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Will Spain test limits of Europe's bailout fund? Add to ...

These are stories Report on Business is following Monday, July 23, 2012.

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Spain in the eye of the storm
You probably didn't think it was safe to go back in the water, but just in case you did, the Europe debt crisis has flared up again. And it's a fire today.

Spanish bond yields spiked, and markets tanked, amid reports that several regions of the embattled nation will need individual bailouts. This follows a request by Valencia last week.

"The fear now is that Valencia’s aid request is more than likely to open the floodgates for similar requests from the other 17 heavily indebted Spanish regions," said senior analyst Michael Hewson of CMC Markets.

"Already speculation is increasing that Catalonia, or any one of a number of regions will be next. When that happens it will be pretty much nailed on that the Spanish government will then eventually need a bailout itself, stretching the funds of the [bailout fund] to its limits."

Global markets are plunging today in response.

"Markets are under heavy pressure this morning as Europe’s sovereign debt crisis has again reared its ugly head," said Robert Kavcic of BMO Nesbitt Burns.

"Spanish 10-year yields are up 22 basis points to a new high of 7.49 per cent amid concerns that the country’s regions are in need of financial assistance," he said in a research note.

"Late last week, Valencia sought a bailout, and now there are a reported six regions that have admitted to needing assistance, including relatively prosperous Catalonia - Spain’s regions need €26.4-billion to cover maturing debt this year and finance deficits, according to ministry documents cited by Bloomberg. And, apparently caught up in the heightened risk aversion, Slovenia is also teetering on a bailout as its banks face rising loan delinquencies and the country struggles to control its deficit of more than 6 per cent of GDP."

Tokyo's Nikkei shed 1.9 per cent, and Hong Kong's Hang Seng 3 per cent. In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were down by between 2.4 per cent and 3.1 per cent by about 9 a.m. ET.

Dow Jones industrial average and S&P 500 futures were also down.

"After staying out of the spotlight in recent weeks, concerns over euro zone debt have returned with predictable consequences for the markets," said David Jones, chief market strategist at IG Index in London, adding that questions about whether or not Greece will receive further IMF aid are also weighing on investors.

"The net result of this for stock markets so far has been a steep dive, with the FTSE back to where it was at the end of June, although some traders are hoping that the 5550 area ends up being some sort of a  temporary floor," said the London strategist.

"Those of a superstitious nature may be drawing parallels with this time last year, when heightened concerns about Greece saw the FTSE lose 1000 points in the first two weeks of August.There is nothing to

CNOOC gets Canadian
China's CNOOC Ltd. is flying a distinctly Canadian flag as it moves for government approval of its $15.1-billion (U.S.) bid for Nexen Inc.

Today's deal for the Canadian energy giant is the biggest step China has taken yet into Canada's oil patch, and both companies are bending over backwards to show the benefits for the target country, while much of Nexen's production is outside Canada anyway.

As The Globe and Mail's Nathan VanderKlippe reports, CNOOC and Nexen today unveiled a blockbuster deal that would pay shareholders $27.50 a share, more than 60 per cent above Friday's closing price on the New York Stock Exchange.

CNOOC pledged today to make Calgary the headquarters of its North American and Central American businesses if it succeeds in its quest. That headquarters, in turn, would continue to manage Nexen's global operations, and CNOOC's business in the oil patch, already at some $8-billion.

Current management and employees would stay with the company, spending would be increased, and the Chinese company would be listed on the Toronto Stock Exchange.

"We believe the transaction provides a number of significant benefits to Canada and to Nexen," said CNOOC's chief executive officer Li Fanrong.

"CNOOC Ltd. looks forward to welcoming all of Nexen’s employees to its worldwide team, and we will clearly benefit from having Nexen employees play an important part in our international business growth platform. In addition, the transaction is a reflection of our disciplined M&A strategy which is focused on resources, risk and return."

CNOOC noted it has already invested some $2.8-billion (Canadian) in Canada since 2005, including interests in MEG Energy Inc. and OPTI Canada Inc.

Talisman sells British stake
Canada's Talisman Energy Inc. is selling a 49-per-cent stake in its British North Sea operations to Sinopec International Petroleum Exploration and Production Co. for $1.5-billion.

As Monday's two Chinese deals illustrate, Beijing continues to move forcefully into natural resources.

"We are very pleased to reach this agreement with Sinopec for the next phase of development of our UK North Sea assets," said John A. Manzoni, President and CEO. "This will provide additional resources and energy to the talented team on the ground, creating an exciting future for this portfolio," said Talisman's chief executive officer John Manzoni.

"Collectively, we will invest more in the U.K. than Talisman would have on its own, leading to a stronger, more sustainable business."

This follows Talisman's pledge to cut its interest and spending on the British operations by about half. "This brings our total divestment proceeds to approximately $2.5-billion so far this year," Mr. Manzoni said. "We plan to utilize approximately $500-million of the proceeds from this sale to repurchase shares."

Watsa boosts RIM stake
Here's a little something for all the naysayers: Someone loves Research In Motion Ltd.

That would be Prem Watsa, whose Fairfax Financial Holdings Ltd. has just about doubled its stake in the BlackBerry maker to almost 10 per cent.

As The Globe and Mail's Tara Perkins reports today, Fairfax now becomes RIM's biggest shareholder.

"We’ve averaged down our cost," Mr. Watsa, Fairfax's CEO, told Ms. Perkins.

"As [famed investor] John Templeton said: ‘The best investments are made at the point of maximum pessimism. We don’t know if RIM has reached that point, but we figure it’s pretty close."

 

 
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