04 April 2014 by HCM
Since mid-March when worries about a full blown conflict in Ukraine begun to alleviate, the risk premium of LGFP (Lafarge SA) has been on a downward trajectory, tightening from 228.5bps to 196bps. It was positively impacted during that period by the general hunt for yield which benefitted high beta names across the board. But today, it gained some impetus of its own following the news the Lafarge and HOLZSW (Holcim Ltd) are considering a merger of equal. On the back of this announcement, the risk premia of the 2 companies started converging aggressively, with LGFP’s 5 year CDS tightening a cool 60bps to 139.5bps while HOLZSW’s 5 year CDS widened from 105 to 111.5bps. One should not expect the 2 companies to trade much closer to each other until we have further details regarding this alliance.