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Monthly Archives: April 2019

iSelect looking to raise more than $25m

INSURANCE broker iSelect is seeking to raise more money before a sharemarket listing or trade sale next year.
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The raising follows the appointment of former corporate development head David Chalmers as chief financial officer last month, and the appointment of Greg Camm, formerly of ANZ Banking Group and AMP, as a director.

With its punchy ads and relatively long history, iSelect is Australia’s biggest insurance infomediary and has long been considered likely to float. The raising would value the 12-year-old business at more than $350 million.

The bid to raise more than $25 million at $18.50 a share this week comes as iSelect reported $112 million in revenue for the 2012 financial year, and earnings before interest, taxation, depreciation and amortisation of $24.1 million. Both were up on the previous year.

Health funds, which insure about half of Australians, were rocked this year by the federal government’s decision to means-test the private health insurance rebate from July.

Health insiders say the consequences of this decision won’t be known until the second half of 2013, when prepaid policies expire and policyholders must choose to either retain, dump or downgrade their coverage in the face of large effective price rises.

But iSelect said yesterday that regardless of the impact of means-testing, it believed its fundamentals were strong and a sale in the first six months of 2013 was a possibility.

Health insurance provides the bulk of iSelect’s business, but the Melbourne-based business also helps people choose between products in car, life and travel insurance, broadband, utilities and home loans.

It makes money through one-off payments from service providers for the recruitment of new members and through trail commissions over the life of policies. The federal government’s Future of Financial Advice laws have banned trail commissions to financial planners.

Last month, listed health insurer NIB said that health funds ought to get used to customers chopping and changing their policies. Twenty-two per cent of NIB’s health insurance sales for the year to June came from insurance brokers, more than double the previous year.

Although between 15 and 20 per cent of people switching their policy or new to health insurance use iSelect, Australia’s two largest health funds, Medibank and Bupa, largely bypass the channel.

This story Administrator ready to work first appeared on Nanjing Night Net.

Iron ore surge puts Fortescue ‘on front foot’

A RESURGENT iron ore price should allow Fortescue to push back against its banks and avoid breaching covenants, investors say.
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Fortescue is due to come out of a trading halt today, imposed on Friday after a leaked report the previous day that it was seeking relief from its loan covenants.

One source told BusinessDay that last week’s media leak came from a bank trying to lower the price of entry to Merrill Lynch’s $1.5 billion loan syndicate.

The source expected Fortescue would shortly announce it had gained covenant relief and that Merrill Lynch had completed its loan syndication.

Credit Suisse analyst Matthew Hope yesterday said Fortescue was ”on the front foot now”.

With the Chinese government announcing new infrastructure spending and the steel mills’ buying strike over, alongside the US Federal Reserve’s QE3 (quantitative easing) program and fresh measures to gain control of Europe’s sovereign debt crisis, Mr Hope said it was ”a big positive week, last week”.

After Friday’s recovery in the iron ore price back above $US101.50 a tonne, he said, Fortescue could ”push back” on its lenders.

Mr Hope said most loan covenants were backward-looking – that is, they related to historical earnings – and, given the next test would come on December 31, would be based on the company’s most recent accounts released in August, so it would be some time before any breach became evident.

But Anna Kassianos, resources and energy analyst for Platypus Asset Management, remained wary, saying the company was still vulnerable should iron ore prices fall again.

She said it would take an equity investment at a premium by an off-take partner like Baosteel, or a strategic investor like Glencore, to make Fortescue a more attractive investment.

If Baosteel invested it would show they ”really believed in a sustained recovery of the iron ore price”, Ms Kassianos said.

Glencore, she said, had always coveted a stake in iron ore and, with Mick Davis likely to lose control should the takeover of Xstrata succeed, its emphasis would shift to shelving capital spending on longer-term expansion projects and aiming for shorter-term gains.

Fortescue was a more attractive takeover target for the likes of Glencore since last Friday’s victory in the High Court, which could give it access to Rio Tinto’s rail lines in the Pilbara, she said.

