BREAKFAST DEALS: Banking on Asia

Investors are set to home in on Commonwealth Bank's Asian intentions, while the RBA's Securency profit brings little comfort.

Commonwealth Bank of Australia’s strategy in Asia, acquisitions or not, is tipped to be a topic for discussion when the lender hands down its results today. The Reserve Bank of Australia is out of Securency, at long last, for a handy but ultimately unsatisfying profit. RHG has confirmed its talking to someone (almost certainly Resimac) as founder John Kinghorn looks at a new horizon, Discovery Metals is planning to complain to ASIC over the takeover that never really was and the IPO pulse appears to be gaining beats.

Commonwealth Bank of Australia

Commonwealth Bank of Australia will hand down its first half results today with two broad themes at the forefront of the minds of investors.

Firstly, how significant is the bank’s now $104 billion market cap? Secondly, what are chief executive Ian Narev’s intentions when it comes to Asia?

In mid-January, CBA was named in media reports as a potential bidder for Rabobank’s Indonesian assets, a country where the Sydney-based lender already owns 91 branches.

Since then we’ve heard that China Construction Bank and Japan’s Simitomo Mitsui Banking Corp are also interested in the arm with a bid of up to $US400 million ($380 million). Players from the Middle East and Canada are also thought to be circling.

Indonesia is a frequently overlooked Asian powerhouse. From Australia’s point of view it has a quarter of India’s population, true, and an even smaller proportion of China’s.

But it’s much closer. And when it comes to banking, half of Indonesian citizens don’t have a bank account.

One day, they’ll need one.

Reserve Bank of Australia, Securency

Staying with banking for a moment, the Reserve Bank of Australia has at long last offloaded its 50 per cent stake in the beleaguered Securency business, accused of bribing foreign officials for note-printing contracts.

For a discussion about the context within which this scandal emerged and the reputational damage that the Reserve Bank has suffered, check out the piece Business Spectator’s Stephen Bartholomeusz.

From a purely deals perspective, the Reserve Bank has picked up a handy $9 million profit from the $65 million sale.

The buyer is of course joint venture partner Innovia Films, based in the North West English county of Cumbria.

The profit will be of little comfort to the Reserve Bank, which would have traded a lot more to have this scandal removed from its ledger.

RHG, Resimac, John Kinghorn

RHG didn’t confirm for the market whether it’s Resimac that it’s talking to about selling its $2.5 billion loan book, but nor did it deny the reports.

There also wasn’t a denial from the apparent suitor, which is a pretty sure sign that these two parties are talking.

RHG did say that discussions aren’t finished as its share price surged 7.5 per cent to their highest level since late September.

The news comes as RHG’s founder, John Kinghorn, who has previously tried to take the company private, emerges in another business venture.

According to The Australian, Kinghorn has been revealed as a "prime investor” in Saluda Medical the spin-off from National ICT Australia.

Discovery Metals

Abandoned African-focused miner Discovery Metals is reportedly planning to complain to the corporate regulator about the conduct of its one-time suitor Cathay Fortune, a Chinese private equity player.

Speaking to The Australian Financial Review, Discovery chairman Gordon Galt conceded that there’s little the Australian Securities and Investments Commission can do about the now collapsed $830 million proposal.

But he wants other companies to avoid Discovery’s fate.

Cathay Fortune, bidding in conjunction with China-Africa Development Fund, lobbed the $1.70 a share offer for Discovery that Galt argues was conditional on ‘material averse change’ condition that was subjective.

The argument is that Cathay made an offer that it could get out of too easily. In essence, it’s not an offer at all.

Cathay wouldn’t be the only Chinese bidder to push the envelope of Australian takeovers law, or out and out violating it.

The IPO waiting game

The share price performance of JB Hi-Fi since its results came out has become a focal point for discussion about the strength of the Australian economy, particularly retailers, and the strength of Australian equities.

As the ASX200 makes a serious charge to break through the psychologically important barrier of 5,000 points for the first time since August 2008, optimism about a return of IPOs is predicably gaining momentum.

Just this morning The Australian Financial Review reports that Credit Suisse has been hired to investigate a possible float for leasing and management company FleetPartners by its owners Ironbridge Capital, an Australian private equity firm, and Government of Singapore Investment Corporation.

The reason why JB is important is that its share price is up 17 per cent since its results that were, in a sense, okay.

There was no bad news, which the market has interpreted as great news – which as Fairfax’s Elizabeth Knight has pointed out is symptomatic of a bull market.

But the bears point out that JB is one of Australia’s best executing retailers. If they can only report earnings that don’t contain any massive disappointments, where exactly is the broader economy heading?

Just yesterday, the latest National Australia Bank monthly business survey reported that business conditions had improved to -2 from -5 as profitability and trading environments improved.

This was offset largely by weak forward orders, poor business credit demand and soft capacity utilisation.

In a sense though, none of this matters. The ASX has a list of potential floaters this year, particularly in the second half. iSelect, CLP Holdings’s TRUenergy and Genworth Financial are the headliners. Brookfield Property Group and FKP Property Group could also feature.

What these companies want is an equities environment that’s positive enough to get the floats away. The broader economic environment is, to some extent, not that relevant.

The ASX200 was carrying a lot of risk going into earnings season with many expecting a negative earnings surprise or two would bring the market back down. So far, that hasn’t happened yet.

There’s still a large posse of companies to report and no one can count their chickens yet. IPOs tend to be risk-averse propositions. Plus the lingering disappointment from the Myer float cannot be underestimated.

There have been a number of occasions over the last 18 months when optimism for the IPO sector has come and gone. This time however, there’s some solid equity support (so far) to back it up.

Wrapping up

NRW Holdings subsidiary Action Drill & Blast has picked up a $140 million contract with Fortescue Metals Group for drilling services. The deal covers the iron ore miner’s Cloudbreak mine in Western Australia.

Still in Western Australia, The Australian reports that Joseph Gutnick, Mark Creasy and Eduard Eshuys could be set to combine their respective gold plays.

Gutnick’s Blackham Resources and Eshuys’s Apex Minerals are reportedly in talks to join up, while Apex could process the ore from Creasy’s Bagoda Gold.

The same newspaper’s Bryan Firth has a good yarn about the discontent amongst Australian Renewable Fuels shareholders at the proposed capital raising that could deliver control to an investment arm of the Pratt family.

Sticking with some big names, Jan Cameron has bought back Crazy Clarke’s and Sam’s Warehouse from administrators Deloitte for almost $60 million just a few months after handing it over.

And finally, The Australian Financial Review has received word that NewSat’s offshore roadshow to raise $200 million is expected to be over-subscribed.


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