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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.

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17 October 2019 by jbchevrel

Atlantia (ATLIM) performed okay today, 5y CDS -5bp and stock +1%. The Italian transport minister Paola De Micheli said in an interview with Corriere della Sera that the government will decide on a possible revocation of ATLIM’s motorway concession ASPI “in a few weeks” after concluding an investigation into the Genoa bridge collapse. Ms De Micheli described ATLIM’s commitment to invest in Alitalia as “a good sign” but said the two things “have been, are and will be separate.” Separately Beniamino Gavio the controlling shareholder of SIAS told La Republica, when asked if his group could be part of a potential consortium to invest in the ASPI; "If the government were looking for an industrial partner (for ASPI) we would be available." A full concession revocation cannot be excluded, although there are other more moderate ways to penalize ATLIM (the state could take a stake in ASPI through a state-owned entity, ex: CDP). Mr Gavio’s comments could be a sign that the government is considering such a move alongside an industrial partner in order to bring in some technical expertise and is looking for alternatives to a full concession revocation. Adding to that, the Alitalia situation seems to be also moving in the right way. Indeed, the Italian government is readying €350m in bridge financing for Alitalia. The financing is due to cover 6m of operations. The companies leading the bid to bail out Alitalia on Tuesday reaffirmed their willingness to acquire the bankrupt airline but said more work is needed before they can make a binding offer. Last week PM Conte had said” the government has been clear since the beginning: Alitalia is one thing, Autostrade and the process with regards to the revocation (caducazione) is another thing, the link between the two is unacceptable.” Il Messaggero had reported that the meeting between the Italian industry minister and ATLIM helped appease relations, to the extent that ATLIM participates for Alitalia & confirms its offer by the Oct 15. Which it didn’t just yet. Ferrovie dello Stato Italiane SpA and ATLIM said more details were needed on governance, shareholders and management of the carrier. While waiting for more clarity on this, the 5y CDS of this Baa3wn/BB+n name is at 210bp, right in the middle of the post roll range [ 160bp , 260bp ].


16 October 2019 by jbchevrel

A notable mover in iTraxx Xover s32 today was Thyssenkrupp (TKAGR – 5y CDS ~-10bp) after it was reported that the two PEs Blackstone and Carlyle have teamed up for a potential bid for TKAGR’s elevators unit. They are considering a joint offer for the business. The anonymous source added that no final decisions have been made, and there’s no certainty they will proceed with a formal bid. The 5y CDS tightened to ~240bp on the back of this and the cash was a tad richer, the Feb25s ticked above 103 (Z ~210bp). There was also this morning a reported interest in TKAGR’s elevator unit from Kone, so this could to a bidding war, raising the unit's valuation toward the high end of the consensus’ €15-20b. Kone is indeed considering partnering with CVC, another PE, according to Bloomberg. This has been going on since this summer, but it had been discounted because of the general view that antitrust challenges would pose considerable risk to a Kone-TKAGR deal being completed. The fact that Kone now plans to partner with PE CVC is interesting because it could ease the burden of financing while alleviating antitrust concerns. The leg tighter still doesn’t reflect an expectation of TKAGR coming from Ba2n/BB to IG. For that to happen, we would probably need to see steel prices rebound, FX headwinds revert, rising raw-material costs fade, among others. 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.