 2005

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  • Korea’s love-hate relationship with foreign capital continues. In October, the government announced that it would be seeking tax payments totalling $210 million from five foreign private-equity investment firms that relate to profits earned from investments in Korean businesses.
  • China’s inefficient economy is under threat because its capital costs are set to rise, but it is as likely to falter because US consumerism hits the wall. And there are signs that American profligacy cannot be sustained much longer
  • Sovereign has shown it retains access to the capital markets despite political and economic woes.
  • Technology companies have to swallow harsh market truths – and some pride – and give up independence.
  • Fresh from big spending on China’s state lenders, global banks are lining up to buy into its securities industry.
  • But can their value surpass the underlying market?
  • Taiwan recognized the failings in its existing pension systems early. A new scheme was launched in July. It is already accumulating funds rapidly and the effects on Taiwan’s domestic capital markets are likely to be dramatic. There will also be numerous opportunities for global asset managers. Chris Leahy reports.
  • Why CFOs should stop mistrusting hedge funds
  • In another sign of the rapid modernization of China’s capital markets, the Asian Development Bank and the International Finance Corporation, the private sector arm of the World Bank, became the first foreign institutions to issue renminbi-denominated bonds, known as panda issues.
  • The hedge fund industry has matured at a faster pace than anyone could have anticipated. Sure, there are still problems, but the old habit of tarring all hedge funds with the old brush of suspicion must surely be left in the past.
  • 632 The number of entities at risk of downgrade as of mid-September this year, according to a report from Standard & Poor’s.
  • 1,900 – estimated number of hedge fund managers that need to register with the SEC by February as part of the US regulator’s new rules for the industry.
  • The jumbo covered bond market was 10 years old this year. Its key characteristic has always been liquidity. But one analyst thinks this is no longer the case. Is the jumbo market in for a shock? Mark Brown finds out more.
  • CDP’s latest issue shows the benefits of looking beyond the usual suspects to banks that offer strong secondary market support and enhanced distribution.
  • It’s good to see that the world’s leading finance ministers slum it on the same flights as us mere mortals to the IMF/World Bank meetings. For who should be on the Virgin flight from London Heathrow to Washington, DC, than UK chancellor Gordon Brown?
  • San Francisco likes to think of itself as the most liberal US city. Every May, for example, the famous Bay to Breakers race takes place.
  • There are no holds barred in the competition between exchanges. As people arrived to hear a Hans Tietmeyer lecture in the City of London organized by the Chicago Mercantile Exchange, they were greeted outside the venue by young ladies handing out leaflets spouting the benefits of trading FX with Eurex US. It all seemed harmless enough.
  • 47 The percentage contribution of equity capital market revenues to overall capital market revenues at investment banks in the third quarter. The contribution of ECM revenue to overall capital market revenues rose from just 38% in the second quarter, according to Dealogic estimates. 79,400,000,000 The volume of Asia Pacific (ex-Japan) ECM deals in the first three months of 2005. The figure is the highest for the first nine months of a year on record.
  • Global M&A volumes are heading back up to levels not seen since 2000. This should give investors pause for thought: 2000 was, after all, a year of excess. Although the market is very different today, some things never change. Peter Koh reports.
  • UK pension funds still have 65% of their assets in equities, but the figure is still dropping, according to European Credit Management, which expects it to fall to 50%.
  • General Motors said it had reached a tentative agreement with the UAW to reduce the company’s spending on healthcare benefits and was exploring the sale of a controlling stake in its finance arm, GMAC. Along with its third-quarter results, it announced total planned cost savings of $6 billion over the next three years from a combination of reduced healthcare spending, sourcing cheaper supplies, making job cuts and closing plants, all in an effort to shore up its balance sheet.
  • Three monoline insurers were used to credit wrap Scotia Gas Networks’ £2.22 billion ($3.9 billion) bond sale via sole arranger Barclays Capital, and lead managers Citibank, RBS and DrKW in October. This deal refinanced acquisition loans extended for the purchase of the Scotland Gas Networks and Southern Gas Networks from National Grid Transco in June (five out of nine networks were also sold). Although investors are hungry for stable investment-grade credit (BBB in this case), the lack of financial history – a requirement for an exchange listing – meant that arranger Barclays was required to bring in the monolines – Ambac, FSA and XL Capital. The structure was sliced into 11 tranches and sold to a wide variety of investors (euro and sterling, fixed, floating and index linked). SGN is owned by Scottish and Southern Energy (50%), Ontario Teachers (25%) and Borealis Infrastructure (25%).
  • Refco, the troubled commodities and futures brokerage that went into financial meltdown after allegations of executive fraud surfaced in October, is likely to sell its futures business to private-equity firm JC Flowers. The company is also expected to put its capital markets business into bankruptcy. [see market leaders section, this issue -- Refco deals out a harsh lesson -- for comment]
  • Hybrid corporate bonds might be the new hot product of the Eurobond market but originators’ hopes for a deluge of new issues have not been fulfilled.
  • Cash corporate credit might be in short supply but borrowers still need to tread carefully.
  • But the former Bundesbank head defends the creation of the euro.
  • Brokerage firm Refco steals the headlines but Samsung faces major fine. South Korean electronics conglomerate Samsung has pleaded guilty to price-fixing in a far-reaching probe by the US Department of Justice and has been handed down the second-largest criminal fine ever
  • Regulatory pressure has forced a crackdown on transaction delays.
  • The competitive spirit in investment bankers at CSFB and Morgan Stanley is alive and well. But instead of the usual battle to win business from clients or trading head to head, they clashed on a non-financial field.
  • Harvard University’s endowment fund has appointed as its head emerging-market legend and one-time candidate as IMF head Mohamed El-Erian. Formerly, El-Erian was running $30 billion in funds at bond investment manager Pimco. He takes over from Jack Meyer who, following complaints about his large compensation package decided to leave with some of his team to run a hedge fund. Meyer is likely to make a success of the new venture given that he has built up Harvard’s fund from $4.7 billion in 1990 to its present $25.9 billion.
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