THE DISTILLERY: JB Hi-Fi distress

One jotter notes that JB Hi-Fi's profit downgrade is a bad omen for department stores, while another proposes a model for an Australian corporate bond market.

Each day, Distillery selects the three or four best ideas that have been put forward by the nation’s leading business and economic commentators (and lists other items they have covered). Readers are invited to comment on the Distillery selections in The Conversation.

A recent, rare purple patch for Australian corporate overseas bond issues has got many questioning why we don’t have a market for them in our own backyard. Why should overseas investors be given direct access to this relatively safe investment in some of our finest, most reliable companies and not us? The Sydney Morning Herald’s Malcolm Maiden reminds us that there’s very little Treasurer Wayne Swan can do about this until institutions show some serious demand. He argues that it’ll probably take generational change at our fund managers before the local corporate bond market will get the keys to the Aston. Meanwhile, another commentator says JB Hi-Fi’s profit downgrade means an unhappy Christmas for the retail sector is coming, while one business writer notices something very different about the retail component of the BlueScope Steel capital raising that the rest of us missed.

But first, The Age’s Malcolm Maiden delivers probably the best piece on an Australian corporate bond market comeback idea thus far. Here’s but a snippet of it.

"A bond market that had genuine depth and sufficient pricing reference points would be a three-tiered pyramid, with wholesale and retail government bonds at its base, retail corporate bonds at its apex, and a large institutional corporate bond market sandwiched between. It is the middle tier of that pyramid, the institutional corporate bond market, which is the big missing link in Australia. There has been a trickle of bond issues over the years, but not enough to create momentum. And while that is partly because big blue-chip corporations in Australia have been able to issue debt easily overseas, it is also a result of a lack of institutional interest, or – the inverse – an unusually strong institutional attraction to shares.”

Secondly in this edition of Distillery, The Australian’s John Durie offers a sorry assessment of the big retailers in the wake of JB Hi-Fi’s profit downgrade and in the lead up to Christmas.

"Given JB is one of the better retailers in the market, just how the big department store operators are faring is anyone's guess, but the omens are not great. The same goes for the big hardware operators such as Mitre 10 and Bunnings, which are suffering with poor weather in the lead-up to Christmas. This time of year is peak season for painting your deck before the freeloaders arrive for a party, but you can't paint your deck if it's raining. The same gloom is expected today from Coca-Cola Amatil's Terry Davis, who is due to update the market on his operating performance. At least Davis has the offsetting bonus of collecting a $200 million-plus profit on the sale of his share of the SABMiller joint venture.”

The Australian’s Bryan Frith – an adept M&A commentator – spots something unusual in the retail component of BlueScope Steel’s capital raising that no one else picked up on.

"The Australian Securities Exchange took the unusual step yesterday of granting a request from BlueScope for a trading halt to allow the underwriter, Credit Suisse, to conduct a bookbuild to bed down the shortfall in the retail component. Trading halts are universally implemented when an accelerated offering is first announced to enable the institutional component of the offer, and the bookbuild of the institutional shortfall, to take place. The ASX also used to allow trading halts for the bookbuild of the shortfall to retail components but stopped that practice about two years ago because they were not regarded as material. Allowing a trading halt to BlueScope for the bookbuild of the shortfall to the retail component is therefore a significant departure from the norm. BlueScope says the trading halt was needed to enable the bookbuild to take place in an ‘orderly market’.”

And, The Australian’s Matthew Stevens sheds some light on secret talks between iron ore juniors in the Pilbara about all important rail access.

"Brockman's new boss, ex Teck man Howard Chu, is said to have joined a far broader conversation about rail and port access. At least five others have joined this confidential multilateral discussion. They include the state government, Gina Rinehart's prospective mine-rail-port operator, Roy Hill Infrastructure, the national rail and logistics competitors, QR National and Asciano, and the rapidly expanding iron ore producer Atlas Iron. We are told that Brockman and Atlas are talking to each other about integrated options but continue to represent their own commercial interests in engagement with other parties.”

Before we round out the rest of this morning’s commentaries, a special mention has to go out to The Sydney Morning Herald’s economics writer Jessica Irvine. Earlier this year, Irvine bravely revealed in print her New Year’s resolution to lose weight by doing a minute of exercise for every dollar she spent. While she had to tweak the equation a little, Irvine could now afford to brag more than she does in this charming piece about her obvious love of numbers and honest statistical analysis, because she’s achieved an enviable body mass index in 2011. For any number nerds thinking there’s a New Year’s resolution on the horizon, this is a must read.

Back in resources, The Sydney Morning Herald’s Ian Verrender bravely wades into the murkiest of water for a commentator – the gold price. The Age’s Garimpeiro columnist Barry Fitzgerald finds some agitated Brockman Resources shareholders, who remain unconvinced by the cash-and-scrip offer from Hong Kong’s Wah Nam Resources.

In other news, Fairfax’s Insider columnist Phillip Wen asks whether BlueScope Steel shares have finally hit rock bottom – it’d be difficult for them to go much lower. The Sydney Morning Herald’s Michael Pascoe finds an anonymous sample of employers who are unwilling to employ smokers. Fairfax’s Matthew Murphy discovers America’s venture capital sector really starting to fire, particularly for technology start-ups. And, The Australian’s Criterion columnist Tim Boreham takes a look at the Tox-Free Solutions bid for Dolomatrix and wonders whether the target’s 22 per cent shareholder Transpacific is pleased with the development.

Finally, The Herald Sun’s Terry McCrann links statements from retiring Reserve Bank Deputy Governor Ric Battellino and opposition communications spokesperson Malcolm Turnbull for their "pure, sweet reason”. Battellino was pointing out that before the euro, Italy and Spain used to pay interest rates on their borrowings not that far below current ‘crisis’ levels, implying this is merely a return to the norm now that the single-currency’s aura of invincibility has been seriously undermined. With Turnbull, it’s his criticisms of the NBN – a favourite target of McCrann’s.

This is the last Distillery of 2011. The column will return on January 16.

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