BREAKFAST DEALS: Rio fundraiser

Rio Tinto is hopping to it when it comes to divesting coal assets in Queensland and New South Wales – Sam Walsh isn’t hesitating in the chief executive’s chair. Suncorp is reportedly in a good position to sell off its ‘bad bank’ – if only Billabong International were so blessed. Meanwhile, Qantas Airways is getting on with the job in China with Europe sorted, and S&P’s hybrid rethink is causing headaches for a number of big Aussie corporates.

Rio Tinto

Rio Tinto chief executive Sam Walsh isn’t wasting any time getting the miner’s balance sheet in order, with up to $3 billion in coal assets up for sale.

The new Rio boss has reportedly hired Deutsche Bank to help it offload parts of its $16 billion coal business in Queensland and New South Wales.

According to The Wall Street Journal, Rio is looking to sell down its 80 per cent stake in Coal & Allied to 51 per cent and it’s also searching for buyers of its controlling stakes in the Clermont and Blair Athol mines in Queensland.

Rio and Deutsche declined to comment on the report.

Thermal coal prices have been in the toilet, causing all sorts of problems in the industry, headlined by young tycoon Nathan Tinkler.

Rio and Mitsubishi picked up Coal & Allied Industries in late 2011 as part of a $10.6 billion deal.

Suncorp

Queensland insurer Suncorp could be in a position where it can finally jettison its troubled asset funds and poor loans now housed in its $3.4 billion 'bad bank'.

The Australian reports that analysts from Merrill Lynch and Morgan Stanley believe the improving market sentiment could very easily make the assets more attractive to prospective buyers.

Suncorp carefully raised the idea in February when it announced that the bad bank portfolio was set to fall to $2.7 billion from $3.4 billion by June, at which point it would review its “strategic options”. When Suncorp first quarantined the non-performing loans to be run down in 2009, the total was $17.5 billion.

“Many global specialist distressed asset investors are now looking at Australia – we understand there is a wall of money sitting on the sidelines with unmet demand post the Bank of Scotland sale. We understand appetite exists for a $3 billion book,” said Morgan Stanley’s Daniel Toohey.

When last we heard from Suncorp it was raising $350 million in convertible preference shares. That was back in September.

Billabong International, Paul Naude, Sycamore Partners, VF Corporation, Altamont Capital Partners

Billabong International might be locked in negotiations still because the takeover offer lodged by its two consortium suitors are much lower than anticipated.

The Australian Financial Review believes that the consortium led by the company’s former director of Americas Paul Naude has lodged a bid backed by New York’s Sycamore Capital that’s less than 73 cents. That’s the last price Billabong traded at.

Given the reports that Naude’s offer is ahead of the rival proposal from VF Corporation and Altamont Capital, that would be a terrifying outcome for the board.

When these two consortiums first emerged the headline price was $1.10 a share, which was an embarrassing discount to the $3.30 that the Billabong board knocked back from TPG Capital.

That number mightn’t be true (or it might be now), but the Billabong board ends up negotiating a better offer.

What it does do however is underline once again just how compelling Billabong’s turnaround strategy has to be for investors to buy in without a takeover offer.

Additionally, this commentator suggested in mid-May that some traders who pushed the company’s stock down to 68 cents on the back of rumours that the bidders were going to drastically drop their bid prices would be left red-faced in the end. If that 73 cent figure turns out to be true, it’ll be this writer with the red face.

Qantas Airlines, China Eastern Airlines

One of the chief criticisms leveled at Qantas Airlines boss Alan Joyce when he was trying to sell the flying kangaroo’s alliance deal with Emirates to investors is he wasn’t focusing enough on Asian growth.

It was a stupid argument. Joyce was clearly busy trying to fix loss-making routes to Europe. Now that the Emirates deal is done, he’s wasting no time firing up the carrier’s Asian earnings.

Qantas announced yesterday that it is expanding its code-sharing arrangements with China Eastern Airlines to cover flights from Melbourne to financial hub Shanghai, along with the Sydney-Nanjing-Beijing route and domestic flights between Shanghai and Beijing.

“We said we would expand Qantas' Asian network through our airline partnerships and we're now delivering on that promise,” Qantas international China manager Andrew Hogg said. 

“We are building on our strong relationship with China Eastern to support growing corporate travel and tourism between Australia and China.”

While Qantas hasn’t secured its premium Asian-based carrier, which was Joyce’s first aim, it’ll be interesting to see what else the Asian-carrier can come up with now that its European troubles are taken care of.

Hybrid securities

The list of companies throwing up their hands at the sudden ending of the hybrid security drive is growing following a decision by Standard & Poor’s to redefine the classification of the instrument.

As Business Spectator’s Stephen Bartholomeusz explains, the ratings agency has effectively opted for “reverse alchemy” by deciding that $3.6 billion in Australian hybrid securities recently flogged to investors will no longer by deemed equity, but in part or entirely as debt.

Bartholomeusz closes the book on the subject so if you’re interested, you’ll be well served.

But just for the record the companies that have been impacted by the decision are Origin Energy, Santos, Tabcorp, AGL Energy, Crown, Caltex and APA.

The immediate question that these companies are trying to beat away is whether they’re heading for a capital raising to make up for the conceptual hit their balance sheets have taken.

The first four were the ones to win 100 per cent equity credits for their raisings.

Wrapping up

Global commodity trading giant Glencore International looks more and more like it’s selling its Adelaide-based Joe Malt Holdings business, which it picked up via the Viterra acquisition.

According to a report from Reuters and Bloomberg, a source indicates that Glencore has hired Bank of America Merrill Lynch to advise. No one was commenting.

And finally, The Australian Financial Review carries a good yarn this morning about how Yancoal could force parent company Yanzhou Coal to throw in $262 million to maintain majority ownership.

It’s a complicated story, but the simple version is that downside protections afforded to Gloucester Coal shareholders as part of Yancoal’s backdoor listing mean that if the stock, (which has sunk since the deal) stays where it is, Yanzhou has to pay out some cash or issue stock.