Sun, 28th May 2017

Anirudh Sethi Report


Archives of “Public company” Tag

China’s A-shares have better shot at MSCI index

Shanghai and Shenzhen shares have a greater chance at joining a major emerging-market stock index after recent market reforms, though a smaller pool of issues under consideration means entrance will do less than investors and China’s government would like.

MSCI of the U.S. is soliciting institutional investors’ input on whether to include A-shares, or yuan-denominated shares listed on the Chinese mainland, in its Emerging Markets Index. Citigroup gives China’s bid a 51% chance of success, in light of recent reforms.

 These odds are a good deal better than when the question was first considered in 2014. A-shares have been kept out of the mix three years running amid concerns that China’s capital markets are insufficiently open.

The so-called Qualified Foreign Institutional Investor, or QFII, scheme was one key factor. This scheme was long foreign institutions’ only option for buying A-shares. Each entity’s dealings were subject to strict quotas, and the value of remittances was capped at 20% of net assets each month. MSCI naturally refused to include shares in its index that could not be freely bought and sold, and Beijing was slow to change the system to address those concerns.

The index operator has also looked askance at Chinese listed companies’ ability to halt trading of their shares at will — an option that, at one point, roughly 50% of companies had taken. A need for prior approval to create products incorporating A-shares also left MSCI leery.

Dividends in Japan double from financial-crisis low

Japan’s publicly traded companies continue to return more profit to shareholders, with dividends headed toward a record 11.8 trillion yen ($104 billion) for fiscal 2016.

Payouts are on track to rise for a seventh straight year, climbing 7% from fiscal 2015 and doubling from the fiscal 2009 low in the wake of the global financial crisis. More than 600, or roughly 30%, of the companies with March book-closings plan to resume or increase dividends, as overall corporate profit looks set to reach a new high this fiscal year. Figures are based on Nikkei calculations of distributed and planned payouts.

 KDDI boosted its projected full-year payout earlier this month to 85 yen per share, up 15 yen from a year earlier and 5 yen more than previously planned. The mobile carrier is expected to report a record profit on the strength of increased data revenue.

The recovery in the resource market has put trading houses and related companies in a position to raise dividends as well. Mitsubishi Corp. had reported its first-ever net loss in fiscal 2015, hit by impairment charges from resource concessions. But with earnings rebounding sharply, the company plans to hike the full-year payout to 70 yen per share — up 20 yen from the prior year and equal to the previous high.

Advantest is among those boosting its payout ratio, or the portion of profit distributed as dividends. The manufacturer of chip-testing equipment is lifting the minimum ratio to 30% from 20% on a consolidated basis.

“We need to raise shareholder returns in order to retain long-term investors,” President Yoshiaki Yoshida said.

Tokyo Seimitsu, which produces chipmaking equipment, will increase its payout ratio and raise dividends even though net profit is projected to decline.

Retail investors directly hold just under 20% of listed companies’ shares, based on surveys by the Tokyo Stock Exchange and others. This means roughly 2 trillion yen will flow into pocketbooks, helping to underpin consumer spending.

Increased dividends help improve capital efficiency, a factor that can lead share prices higher.

“The ability of Japanese companies to sustain generous shareholder returns will influence the direction of Japan’s stock market,” said Kengo Nishiyama of Nomura Securities.

Overnight US Market :Dow closed +143 points.S&P 500 up 12 points.

Stocks around the world continued to push higher Monday, and U.S. indexes again hit records. Bond yields climbed.

The Standard & Poor’s 500 index rose 12.15 points, or 0.5%, to close at a record 2,328.25 and topped $20 trillion in market value for the first time ever. The Dow Jones industrial average rose 142.79 points, or 0.7%, to an all-time closing high of 20,412.16. The Nasdaq composite gained 29.83 points, or 0.5%, to a record 5,763.96.

Treasury yields also rose as the yield on the 10-year Treasury note rose to 2.43% from 2.41% late Friday. Two-year and 30-year Treasury yields also notched higher.

Roughly five stocks rose for every three that fell on the New York Stock Exchange. Financial stocks helped lead the way, and those in the S&P 500 rose 1.3%. That’s the largest gain among the 11 sectors that make up the index. Raw-material producers and industrial companies were also strong.

Stocks resumed their upward climb last week after stalling for a couple weeks. Strong earnings reports have helped drive the gains. The majority of companies in the S&P 500 that have reported fourth-quarter earnings so far, 69%, have beaten Wall Street’s expectations, according to S&P Global Market Intelligence. It’s mostly come through companies keeping control of costs better than analysts were forecasting.

RED ALERT – China Shocker: A Quarter Of All Companies Can’t Pay The Interest On Their Debt

Almost exactly one year ago, we reported that as a result of the commodity crash of 2015, more than half of Chinese companies in the commodity sector did not generate enough cash flow to pay the interest on their debt. Months later this has manifested in a countrywide push for debt-for-equity exchanges, and outright bankruptcies including the first ever liquidation of a Chinese state-owned enterprise.

While dramatic, the question remained: what about other Chinese companies not directly involved in the commodity space? We now know the answer: according to Reuters, profits at roughly a quarter of all Chinese companies were too low in the first half of this year to cover their debt servicing obligations, i.e., merely the mandatory interest payment let along debt maturities, as earnings languish and loan burdens increase. Read More 

Alphabet tops Apple as world’s most valuable group

It is a duel of the tech behemoths.

Google parent Alphabet briefly became the world’s most valuable publicly-traded company by market value on Thursday as the sell-off in Apple’s shares this year continued.