This story Administrator ready to work first appeared on Nanjing Night Net.

World’s central banks shout: Aussie, Aussie, Aussie!

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UP TO 23 central banks from around the globe have included Australian dollar assets in their foreign exchange reserves, underlining the wide appeal the currency holds among overseas investors.

In a sign this interest goes beyond major trading partners, central banks that hold the dollar range from the National Bank of Kazakhstan to Sweden’s Sveriges Riksbank, an internal Reserve Bank document shows.

The document, released yesterday under Freedom of Information laws, said 15 central banks held Aussie dollar assets and a further eight could possibly be holding the currency. Some of the larger institutions holding the dollar include Germany’s Bundesbank and the central banks of Switzerland, Hong Kong and Russia.

Central banks that may have invested in the dollar include those of Indonesia, Iceland, Jordan and Moldova, the document said.

Central banks, which have historically invested heavily in euros and US dollars, are looking to diversify in response to the dour outlook in these economies.

Chief currency strategist at Westpac, Robert Rennie, said Australia’s AAA credit rating and strong economic outlook was an attractive combination for investors, when compared with many other nations.

”It’s entirely logical that central banks are looking away from the traditional US dollar and euro cores in their portfolios,” he said.

Such strong interest among foreign investors is one reason for the dollar’s resilience despite a weaker economic outlook and falling commodity prices, economists say.

Foreigners held 77 per cent of Australia’s $245 billion government debt in the June quarter, just below a record 79 per cent in March.

In a separate document, written in April and released yesterday, Chris Potter from the Reserve’s international department wrote: ”The apparent preference shift and resulting portfolio shift of foreign investors towards Australian dollar government securities has increased Australian dollar demand.”

Yesterday’s documents, released after an FOI request from Bloomberg News, also show the bank has been examining if the dollar may be overvalued – a complaint of some manufacturing employers and unions.

A briefing titled ”Is the Australian Dollar Overvalued?” was prepared in February, but was redacted except for a comment that ”strong $A demand from foreign central bank purchases” had supported the currency.

This story Administrator ready to work first appeared on Nanjing Night Net.

Now, mining services in the frame

THE spotlight has swung firmly onto mining services companies after Macmahon Holdings requested a trading halt in preparation for a downgrade on the bullish 20 per cent increase in profit guidance that it issued last month.
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The board will meet today to discuss the impact on profit guidance of one particular project and the outlook for $4.1 billion in construction projects under tender, given a number of major mining projects, including Gina Rinehart’s $10 billion Roy Hill iron ore project, will potentially be delayed until conditions stabilise.

Almost 25 per cent of Macmahon’s client base is government-related, and as resources companies are

making decisions to delay projects, governments are reducing their infrastructure work.

The issue for mining services companies is that when projects are put on hold, even for a short time, the pricing on the contracts will be reset, which means there will be an inevitable crunch on profit margins.

Macmahon is not alone. Others in the sector – including Ausdrill, Boart Longyear, NRW Holdings, UGL, Bradken, Emeco and Sedgman – have seen their shares decimated in the past few weeks as investors dumped stock in preparation for the loss of future projects. Not surprisingly, hedge funds have targeted the sector.

Construction giant Leighton Holdings was the exception yesterday, standing out like a beacon as its shares surged more than 8 per cent on rumours that French-based construction group Vinci SA was toying with the idea of making a bid for Leighton’s major shareholder, Germany’s Hochtief, or Hochtief’s major shareholder, Spain’s ACS, which would ultimately put Leighton in play. The speculation came from an interview with the boss of Vinci in a German edition of the Financial Times and was then picked up by Bloomberg and spread throughout the market.

The speculation was given added credence due to the debt-laden state of ACS, which is carrying more than €9 billion ($11 billion) of debt, and which recently sold some valuable assets to help pay down some of the debt. Since ACS bought into Hochtief, mainly to gain access to the jewel in the crown, Leighton, the Leighton operations have been a massive disappointment, both stock price wise, profit wise and from a capital perspective.

