Breakfast Deals: Korean Doughnut

Macquarie’s ING buy extends its Asian grasp, while Newcrest suffers the exit of a top shareholder.

After years of steady growth at Macquarie Group's wealth management division, the Silver Doughnut has identified another golden opportunity in Korea. Elsewhere, Newcrest Mining loses the support of one of its largest shareholders, while the competition regulator prepares for a fight over its Virgin Australia-Air New Zealand ruling. And is a bidding war brewing over RHG?

ING Investment Management Korea, Macquarie Group

Macquarie Group is continuing to grow its global asset management business with the purchase of ING's giant Korean funds unit.

ING Investment Management Korea, with $24 billion under management, was snapped up for an undisclosed sum, in a deal still subject to closing conditions. 

The unit will be added to Macquarie's highly successful funds business, which has more than tripled in size in less than a decade. 

Not only will this grow Macquarie's footprint in Asia, it will also make the local investment bank the largest foreign asset manager in Korea by assets under management.

Korea has also been a hot investment destination for other Macquarie divisions. In the last year alone, it has picked up four businesses in the east Asian nation, spanning waste management, clean energy and service stations.

Macquarie isn't planning any big managerial changes at ING IMK, but it will use the new unit to market its existing products in Korea.

Newcrest Mining, Perennial Investment Partners

The cloud over Newcrest Mining is becoming ever darker, as one of the troubled gold miner's top shareholders dumps its entire stake.

Perennial Investment Partners, with $18 billion of assets under management, has left the Newcrest register after watching the company's share price fall from over $40 in late 2010 to less than $10 now, according to The Australian.

The spectacular price destruction, fuelled by poor operational performance and the botched disclosure of $6 billion worth of writedowns, has led to calls for the ousting of chairman Don Mercer and has heaped pressure on chief executive Greg Robinson.

The Australian calculates that Perennial would have been one of Newcrest's largest 20 shareholders. Its stake, worth roughly $100 million in November, is said to have fallen to about $40 million when the fund exited.

"We are no longer confident that the company can grow cashflows from current levels," Perennial growth funds manager Lee Mickelburough said in an update to investors, quoted by the newspaper.

"Our valuation for Newcrest has fallen considerably below $10 and hence we sold out of our position during the month (of June)."

Perennial added that it would keep its other local gold holding, Regis Resources, due to its "superior cost position, management quality and return profile."

Ouch. 

For now, The Australian Financial Review reports Newcrest is ramping up its cost-cutting drive by sacking an unspecified number of employees at its Teffer mine in Western Australia in order to get its books in order.

The company may also consider offloading its 33 per cent stake in Evolution Mining, as market chatter suggested last month.

Air New Zealand, Virgin Australia

Questions are being asked about the Australian Competition and Consumer Commission's provisional approval to a three-year extension of the Virgin Australia-Air New Zealand trans-Tasman alliance.

While the competition regulator recognises that the alliance is likely to result in material public benefits, it wants to impose conditions requiring the carriers to maintain capacity on key routes and – most controversially – reject a request for a five-year renewal.

This begs comparison with the ACCC's recent approval for the Qantas-Emirates trans-Tasman alliance, which runs for five years.

As The Australian's John Durie argues, there is no obvious reason why one alliance would or should last longer than the other.

"In round terms the Air New Zealand –Virgin alliance controls 57 per cent of the routes but key routes like Auckland to Sydney are dominated by Qantas with 51 per cent of the market against 38 per cent for Virgin and Air New Zealand," he says.

Air New Zealand has also hit out at the limits.

"The airline considers that in the current market structure, capacity conditions are not necessary to maintain strong competition in the trans-Tasman market and will work with the ACCC to understand its rationale for requiring such conditions and the limited three year authorisation period," Air New Zealand said in a statement.

Expect more debate as the ACCC opens the process up to submissions.

Westpac Banking Corp

Westpac Banking Corp has become the latest Australian bank to bolster its capital position, launching a $750 million subordinated notes offer.

The deal comes just a day after ANZ Banking Group said it would raise a more-than-expected $1 billion in a hybrid note sale.

The Westpac securities, which mature in August 2023, are priced at $100 each. The bank will pay an annual interest rate of between 2.3 per cent and 2.45 per cent above the benchmark bank bill rate.

Damien Williamson, at analyst at Bell Potter, told The Australian the offer was part of a broader push by banks to replace old-style debt with new securities as they rework their balance sheets to comply with the Basel III global banking rules.

It also follows Macquarie Group's $600 million June capital raising and Suncorp's $700 million book-build in April.

Don't be surprised to see more of the same balance sheet management moves as institutions prepare for the new global regulations.

Pepper Australia, Resimac, RHG

RHG may be the target of a bidding war, as Pepper Australia fires off a competing offer for what is left of the former RAMS business.

Pepper, a residential mortgage lender, is offering 46 cents a share for RHG, and a 3 cent fully-franked dividend. That's 1.9 cents per share higher than the offer RHG agreed to with Resimac on Monday.

Under the terms of its agreement with RHG, Resimac has three business days to match any competing offer once RHG receives the full terms. 

RHG is urging shareholders to "exercise caution" as it considers the Pepper bid.

Pepper's move appears to be part of a broader mortgage play, following its purchase of $250 million worth of commercial loans from Citi in March, and GE Capital's $5 billion Australian and New Zealand mortgage book two years ago.

"The acquisition of RHG and its residential portfolio is highly strategic for us,” Pepper executive chairman Mike Culhane told The Australian Financial Review. “It enables us to grow our assets under management and access new customers.”

Over to you, Resimac.

Wrapping Up

Australia's largest organic chicken producer, Inglewood Farms, will likely be sold after falling into administration.

Inglewood is a subsidiary of RM Williams Agricultural Holdings, which counts a News Corp subsidiary and competition regulator Rod Sims as shareholders.

Westpac Banking Corp – owed about $60 million – has appointed PPB Advisory’s Stephen Parbery and Greg Quinn as receivers and managers of the farming asset.

Meanwhile, the Australian Securities and Investment Commission has only raised $214 million of the $286 million it was chasing in a share sale to existing retail investors.

The ASX will now extend the offer to outside investors in an effort to make up the shortfall.

Some of the money will be put towards reserves to cover against the default of a financial institution, as required by stricter global rules.

Finally, there are suggestions Yanzhou may have to pay an extra $265 million to privatise its Australian-listed subsidiary, Yancoal Australia.

Yanzhuo, which owns about 78 per cent of Yancoal, on Wendesday launched a $200 million scrip offer for all the shares in the local coal producer it doesn't already control. 

However, the proposal doesn't recognise a slew of contingent value rights awarded to Gloucester shareholders before the company merged with Yancoal.

Sources told The Australian Financial Review that Yanzhou did not see a $265 million payout as an obstacle to the wider deal and would be willing to fork out the funds to secure the asset.