BREAKFAST DEALS: Virgin stake-out

Etihad still wants a bigger slice of Virgin, while Sundance sets a new date for Hanlong Mining.

Virgin Australia’s major shareholder Etihad Airways is still keen on a larger stake, as main rival Qantas Airways reveals the Asian fruits of its European solution. Sundance Resources now believes its Hanlong Mining deal will almost make it to the two-year mark (and some, we expect). Meanwhile, Bendigo and Adelaide Bank is going RMBSs again as Westpac Bank looks at possibly doubling its hybrid, GrainCorp could be in for a big night as its suitor hands down results and Archer Capital has reportedly found a buyer for Ausfuel.

Virgin Australia, Etihad Airways, Qantas Airways, Emirates

Abu Dhabi’s Etihad Airways still expects to increase its stake in Virgin Australia by another 5 percentage points, but the timing remains uncertain.

Etihad has been busy over the last year or so building up equity stakes in partner airlines as an avenue through which it can reduce costs. So far it’s taken 9 per cent of Virgin Australia (Singapore Airlines has 10 per cent, while Air New Zealand has 20 per cent), almost 3 per cent of Dublin’s Aer Lingus, 30 per cent of Germany’s number two Air Berlin and 40 per cent of Air Seychelles.

It has also built a strategic alliance with Air France-KLM and is expected to grain a cornerstone stake in Indian carrier Jet Airways.

It’s this kind of opposition that Qantas has to prepare for. Yesterday the flying kangaroo announced a reorganisation of its international operations away from Europe and on to Asia.

While some flights from Perth and Adelaide will be cancelled and the total number of flights to Asia will essentially remain flat, the total number of seats going to Asia will rise because the high-capacity planes once destined for Frankfurt won’t be needed in Europe.

Qantas has also flagged possible new flights to Beijing and Delhi, along with Seoul, Mumbai and Tokyo, when the long-range, and long awaited, Boeing Dreamliners starts flying for the Australian carrier.

This now categorically debases the arguments that were being ‘unofficially’ thrown at Qantas investors by a group of activist investors, led by venture capitalist Mark Carnegie and former Qantas boss Geoff Dixon.

It was suggested that the low-cost Jetstar carrier could be spun off, the Frequent Flyer business could be sold and the airline should put greater focus on Asia.

Qantas boss Alan Joyce has always shown Asia is his number one priority… but pain that the airline’s European routes were reaping on the international business had to be dealt with first.

However, the five-year Emirates alliance, which is largely expected to be approved by the Australian Competition and Consumer Commission, hasn’t come without consequences.

The Australian Financial Review has learnt that former potential merger partner for Qantas, British Airways, intends to end its code sharing arrangement with the Australian carrier thanks to its Emirates deal.

Sundance Resources, Sichuan Hanlong Group

Frustrated iron ore hopeful Sundance Resources has now set the date where it expects Chinese suitor Sichuan Hanlong Group to finalise its $1.3 billion takeover offer for June 7, just shy of two years after the initial proposal was lodged.

Sundance requested that the market operator keep its shares suspended until February 11 so it can secure provisional approval from China’s all-important National Development and Reform Commission.

Sundance expected to win that green light from the NDRC by February 9.

The latest delay to the Sundance takeover has come courtesy of a deadline that Hanlong missed last week where it was supposed to lodge the credit-approved term sheet from giant lender China Development Bank. That deadline has been rescheduled for March 26.

Sticking with the African-focused miners, gold play Resolute Mining managing director Peter Sullivan has told The Australian that it has stepped up its search for acquisitions to replace its ageing Golden Pride mine in Tanzania.

Bendigo and Adelaide Bank, Westpac Banking Corp

Bendigo and Adelaide Bank has launched its first set of residential mortgage backed securities since 2011, tapping investors for as much as $850 million.

The lender expects the senior tranche of securities to be given a AAA-rating from Standard & Poor’s and a Aaa-rating by Moody’s Investor Services.

Deustche Bank and Macquarie Bank are the joint lead managers of the issue.

This is an important milestone for the smaller lenders, after the global financial crisis largely killed this alternative funding source that they’d use to try to compete with the big four.

Speaking of which, Westpac Banking Corp could double the size of its $500 million hybrid security issue thanks to a strong response from investors, according to The Australian Financial Review.

This isn’t altogether surprising. The big four banks often opt for a modest size issue not just to make sure that it’s not left with a shortfall, but to gauge whether they can respond quickly with a larger issue.

GrainCorp, Archer Daniels Midland

Tonight is a big night for GrainCorp because its giant US suitor Archer Daniels Midland is reporting is second quarter results, which would be a perfect occasion to increase its $2.8 billion takeover offer.

ADM has been quiet on the takeover play for two months. The GrainCorp share price slipped beneath the $12.20 offer, which was improved from $11.75, during January as the hot weather reminded investors what ADM has been arguing – agribusiness is cyclical and a bad season can change things significantly.

But the last time GrainCorp touched base with investors in December the support for its rejection at $12.20 was considerable.

Even with up to 15 per cent of the register occupied by hedge funds that are playing the ADM bid, GrainCorp is sitting pretty because it has formidable infrastructure assets and its relative rarity thanks to the global agricultural consolidation of 2011-12.

Some expect ADM, which holds 19.9 per cent of GrainCorp, to bide its time and wait for the share price to come down further, perhaps making the company’s management less able to resist due diligence.

The problem with that strategy is the further GrainCorp’s share price falls, the more attractive it will look to rival bidders.

Yes, ADM will still have its seat at the table through its major stake, but that’s a lot more powerful when everyone’s valuing GrainCorp at $13-plus a share.

If the stock were to fall to $10-$11 a share, ADM’s 19.9 per cent stake won’t be an impediment to rival bidders sniffing around.

Wrapping up

Dutch-based Trafigura Beheer has picked up retail and oil distributor Ausfuel from private equity player Archer Capital for $625 million, according to sources that have spoken to The Australian.

If the report’s true, it means the analysis in this column on January 30 about the potential interest from Caltex Australia was utterly useless.

Meanwhile, as the investment property market continues to show signs of life, Goodman Group is building $451 million of logistics sheds and business parks for tenants including Wesfarmers and DHL.

Elsewhere, Tanami Gold shares were absolutely smashed yesterday to the tune of 38.4 per cent after a $65.3 million rights issue.

Bad as it was, it could’ve been worse. Tanami shares were trading at 66.5 cents each before the right issues was announced at 20 cents a pop. That’s less than a third of the last-traded price. Ouch!

And finally, NewSat management is on a trip to Hong Kong, London and New York in a search for the final $200 million it needs to launch its Jabiru-1 satellite, according to The Australian Financial Review.

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