Category Archives: CapitalMarkets

>Mongolia plans to issue first sovereign bonds


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The money has not yet come in, but the debt has already started…

Mineral-rich Mongolia plans to issue first sovereign bonds – FT.com

Mongolia plans to issue its first sovereign bonds this month, marking a milestone for capital markets in this resource-rich democracy.


The newly created Development Bank of Mongolia will issue $700m in sovereign bonds to fund lending programmesin areas that include infrastructure, industry, energy and roads. 

the issuance would take place in tranches beginning this month, with the first slice likely to be $100m.

The bond will be in tugrik, the Mongolian currency, which has appreciated by 1.6 per cent against the dollar since January.
investment in the mining sector has soared in the past two years along with global commodities prices.

Government revenues from the mining sector are set to jump next year as the Oyu Tolgoi copper and gold mine comes online, and politicians in Ulan Bator are looking for ways to manage the coming influx into state coffers.

The Development Bank is being set up with training from the Korean Development Bank and the Development Bank of Japan. 
yields on the bonds could be quite low, perhaps 6-8 per cent.


Mongolian sovereign debt has a B1 non-investment grade rating from Moody’s


Read the full article here: FT.com / Capital Markets – Mineral-rich Mongolia plans to issue first sovereign bonds

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>Ex-Goldman programmer gets 8 years for code theft | Reuters


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Ex-Goldman programmer gets 8 years for code theft

6:50pm EDT

By Grant McCool
NEW YORK (Reuters) – A former Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) computer programer was sentenced to eight years in prison on Friday for stealing secret code used in the Wall Street bank’s valuable high-frequency trading system.
Sergey Aleynikov, was arrested by the FBI and charged in July 2009 with copying and removing trading code from Goldman before taking a new job at Teza Technologies LLC, a high-frequency trading startup firm in Chicago.
A onetime collegiate-level competitive ballroom dancer, Aleynikov, 41, was convicted of trade secrets theft and transporting stolen property across state lines on December 10 after a two-week long jury trial in Manhattan federal court.
High-frequency, computer-driven trading has become an important and competitive business. The software codes that trade shares in milliseconds are closely guarded secrets.
“I very much regret the foolish thing of downloading information,” the Russian-born father of three said at his sentencing on Friday. “Part of this information was proprietary to Goldman. I never meant to cause Goldman any harm or harm anyone at the bank.”
Aleynikov’s words fell short of U.S. District Judge Denise Cote’s hopes for “an open and honest statement of responsibility” for his criminal conduct.
“You did not do that,” said Cote, imposing a sentence of 97 months that was within the eight to 10 years recommended by the government. Cote also fined him $12,500.
Aleynikov’s lawyer, Kevin Marino, had originally asked for a sentence of probation but in court on Friday he suggested two years was adequate for what he called Aleynikov’s “foolish, tragic, horrible, ridiculous mistake.”
Aleynikov has the right to appeal the sentence. His defense lawyers have argued that the matter belonged in civil, not criminal court.
U.S. prosecutor Joseph Facciponti said the stolen code was Aleynikov’s “golden ticket” to Teza and “he stood to make millions more” there than he did at the bank. Facciponti said Aleynikov spent several months planning his move, eventually transferring 500,000 lines of Goldman Sachs source code to an outside server.
Cote had revoked the bail of Aleynikov, a dual citizen of the United States and Russia, on the grounds that there was a risk of him fleeing before sentencing.
Throughout the trial and sentencing phase, many comparisons were made with a similar case in the same courthouse against a former Societe Generale (SOGN.PA: Quote, Profile, Research, Stock Buzz) trader, Samarth Agrawal.
The citizen of India was found guilty by a jury last November of stealing high-frequency trading code from the French bank before going to a new job. On February 28, a judge sentenced him to three years in prison and he will be deported when he completes his sentence.
The case is USA v Aleynikov, U.S. District Court for the Southern District of New York, No. 10-00096.
(Reporting by Grant McCool; Editing by Tim Dobbyn)

Ex-Goldman programmer gets 8 years for code theft | Reuters: “Ex-Goldman programmer gets 8 years for code theft

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Is AGF (Canada) the next takeover target?