Apple’s shares dropped as much as 3 per cent on Thursday, extending the iPhone maker’s drop this year to 14.7 per cent, and bringing its market value down to $492.2bn.

The shares of Alphabet, meanwhile, were little changed, leaving the California-based company’s market value at $492.6bn.

The last time Alphabet’s market value topped Apple’s on a closing basis was on February 2, according to Bloomberg data. However, Apple had managed to regain its lead until Thursday.

Apple’s shares have been hit hard by worries that sales of the iPhone, its flagship product, may start to wane as consumers in developed markets find fewer reasons to upgrade their smartphones, and a slowdown in major emerging markets, like China, reduces demand.

Goldman Sachs – Iron Ore is going back to $35

Bloomberg  with a report on a Goldman Sachs analyst on iron ore

  • “We think this market will go back to $35 during the fourth quarter”
  • “Our expectation is the oversupply in the iron ore market will return”
  • “Going into the second half of the year, what are you going to need to absorb all that iron ore supply?”
(The $35 forecast is for average prices in the final three months, and repeats a figure given by the bank in recent reports)

ALERT : China stock market regulator announces new rules governing share sales

China China Securities Regulatory Commission (CSRC)

  • Major shareholders of listed companies restricted to selling maximum 1% of their holdings in single entity via competitive bidding process every three months
  • Major shareholders should file share sale plan 15 days in advance of sale
  • Share sale regulation effective on January 9

CSRC says these new rules will ease panic sentiment

  • Will help stabilise market expectations
  • new rules do not mean China Securites Finance Corp. will exit the market

(China Securites Finance Corp. is the government support/buyer of stocks … i.e. the PPT)

India : Highly leveraged companies’ number jumps to 15.3% from 13.6%: RBI

The number of “highly leveraged” companies rose to 15.3% as of September 2015 from 13.6% a year ago, says a RBI report.

“The proportion of companies among the leveraged companies with debt equity ratio (DER) greater than or equal to (>=) 3, termed as ‘highly leveraged’, increased from 13.6% in September 2014 to 15.3% in September 2015,” the central bank said in its Financial Stability Report (FSR).

The share of debt of these companies in the total debt increased from 22.9% to 24.9%, it added.

The report said the proportion of companies with negative net worth or DER >=2, termed as ‘leveraged’, shot up over the last three-and-a-half years from 18.4% in September 2014 to 19.4% in September 2015.

“Their share in the total debt of all companies in the sample marginally declined to 30.5% in September 2015 from 33.8% in March 2015.”

The FSR report analysed the performance of the corporate sector using select non-government non-financial (NGNF) listed companies for the period FY11 to FY16.

The result indicated that after deterioration in the first quarter of FY16, critical performance parameters such as operating profit, EBITDA, net profit and interest coverage ratio (ICR) showed improvement in the second quarter.

China’s ‘national team’ owns 6% of stock market – $4.2 Trillion bourses into state hands.

China’s “national team” owns at least 6 per cent of the mainland stock market following the summer rescue to prop up prices, putting even more of the $4.2tn bourses into state hands.

Government rescue funds were corralled into buying shares when the equity markets went into meltdown over summer. The intervention succeeded in propping up prices: the Shanghai Composite index has since recovered by 28 per cent from its late August low point.

The two state financial institutions that led the stock market bailout in July and August increased their ownership of the Shanghai and Shenzhen exchanges from 4.6 per cent of total tradeable A-share market capitalisation at the end of June to 5.6 per cent three months later, according to Wind, a financial database.

The figures are compiled from quarterly financial statements of listed companies, which are required to disclose their 10 largest shareholders. The actual size of national team holdings is probably larger, given some likely hold stakes that are too small to rank among the top 10.

The government cash infusion came after the Shanghai Composite index fell more than 40 per cent from its seven-year high on June 12 through late August.

The estimate of the shareholdings of the national team covers positions held by China Securities Finance Corp, the state-owned margin lender and main conduit for the injection of government funds. The market value of CSF’s holdings increased from only Rmb692m ($108m) at the end of June to Rmb616bn three months later. It owned 742 different stocks, up from only two stocks three months earlier.

Also included are stakes held by Central Huijin Investment, the holding company for shares in state-owned financial institutions and subsidiary of China’s sovereign wealth fund. In spite of Huijin’s additional share purchases in the third quarter, the market value of its holdings fell by Rmb167bn in the period to Rmb2tn, mostly reflecting mark-to-market losses on shares it previously held.

Sebi’s new insider trading rules to cover Parliament

The Securities and Exchange Board of India’s revised norms may bring public servants, such as government employees who may have access to price-sensitive information, under the ambit of the insider trading regulations.

A report prepared by the eighteen-member insider trading committee headed by Justice N. K. Sodhi has recommended bringing such individuals under the ambit of the law.

“A new feature of the Proposed Regulations is that of treating public servants and persons holding statutory positions that are reasonably expected to have access to UPSI as connected persons and thereby prohibit them from trading when in possession of UPSI (Unpublished Price Sensitive Information),” said the report.

Examples of such public servants include those involved in formulating policy which could impact a company’s shares. This could include pricing policy for a natural resource or a decision on the cap on foreign investment in a specific sector. They also cover judges presiding over matters which may have an impact on a company’s stock price or

The report has said ‘public servant’ would have the same meaning as given in the Prevention of Corruption Act, 1988. A member of the insider trading committee confirmed that the draft regulations would also cover members of Parliament/state Assemblies as well as ministers.

The Act defines a public servant as ‘any person in the service or pay of the Government or remunerated by the Government by fees or commission for the performance of any public duty.’ Read More