But the ownership structure is complicated and any takeover of Leighton would not be straightforward.

Meanwhile, it has taken the focus off Leighton’s exposure to the mining sector, as miners are being forced to reassess some of their projects and expansion plans in light of the uncertainty gripping China.

It might sound simplistic but miners have been caught out by the fact that costs remain too high at a time when commodity prices have been falling.

When commodity prices are rising, miners become production driven at any cost, and when commodity prices fall, the headroom closes between the cost of production and sale price, and resources companies become more cost and production driven. Mining services companies get caught in the crossfire with their work cut back and margins squeezed.

It is a situation that has been going on for months, but the hope has been that commodity prices would spike back up and China’s economic growth would spurt ahead.

Instead, volatility and uncertainty are featuring into the equation, forcing companies exposed to the mining sector to bring it to account now.

BHP Billiton opened the floodgates on what was going on when it finally announced it was mothballing two big projects, including the $30 billion Olympic Dam expansion. Then came Nathan Tinkler with reports of his various financial woes, and Fortescue Metals Group, which spooked the market two weeks ago when it pared back its expansion plans, sacked staff and announced the sale of one of its assets. Fortescue’s more recent revelations that it is in discussions with its key banks to allow a waiver of its debt covenants next year has done little to bolster confidence in the sector.

Last week, NRW Holdings went into a trading halt after Fortescue announced it had delayed its expansion plans. When it returned to trading, it revised down its revenue for 2013 and its growth prospects.

The world’s biggest drilling company, Boart Longyear, also warned it was revising down its earnings and revenue outlook.

The word is Fortescue’s banks will capitulate but will attach certain conditions on the iron ore miner, including agreements that it won’t pay dividends. It is also likely to announce an equity issue when its share price recovers to provide a buffer for the debt holders.

In the past few weeks, more and more mining companies have started to review projects with a view to putting some of them on hold until they can gauge what is going on in China. Rinehart’s Roy Hill iron ore project is being wound back and, last week, it was reported that it unofficially told some Early Contractor Involvement (ECI) clients to stop work. The ECIs have been bracing themselves for an official letter.

Meanwhile, everyone is watching and waiting for the next move, with China taking centre stage.

This story Administrator ready to work first appeared on Nanjing Night Net.

Romney firm reputed to be awaiting Allans coda

THE former boss of stricken music retailer Allans Billy Hyde believes a buyer may still be found for the business even though receivers have started shutting it down.
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Market sources said Bain Capital, the private equity firm founded by US presidential candidate Mitt Romney, was among potential buyers circling the group.

”A number of discussions are ongoing with interested parties,” said John Helme, the former joint managing director of the chain’s owner, Australian Music Group Holdings.

He declined to comment on whether Bain was among those interested parties, but criticised the decision last week of receivers Ferrier Hodgson to start the process of shutting down AMG’s 24 company-owned stores across Australia.

”Last week’s news was premature from our perspective,” he said.

”We remain hopeful that there will be a credible buyer. With such an iconic business you have to question such a hasty decision.”

A Ferrier Hodgson spokesman declined to comment.

Ferrier Hodgson partners James Stewart and Brendan Richards were appointed receivers of the struggling group on August 23 by secured creditor Revere Capital, owed about $27 million. Revere is a subsidiary of Valco Capital Partners, the private equity arm of retail shutdown specialists Hilco.

Last Wednesday, after failing to sell the business as a going concern, Mr Stewart announced a clearance sale to get rid of AMG’s stock, valued at about $45 million, after which the stores will be shut down.

Its 56 head office employees were made redundant as part of preparations for the eventual shutdown of the entire business, which employs about 610 people in its stores.

AMG lost $40.9 million in the year to July 3, 2011, the latest period for which accounts are available.

This story Administrator ready to work first appeared on Nanjing Night Net.