Is AGF the next takeover target?
Financial Post | Business » Trading Desk
Tuesday, November 23, 2010 02:57 PM
Author: Jonathan Ratner  

While a takeover of AGF Management Ltd. appears unlikely in the near future, it is not impossible. In the wake of Bank of Nova Scotia’s acquisition of DundeeWealth Inc., a growing realization of the need for size and scale in the asset management space may force AGF to at least consider its options, according to RBC Capital Markets analyst Geoffrey Kwan.
He upgraded AGF to Outperform from Sector Perform and boosted his price target to $20 from $18, reflecting an 7% increase in 2011 and 2012 earnings per share forecasts.
“As one of few remaining potential ‘partners of size’ following DundeeWealth’s sale, AGF shares may have additional upside potential above our $20.00/share 12-month target in the event it is able to realize strategic value,” Mr. Kwan said in a note to clients.
He believes AGF shares are attractively valued trading at a significant discount to the fund company peer group. The analyst also anticipates that AGF shares will benefit more than others as a result of greater exposure to equities in its asset under management base as the macro environment gradually improves and equity market conditions remain healthy.
Mr. Kwan said net redemption trends could be improving, and although AGF’s fund performance is below its peers, this has improved in the past few months. “We believe fund performance relative to peers is a leading indicator for future net sales,” he said.
So what does Bank of Nova Scotia‘s planned takeover of DundeeWealth mean for CI Financial Corp?
Scotiabank remains committed to its relationship with CI (it owns a 35% stake in Canada’s third-largest fund manager) and a complete takeover at some time in the future, according to BMO Capital Markets analyst John Reucassel. However, he said the timing has probably been pushed out a couple of years.
“While asset management is an attractive business because most of the activities are conducted off balance sheet, acquisition of asset managers can be onerous from a bank capital perspective,” Mr. Reucassel said in a research note.
He explained that mutual fund company balance sheets are overwhelmingly comprised of goodwill and intangible assets, which when consolidated, must be fully deducted (under Basel 3) from common equity to calcultate capital ratios. Therefore, digesting acquisitions of both DundeeWealth and CI could strain Scotia’s capital ratios.
Based on similar multiples to the DundeeWealth transaction, the analyst noted that CI could be valued at $26 to 28 per share, plenty of upside from its current level.
Jonathan Ratner



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Gold Will Outlive Dollar Once Slaughter Comes: John Hathaway – Bloomberg


Gold Will Outlive Dollar Once Slaughter Comes: John Hathaway – Bloomberg

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On Tomorrow’s Secret Meeting To Plot The End Of High Frequency Trading | zero hedge


On Tomorrow’s Secret Meeting To Plot The End Of High Frequency Trading

On Tomorrow’s Secret Meeting To Plot The End Of High Frequency Trading | zero hedge

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Rio’s sights fixed on Ivanhoe and Mongolian mine


Rio’s sights fixed on Ivanhoe and Mongolian mine

By William MacNamara
Published: September 22 2010 22:15 | Last updated: September 22 2010 22:15

Rio Tinto is creeping its way towards control of Canada’s Ivanhoe Mines at a slow but relentless pace, drawing investors’ attentions away from a multi-billion dollar mining transaction that could be as significant for Rio as Canada’s PotashCorp looks to be for BHP Billiton.
Oyu-Tolgoi-graphicOver the past six months a conflict has erupted between Rio and Ivanhoe, developers of a new copper project in Mongolia that many analysts consider to be one of the best in the world. With a stake in Ivanhoe that rose to 35 per cent last week, Rio can feel confident that it is best placed for an eventual takeover. It has invested more than $1bn in Ivanhoe and its Oyu Tolgoi mine since 2006.
But under Robert Friedland, the legendary mining entrepreneur, Ivanhoe has been making plain that Rio’s money will not buy its love. It has engaged investment bankers to assess “strategic options”. Over the summer it pushed through a shareholder rights plan, otherwise known as a poison pill, to protect against what it calls “coercive and creeping takeovers”.
The markets are giving credit to Ivanhoe’s manoeuvres. One London-based analyst ascribed the performance of its share price, which hit a 12-month high above C$22 on Wednesday, to investors’ intrinsic faith in Mr Friedland’s “wiliness” and record of coming out ahead.
The Toronto-listed shares have stayed elevated since July when the company adopted the poison pill, causing Rio to launch arbitration against Ivanhoe. It cancelled a restriction against selling more than 5 per cent of its shares to a strategic partner. But despite Ivanhoe’s much-advertised search for alternative options all year, no third-party offer has materialised. “This is completely in keeping with Robert’s personality,” said one banker who has worked for Ivanhoe. “He wants the best deal for his shareholders. He wants to make sure that Rio does not have a 100 per cent stranglehold on his company.

