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Thyssenkrupp Lifted

10 May 2019 by lberuti

A notable mover in iTraxx Xover s31 today was Thyssenkrupp (TKAGR) after Reuters reported that its business split could eventually be abandoned. Indeed, TKAGR is reportedly considering abandoning its split to IPO its elevators business instead, as its joint venture with Tata Steel is expected to fail. Weak steel demand and prices in Europe were probably fatal to the new JV, which would also require approval. The 5y CDS tightened -70bp and the curve flattened. The stock was up 25% on the day, vs +0.3% for the broader SXXP. Markets waited it to be confirmed, which it was around noon, as there had been some opposition to the split as it triggers an upfront c€1b capital gain tax.  The sale will bring cash into the group, although abandoning the steel JV is not necessarily a positive step. The short-term reaction tighter is impressive, although more will probably be needed to take the group from current Ba2n/BB to IG rating. We would probably need to see deeper changes, steel prices rebound, forex headwinds revert, rising raw-material costs fading etc. For reference, TKAGR had proposed last year to split into 2 businesses: Thyssenkrupp Materials and Thyssenkrupp Industrial, the latter being itself split into 3 units (elevator, components technology i.e. automotive supplier and industrial solutions i.e. chemical and cement plant, mining equipment services). That was meant to make the company’s structure leaner, a step for to achieve lower than €300m general and administrative cost, by 2021 fiscal year. Elsewhere, it was a bit of a ‘Sell the Rumour, Buy the Fact’ until late session.