BREAKFAST DEALS: Qantas' air warfare

Qantas has stepped up the attack on Virgin in defence of its deal with Emirates, as Telstra dials up investors in Australia's corporate bond market.

Qantas Airways has fired the latest shot in the war of regulatory words with Virgin Australia as the consumer watchdog tries to make sense of the evolving Australian aviation landscape. Elsewhere, Telstra has weighed into Australia’s emerging domestic bond market. Meanwhile, Northern Iron is without a dance partner after its two prospective bidders failed to pony up the dough, PrimeAg has been encouraged by the interest in its privatisation push and Ford Australia is teaming up with rival GM Holden to save a crucial autoparts maker.

Qantas Airways, Emirates, Virgin Australia

Qantas Airways has labelled the alliance rival Virgin Australia enjoys with its international partners as "formidable,” in a submission to the consumer watchdog’s inquiry into the Flying Kangaroo's own proposed alliance with Emirates.

In a letter to the Australian Competition and Consumer Commission (ACCC), Qantas general counsel Brett Johnson said Virgin is conducting a "thinly veiled” campaign to have the 10-year alliance between the flying kangaroo and the Middle Eastern carrier squashed by the regulator, so it can enjoy the fruits of its own deals.

"This is a clear attempt to minimise Qantas International’s competitive position so the combined, formidable Virgin/Singapore Airlines/Etihad/Air NZ alliance will not need to respond as vigorously as it would if the proposed conduct is authorized,” says Johnson. Breakfast Deals was right with Qantas, up until the point where Johnson used the phrase "proposed conduct” instead the simple word ‘alliance’.

There were also submissions to the ACCC from Emirates and a paper from the Boston Consulting Group entitled 'Surviving the Squeeze - Winning Strategies for a Changing Airline Industry'. It’s not everyday that you get a report from the Boston Consulting Group for nothing.

Virgin has previously suggested that the decision by Qantas to move its European stopover base from Singapore to Dubai, whether the deal with Emirates is approved or not, shows that the Australian carrier’s deal mightn’t be as necessary as Qantas is letting on.

"These assumptions are naïve and wrong,” said Johnson. "The network changes do not involve any expansion of Qantas operations to Europe. The service to Frankfurt is still being terminated. Regardless of the location of its mid-point hub, Qantas does not expect to be able to sustain services to Europe in the medium to long term in the absence of the proposed conduct.”

Virgin Australia chief executive John Borghetti famously knows the Qantas business back to front. The idea that Virgin is naïve about anything Qantas is doing is a bit of a stretch.

Both are engaging in a game of selectively emphasising points that favour their own competition case and playing down those that don’t.

So anyone who might like to criticise ACCC chairman Rod Sims might also want to remember that he sits in the middle of this encounter.

Across the Tasman, Virgin’s part-owner and alliance partner Air New Zealand is doing a deal with Qantas partner Cathay Pacific.

Air NZ, which is struggling, is cancelling its flights between Hong Kong and London as its searches for profitability. Sound familiar?

Telstra Corporation

Australia’s fledgling domestic corporate bond market has picked up a crucial headliner – Telstra Corporation.

ANZ Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp have all been mandated to touch base with investors.

Media reports indicate that Telstra could raise between $500 million and $1 billion.

The last time Telstra tapped the local bond market was mid-2011, when it raised $150 million of nine-year debt.

According to data from Bloomberg, the largest domestic bond issue that Telstra has done in its history was back in 2005 when it picked up $500 million.

The domestic corporate bond market is really taking off after BHP Billiton priced $1 billion in notes last month. It was the first domestic issue from the mining giant in over a decade.

Ratings agency Standard & Poor’s has given the Telstra bonds an A-grade rating. Although, as Business Spectator’s Stephen Bartholomeusz explains, yesterday wasn’t a good news day for S&P, or any of the ratings agencies for that matter.

And while the thought is that it’s about time that big Australian corporate started issuing bonds in Australian dollars rather than concentrating on the US market, engineering firm Bradken has thinking about another option.

According to The Australian, Bradken is looking at a yuan-denominated bond to fund its growth of its Chinese manufacturing business.

While such a proposal wouldn’t make enough sense for operations based in Australia, it’ll be interesting to see if local companies look to China’s debt markets as a way of building up their relationship with the Red Kingdom.

Northern Iron, Prominvest, Aditya Birla Group

Investors sent Northern Iron packing yesterday — to the tune of a 37 per cent share price dive — as hopes of a takeover offer evaporated.

The company was looking rosy with Swiss-based trader Prominvest and India’s Aditya Birla Group on the line earlier this year. But Northern Iron revealed that Prominvest was unable to submit a formal proposal within the extended timetable and Aditya Birla had pulled out.

Aditya Birla was linked to the sale of New Hope Corporation that commenced last last year. That also fell over.

Northern's stock finished trading yesterday at 39.5 cents, giving it a market cap of $195 million. This is deflating result for shareholders who were riding high in July when Prominvest had a proposal of $525 million in mind, seemingly trumping Aditya Birla with $518 million.

But a quick look at the share price chart shows that such optimism was short-lived.

The Perth-based company that’s focussed on the Sydvaranger Iron Project in Norway, announced in September that its exploration program had been suspended, non-essential capex was cut and several employees had been let go thanks to market conditions.

PrimeAg

RuralAg chairman Roger Corbett says the rural investor has received "strong interest” for potential parties willing to take the company private.

Corbett wisely told shareholders that there was no guarantee of a proposal coming through, but did assure shareholders that the directors were at least encouraged by what they were seeing.

"Should the sale process not result in the valuation expectations of the board being met, PrimeAg will commence an orderly divestment of properties over a longer period,” said Corbett.

UBE is helping out as adviser to the sale process. PrimeAg hopes to have an acceptable proposal by the end of the first quarter of calendar 2013.

Corbett must be feeling a frustrating sense of déjà vu with the market cap failing to reflect the underlying value of the PrimeAg assets.

It’s been said many times that Fairfax Media, which Corbett also chairs, is being chronically undervalued by the broader market given the headliners in its portfolio – TradeMe sticks out in a big way and the metropolitan radio assets are thought to be worth a few bob.

Wrap up

Rival carmakers Ford Australia and GM Holden have agreed to take on $6.5 million in debt held by carparts manufacturer Autodom and underwrite the operations, rather than see their crucial supplier go bust.

Receivers are set to restructure the business, with media reports indicating that management is thought to have been dismissed, with a company break-up likely.

In mining, Rio Tinto has won its long-awaited power deal with China to supply the $10 billion Oyu Tolgoi copper-gold mine in Mongolia.

There had been suggestions that the delay could threaten the miner’s timetable for Oyu Tolgoi and may have been motivated by tensions between China and Mongolia.

Meanwhile, Cooper Basin explorer Acer Energy has relented to the bidder Drillsearch, recommending that shareholders accept its $132 million takeover offer. Given that Drillsearch has secured a majority of Acer, there weren’t many other options available.

Elsewhere, Arrium’s largest shareholder has increased its stake in the company, even with Asian consortium bidder Steelmakers Australia giving up on getting the board to the bargaining table.

Government of Singapore Investment Cooperation grabbed some shares valued between 52.4 cents and 85.9 cents, increasing its stake to 7.1 per cent from 6.1 per cent.

And finally, investment bank Macquarie Group has reportedly secured a portfolio of around $350 million in reverse mortgages from Royal Bank of Scotland.

The Australian Financial Review reports that the Silver Donut beat out Challenger for the mortgage book.