Kicking off Mongolia mining fever

Ivanhoe’s Robert Friedland is a legend in the mining industry. The superlatives he enjoys range from “best entrepreneur” to “biggest genius” to “luckiest stiff”.
This last tag refers to his big break in the 1990s. Mr Friedland was a large investor in an exploration company called Diamond Fields Resources. In the course of exploring for diamonds in Canada’s Labrador province the company struck a motherlode deposit of nickel. The company’s sale to Inco netted Mr Friedland a fortune that helped him launch Ivanhoe.
In 2000 Ivanhoe took over an exploration programme in Mongolia, then an unpromising mining zone, from BHP Billiton. Ivanhoe spent several years proving that the Oyu Tolgoi copper-gold deposit is one of the biggest and world’s best new sources of copper.
Mr Friedland evangelised the promise of Mongolia to investors with his Steve Jobs-like knack for the grand narrative. He laid the groundwork for the Mongolia fever that has swept the mining industry since Oyu Tolgoi won government approval in October 2009.
An early convert to his vision for Oyu Tolgoi was Tom Albanese, currently chief executive of Rio. In 2006 Mr Albanese headed Rio’s copper and exploration division, and he led the deal that created the Rio-Ivanhoe partnership. Both men appear to have an affinity for Oyu Tolgoi.
They also are known to be personally friendly in spite of the widening rift between the two companies. Over the summer Mr Albanese stayed at Mr Friedland’s home in Ulan Bator, the Mongolian capital.
Ivanhoe and Oyu Tolgoi stand to be the most important venture of Mr Friedland’s career. That, say some, is why this owner of 20 per cent of shares wants to ensure a good outcome. Seeing the project through and possibly selling at a premium might also expunge his reputation as Toxic Bob, a name he earned in 1993 when one of his early gold projects leaked cyanide, causing an environmental disaster.

“He has gotten hundreds of millions of dollars from Rio so far,” the banker continued, “but the [Oyu Tolgoi] copper deposit is clearly worth billions.”
Rio’s rigid agreements with Ivanhoe, which owns 66 per cent of Oyu Tolgoi, may give the Canadian miner less flexibility than is appreciated. In 2006, when its Mongolian project carried heavy political risk, it agreed a financing deal with Rio that essentially gave the Anglo-Australian miner a path to ownership that it could exercise in 2011. Over the years Rio has released project financing in return for tranches of equity. Over the past year it has raised its stake from 19.7 per cent to 34.9 per cent. In Canadian law there is no level above which an shareholder must make a bid for the full company.
Rio’s agreements with Ivanhoe, however, stipulate a maximum stake of 47 per cent until October 2011, when a “standstill agreement” preventing takeover moves lapses.
It is toward that October 2011 date that both companies are hurtling, amid attempts to outmanoeuvre each other. Ivanhoe has pushed back the date of the standstill agreement by adopting a poison pill. So far the companies have not yet agreed on a Canadian arbitrator to hear Rio’s request that the defence be struck down.
Today the Oyu Tolgoi mine is taking shape in a bleak area of Mongolia’s south Gobi desert. Mongolia has become one of the world’s leading frontiers for metals and mining, largely because its rich deposits of copper and coal lie so close to the border of China. Oyu Tolgoi’s strategic position has led to speculation that Ivanhoe could find a white knight in a state-owned Chinese company.
But the 2006 agreement gives Rio right of first refusal over any offer made from a third party. This places Ivanhoe in the dangerous position of offering its shares to a bidder, only to see Rio pre-empt and possibly move to immediate control of the company. Ivanhoe’s best tactic, said one person involved in the 2006 deal, may be to find a bidder whose offer is so high that Rio cannot follow.
“Whether all this momentum is leading to anything all depends on if Robert Friedland finds his $40 [per share] man,” the person said, referring to an offer of C$40 per share compared with Thursday’s price of about C$20 per share.
Chinalco, the Chinese state-owned aluminium producer, is one potential bidder for Ivanhoe, as it is attempting to diversify out of aluminium. Chinalco, however, is also Rio’s largest shareholder. That raises the possibility that Chinalco would be more likely to join with Rio to take control of the group than pay a high premium to buy Ivanhoe on its own.
“There aren’t that many players who can play,” said one Canadian banker familiar with both companies. “This project is about the big boy miners and governments. It’s about countries as big as China and companies as big as Rio or BHP. The permutations are very small.”

FT.com / Companies / Mining – Rio’s sights fixed on Ivanhoe and Mongolian mine

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Market Still Deluding Itself That It Can Escape The Inevitable Dénouement


 Until we face up to the reality of the economic landscape before us, we will be on the same path as Japan, 1987-present…

Market Still Deluding Itself That It Can Escape The Inevitable Denouement 
By Albert Edwards, Société Générale, London
 

