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Weak NOK hurts

23 October 2019 by jbchevrel

Telenor ASA (TELNO) is an international TMT (~70% revenue is from mobile operations) present in 13 European/Asian markets but the dominant historic player in Norway (formerly ‘Telegrafverket’). TELNO met consensus’ estimates on its Q3 EBITDA at NOK 12.1b, i.e. EBITDA margin is stable at 41%. Revenue was ~in line with consensus as well at NOK 29.5b. This follows a soft Q2 (reported in July) mainly driven by Pakistan and Norway at both revenue and EBITDA levels. The weakness is Pakistan was due to the new data tax there, which had been dropped previously but was reintroduced even worse than before. The 5y CDS was ~flat on the day, and the stock lost ~2% as net income was impacted negatively by high net currency losses of NOK 1.8b. This was due to a weakening of the Norwegian Krone (NOK) and the recognition of an income tax expense of NOK 2.5b related to the reassessment received on Aug 22. NOK is indeed the 2nd worst G10 currency of the year (-2.75% vs EUR) just after SEK (-5.32% vs EUR). For reference, since the end of the sovereign crisis, NOK has lost almost 40% vs the euro. In April Moody’s had affirmed A3 post offer on DNA, but last week (Sept 8) S&P GR downgraded TELNO to A- from A on that debt-financed DNA deal and on the back of weaker than expected performance in Asia. People now look towards Moody’s for a potential change of stance. Back in Sept, TELNO had come to the bond market (€1.5b debt across 3 bonds: 4y 8y 12y €500m each) for the 2nd time in 4 months (they had sold €2.5b debt in May already), to finance the acquisition of its Finnish rival DNA Oyj (54% of it for €1.5b, but then triggering a mandatory tender offer for the remaining 46% expiring Sept 26). The purpose of this issuance was to finance this mandatory tender offer but not only, as TELNO will also repay the €750m 4 1/8 Mar20s. At that point, the 5y CDS mid came from 15.5bp to 21.5bp and at today’s close it is 24bp.

Buprenorphine Naloxone

22 October 2019 by jbchevrel

Teva Pharmaceutical Industries Ltd. (TEVA) is a global pharmaceutical company developing, manufacturing, and marketing generic and branded medicines. The CDS tightened c100bp between yesterday London close and yesterday NY close. Today it pared 30bp of this outperformance. IG peers also outperformed the IG group (mck -4 cah -8 ) The company confirmed, yesterday after our close, that there was an agreement in principle with a group of attorneys general from 4 US states (North Carolina, Pennsylvania, Tennessee and Texas) and certain defendants, for a global settlement framework regarding opioids. Under this agreement, TEVA would donate buprenorphine naloxone (sublingual tablets -- primary drug used to treat opioid addiction), in quantities of up to the amount needed to meet the majority of the currently estimated US patient need over the next 10 years (worth c$23b). TEVA and its affiliates also announced a settlement agreement with both Cuyahoga and Summit counties of Ohio. TEVA will provide them with buprenorphine naloxone (called Suboxone® -- at $25m wholesale acquisition cost and distributed over 3y + cash payment $20m paid over 3y). Yesterday in London evening post close, TEVA share gained c16% before paring more than half of that gains.

WhatsApp Tax

21 October 2019 by jbchevrel

Lebanon 5y CDS widened another +40bp to the 1300bp mark, and the CDS curve inverted a tad more. We now have -350bp of inverted curve between the 1y point and the 5y point. In cash, the Eurobond yield curve is increasingly inverted. This was as the government struggles to quell nationwide protests (100ks demonstrating in the w/e) against worsening economic conditions and the perceived corruption of the ruling class. Foreign investors are getting more concerned about the ability of Lebanon, amongst the world’s most indebted countries, to fix its finances and avoid a default. The spread between $ 21s and $ 29s surged to a record 10% today. The Hariri’s government announced measures (economic package) to calm the protests, among which halving the salaries of officials, overhauling the dysfunctional electricity sector and eliminating a ministry and other governmental bodies. Hariri also said that financial advisers study the privatization of telcos and he announced the gov has approved a 2020 budget with a deficit of 0.6% with no new taxes. All that had started with a proposal to hike the value-added tax and introduce a levy on Internet calls via apps such as WhatsApp. Lebanese people are extensive users of WhatsApp. It is worth recalling that Lebanese people have historically built big communities abroad, with 6 million + in Brazil, 2 millions in the US, 1 million in Argentina, vs a Lebanon population of around 6 million.


18 October 2019 by jbchevrel

Saturday the Brexit deal passes the Commons, Sunday France beats Wales in the rugby world cup. While that’s the base case, it may go differently. There has been some confusion about the number of votes the gov needs to pass it. The theoretical answer is 320 but it could come slightly lower (318) because of ill health (Daily Telegraph). If 20-30/245 Labour MPs back the deal. With the ERG seemingly on board. One can assume 287 + 25 ~ 312 Tories (287 because of will health) & Labour backing the deal. Then you need just 8/35 independents. Sounds very feasible then, with all the anti—no-deal MPs (like Stephen Hammonds & co). It looks fair to assume 0/19 libdem 0/35 SNP 0/1 Green (the deal is seemingly bad for environment…) will back the deal. The official stance of the DUP is to block the deal. It is probably okay to assume 0 here as well, although I must say I have been puzzled by the tweet of Darran Marshall: ‘DUP MP Gregory Campbell : @BorisJohnson has managed to do what everyone said he couldn’t do. He went in with the right approach. The EU realised he needed a deal more that it did.’ The central question is then would Labour exclude rebels. Comrade McDonnell this morning said he expects no Labour MP defying the whip. But he also said that whipping decisions are up to chief whip. So not very conclusive. He also said he expects the vote to be close, which sounds obvious, but which kinda assumes few of his comrades will back the deal. The Labour party has been as clear on this matter as it has been on its stance on the whole Brexit thing. Comrade Corbyn floated the idea of the whip withdrawal but also said Labour should do what they want (‘with their own conscience’) and it’s not up to the party to intimidate MPs. Nick Eardley twitted he understood that Labour MPs will not lose whip if they back the deal. Mann (pro-Brexit Labour – about to stand down) said he would back the deal. I don’t think it will be that close, but just for reference, the speaker gets to vote in a tied division. It happened 49x over past 200y. But there are rules. The Denison's rule is a constitutional convention established by Speaker Denison (1857-1872), regarding how the Speaker decides on their casting vote in case of tie. The principle is to always vote in favour of further debate, or, where it has been previously decided to have no further debate or in some specific instances, to vote in favour of the status quo. Thus, the Speaker will vote against the final reading of a bill (and against holding such readings immediately rather than in the future, to allow for time to consider the matter) in favour of earlier readings of bills (and in favour of holding such readings immediately rather than in the future, to allow for further debate), against amendments to bills, against motions of no confidence, in favour of disagreeing with amendments made by the House of Lords. The spirit is that change should only occur if an actual majority vote is in favour of the change.