Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Categorized | Capital Markets

Why an O2 IPO could be a big hit

Posted on September 23, 2016


A good rule for the cautious investor is never buy a share until the company has been publicly listed for at least a year — or two for businesses being sold by private equity. These holders are natural sellers and their skills include prettying up companies first. They have no long-term interest in the prospects for the business, and they know much more about those prospects than you do.

Rising share prices have presented the opportunity to the owners of Misys, Biffa and Hollywood Bowl among others. It may be that Misys is so transformed that a financial software business bought for £1.2bn in 2012 is worth £5.5bn today, or that this time, waste disposal really will prove that where there’s muck there’s money, or that we are going back to the future with sweaty shoes and tenpin bowling.

    However, there is an exception to test every rule, and this year’s monster flotation, O2, may be it. We have the inestimable Margrethe Vestager, the European Union competition commissioner who vetoed the purchase of O2 by 3 to thank for the opportunity. This ’orrible merger would have cut the number of significant players in UK mobile telecoms from four to three, something that is self-evidently anti-competitive.

    O2’s owner, Telefónica of Spain, is essentially a forced seller, struggling under a €53bn debt mountain. It has yet to commit formally to a public offering, but is widely expected to float the business this autumn. The price agreed with 3 was £10.25bn, which provides a good idea of the float valuation. Telefónica has said it plans to keep a majority holding, another powerful incentive to see share trading off to a good start, since it would make the rest easier to sell in the future.

    The offer also presents a fine chance to win some customer loyalty in an industry which generally treats users with indifference bordering on contempt. Unfortunately a retail offer, let alone one targeted at O2’s 25m customers, is unlikely because the bankers see it as too much like hard work. Still, a big company priced to go is a rarity. Pay attention.

    How to get Grayling off the hook

    Whisper it, but the government may actually decide where to build London’s next runway. There is something of a high-stakes poker game going on at Heathrow, between the official proposal (a third runway) and the unofficial “Heathrow Hub” which extends one, and potentially both, runways westward. The Hub is much cheaper, would cut the early morning aircraft noise over west London, and redeem the previous PM’s promise of “no third runway.”

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    Heathrow’s owners have cold-shouldered the hub. Ferrovial of Spain overpaid for BAA, the airport’s owner, in 2006, and today’s shareholders also include China Investment Corporation, Qatar Holding and the Singapore government. A go-ahead for the third runway would dramatically raise the airport’s Regulated Asset Base, boosting what is a lovely long-term, low-risk investment.

    However, Gatwick is winning the PR battle, and the danger for Heathrow’s shareholders is that the best may be the enemy of the good. Were they to formally embrace the hub as an acceptable second-best expansion, they might yet allow transport minister Chris Grayling to announce an elegant solution to this interminable problem.

    Mine’s a gamble, not an investment

    Now that shares in the big mining companies have soared from their January lows, the analysts are saying investors should buy them. There is something about this industry which wrongfoots experts and executives alike, as illustrated by the boom-bust-recovery at Glencore.

    Floated in 2011 at the peak of the commodity boom, the shares dribbled down from 550p to a little more than 300p in 2014. Claiming they were cheap, the company then spent the next year and $1bn buying its own shares. They were nothing of the kind, and six months later Glencore was forced into an emergency equity issue to raise more than twice as much at less than half the price.

    Last week Société Générale decided Glencore shares were cheap at 180p and this week Liberum agreed that they were now too expensive to sell (sic) at today’s 210p. Goodness, dividend payments might even resume next year. Plenty of scope for trading, then, but please don’t call it investment.