The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data suggests the market is in a similar deluded state of mind. Yet again, equity investors refuse to accept they are now locked in a Vulcan death grip and are about to fall unconscious.
The notion that the equity market predicts anything has always struck me as ludicrous. In the 25 years I have been following the markets it seems clear to me that the equity market reacts to events rather than pre-empting them. We know from the Japanese Ice Age and indeed from the US 1930’s experience, that in a post-bubble world the equity market merely follows the economic cycle. So to steal a march on the market, one should follow the leading indicators closely. These are variously pointing either to a hard landing or, at best, a decisive slowdown. In my view we are poised to slide back into another global recession: the data is slowing sharply but, just like Japan in its Ice Age, most still touchingly believe we are soft-landing. But before driving off a cliff to a hard (crash?) landing we might feel reassured when we pass a sign that reads Soft Landingand we can kid ourselves all is well.
I read an interesting article recently noting the equity market typically does not begin to slump until just AFTER analysts begin to cut their 12m forward EPS estimates (for the life of me I can’t remember where I read this, otherwise I would reference it). We have not quite reached this point. But with margins so high, any cyclical slowdown will crush productivity growth. Already in Q2, US productivity growth fell 1.8% – the steepest fall since Q3 2006.Hence, inevitably, unit labour costs have begun to rise QoQ. This trend will be exacerbated by recent more buoyant average hourly earnings seen in the last employment report. Whole economy profits are set for a 2007-like squeeze. And a sharp slide in analysts’ optimism confirms we are right on the cusp of falling forward earnings (see chart below).
OTBImage01
I love the delusion of the markets at this point in the cycle. It bemuses me why investors cannot see what is clear as the rather large nose on my face. Last Friday saw the equity market rally as August’s 67k rise in private payrolls and an upwardly revised July rise of 107kbeat expectations. But did I miss something? When did we switch from looking at headline payrolls to private jobs? Does the fact that government is shedding jobs not matter? Admittedly temporary census workers do mess up the data, but hey, why not look at nonfarm payroll data ex census? Why not indeed? Because the last 4 months run of data looks notably weaker on payrolls ex census basis than looking only at the private payroll data (ie Aug 60k vs 67k, July 89k vs 107k, June 50k vs 61k and May 21k vs 51k). But these data, on either definition, look dreadful compared to the 265k rise in April and 160k in March (ex census definition). If someone as pathologically lazy as me can find the relevant BLS webpage after a quick call to the BLS (link), why can’t the market? Because it is bad news, that’s why.
OTBImage02
August’s rebound in the US manufacturing ISM was an even bigger surprise. This is a truly nonsensical piece of datum as it was totally at variance with the regional ISMs that come out in the weeks before. The ISM is made up of leading, coincident and lagging indicators. The leading indicators – new orders, unfilled orders and vender deliveries – all fell and point to further severe weakness in the headline measure ahead (see chart above). It was the coincident and lagging indicators such as production, inventories and employment that drove up the headline number. Some of the regional subcomponents (eg Philadelphia Fed workweek) are SCREAMING that recession is imminent (see left hand chart below).
OTBImage03 OTBImage04
The real reason why markets reversed last week was that they got ahead of themselves. Aside from the end of 2008, government bonds were the most over-bought they had been over the last decade. And in equity-land the AAII two weeks ago recorded a historically low 20% of respondents as bullish (see chart above). These technical extremes will now be quickly worked off before the plunge in equity prices and bond yields resumes.
I am often asked by investors with a similar view of the world to my own (yes, there are some),whether the equity market will ever reach my 450 S&P target because of the likelihood that further Quantitative Easing will prevent asset prices from falling back to cheap levels.
Indeed we know that a central plank of the unhinged policies being pursued by the Fed and other central banks is to use QE to deliberately target higher asset prices. Ben Bernanke in a recent Jackson Hole speech dressed this up as a “portfolio balance channel”, but in reality we know from current and previous Fed Governors (most notably Alan Greenspan), that they view boosting equity and property prices as essential for boosting economic activity. Same old Fed with the same old ruinous policies. And by keeping equity and property prices higher, the US and UK Central Banks are still trying to cover up their contribution towards the ruination of American and British middle classes – (see GSW 21 January 2010, Theft! Were the US and UK central banks complicit in robbing the middle classes? – link).
The Fed may indeed prevent equity prices from slumping with any QE2 announcement. But this sounds a familiar refrain at this point in the cycle. For is monetary easing in the form of QE that different from interest rate cuts in its ability to boost equity prices? Indeed announced rate cuts in previous downturns often did generate decent technical rallies. But in the absence of any imminent cyclical recovery, equity prices continue to slide lower (see chart below). The key for me is whether QE2 can revive the economic cycle, not equity prices temporarily.
OTBImage05
In the absence of a cyclical recovery I cannot see how QE is any different in its ability to revive asset prices than lower rates in anything other than a temporary fashion. (Interestingly many of our clients think QE2 might give a temporary fillip to the risk assets but that the subsequent failure to produce any cyclical impact will cause an extremely violent reaction as investors lose faith in QE as a policy tool and Central Banks in general.)
If we plunge back into recession, do not place too much confidence in the Central Banks having control of events. As my colleague, Dylan Grice, said last week “let them keep pressing their buttons.” Ultimately they cannot fool all of the investors, all of the time.